2022 is coming to an end, and our staff at Bitcoinist decided to launch this Crypto Holiday Special to provide some perspective on the crypto industry. We will talk with multiple guests to understand this year’s highs and lows for crypto.
Zhou: “It won’t be business as usual for centralized exchanges. For one, the days of commingling users and the exchanges’ assets are long gone.”
In the spirit of Charles Dicken’s classic, “A Christmas Carol,” we’ll look into crypto from different angles, look at its possible trajectory for 2023 and find common ground amongst these different views of an industry that might support the future of finances.
We are ending our institutional round with Wei Zhou; for three years, he worked as Chief Financial Officer at the largest crypto exchange worldwide, Binance. Above the rest, this company and its current CEO, Changpeng “CZ” Zhao, heavily impacted the nascent industry and will continue to exercise influence in the coming years.
Zhou: “Bitcoin, just like the Internet, will survive any storm that comes its way; this I have no inkling of doubt about.”
Zhou reviews the biggest moment in 2022 from his unique perspective. In addition, he talks about the fundamentals that will keep crypto alive and on track to fulfill its destiny. This is what he told us:
Q: What’s the most significant difference for the crypto market today compared to Christmas 2021? Beyond the price of Bitcoin, Ethereum, and others, what changed from that moment of euphoria to today’s perpetual fear? Has there been a decline in adoption and liquidity? Are fundamentals still valid?
A: The crypto market has certainly changed a lot in the past year.
Collapse of key industry players
I think the biggest change this year has been due to the collapse of some key industry players, from Celsius, 3AC to BlockFi and most recently FTX. With billions of dollars affected, investors have become cautious. The collapse of these giants has served to remind us to be prudent and diligent with our crypto investment decisions. Users should conduct thorough research and abstain from entities whose licensing and regulatory status is unclear. I believe that the situation will change in 2023 and that investor confidence will resume, but we can’t afford to forget the lessons learned this year.
Liquidity affected but adoption will continue to grow
With the collapse of a big market maker like FTX, liquidity in the market was affected as several exchanges relied on it. Investors have also pulled quite a bit of their money from exchanges which further escalated the liquidity crunch. Speculative trading may have pulled back, but for those to whom crypto was more focused on use cases like value transfer, web3 gaming and financial inclusion, crypto adoption will continue to surge especially in the Philippines.
Q: What are the dominant narratives driving this change in market conditions? And what should be the narrative today? What are most people overlooking? We saw a major crypto exchange blowing up, a hedge fund thought to be untouchable, and an ecosystem that promised a financial utopia. Is Crypto still the future of finance, or should the community pursue a new vision?
This year’s market downturn has fueled crypto skeptics and several mainstream media houses who have become re-energized in their fight against crypto. This narrative has put doubts in the minds of investors. However, most people are overlooking that Bitcoin is designed to be a decentralized electronic currency.
Crypto is still the future of finance. If you recall, when the dot-com bubble burst, there were all manner of questions about the viability of the Internet as a technology and the companies building on it. But look at Amazon, Facebook, Google and others today – they are defining the world we live in. This is because, despite the shake-ups with the market players, the underlying technology was fundamentally transformative. Bitcoin, just like the Internet, will survive this winter.
Q: If you must choose one, what do you think was a significant moment for crypto in 2022? And will the industry feel its consequences across 2023? Where do you see the industry next Christmas? Will it survive this winter? Mainstream is once again declaring the death of the industry. Will they finally get it right?
A: I would point to the FTX collapse as a landmark moment. Its impact has been and will continue to be felt in the industry.
- Investors are keener about who they trust with their assets and how custodians and exchanges store the assets. Investors are now exploring self-custody solutions, which contrary to opinion I think is a great direction to take. When they require to trade their assets, they are now keen to work with exchanges that are fully regulated like Coins.ph which is licensed by the Philippines central bank and is regularly audited.
- Regulators are more concerned about the industry. We will also see a trend where regulators around the world will begin to create a more comprehensive regulatory framework around cryptocurrency.
The crypto industry has gone through worse. In 2017, the crypto markets peaked and crashed to $3,000, and the industry endured a three-year-long crypto winter. In 2022, we now have institutional investors who are advancing the sector, unlike during prior winters.
I believe the industry will survive because there are now much more use cases than there were in the past.
Q: What’s next for exchanges such as Binance in 2023 and beyond? Do you think the recent events with FTX will jeopardize the future of these platforms? Many are already speculating about the shift in liquidity from Centralize to Decentralize Exchanges (DEX) due to the users’ lack of confidence in the former
A: The days of commingling users and the exchanges’ assets are long gone. FTX has woken up the entire industry to the dangers this practice can have. Proof of reserves is already becoming a big trend as more investors ask questions about how and where their assets are stored.
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Regulators are also cracking down much harder on exchanges. In the Philippines, for instance, the BSP was quick to audit exchanges in order to probe if they had been exposed to the FTX contagion. Thankfully, neither Coins.ph nor our peers were exposed to FTX.
The crypto industry will be shifting to focus on Web3, decentralized exchanges and self-custody. More users are now exploring wallets that give them full ownership of their crypto. I am a big supporter of self-custody for those with the technical ability to do it successfully. When they require trade, I would advise them to always use an exchange that’s licensed and supervised by a recognized national or regional watchdog.