From crisis currency to consumer adoption: What next for crypto?

Transcript

Angie Lau: The Russia-Ukraine conflict has been top of everyone’s minds, but a third participant, crypto, has emerged in the story, grabbing headlines all over the world. When traditional fundraising means fail, it was crypto to the rescue. When people found themselves unable to use their bank accounts or Google Pay, many found refuge in crypto.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau.

Today we’re in conversation with Michael Wu, CEO and co-founder of Amber Group, to talk about what crypto has come to mean in this escalation, and all the things that are happening in the blockchain and cryptocurrency space in 2022. I really appreciate you joining us, Michael.

Michael Wu: Thank you, Angie, for having me.

Lau: Well, I want to kick things off with blockchain’s potential. Right now, we’re seeing it in full stream in a crisis situation right now in Ukraine. You and I talk often, and you mentioned in one of our recent interviews that crypto is a great tool for humanitarian efforts such as war relief. What do you think of that idea? What makes crypto more suitable for a crisis than fiat currencies, would you say?

Wu: I think it’s the idea that it’s a global currency, in a way, so, as opposed to any particular fiat currency, there are also currencies that have lots of capital control restrictions. If you have crypto, or if you’re already in the crypto world or with your wallets, with your accounts, it’s very easy to transfer or wire money to anywhere in the world, and particularly to help anyone in need.

And also, in a way, nowadays, as adoption increases, it’s more and more of a globally accepted currency, as well. You can use it for payments in many different places, and there tend to be fiat on- and off-ramps in almost every currency. So, therefore, as I said, it’s a global currency. And also, the whole wiring, the whole transferring, is immediate with most blockchains. You can almost immediately wire, and the recipient almost immediately receives that, so that takes out an extra layer of uncertainty when it comes to things like humanitarian donations etc.

Lau: I can only imagine the world was really surprised by the invasion of Ukraine. What were the thoughts, as you, leading in this industry at Amber Group, when you took a look at all of your interests with customers all around the globe. What was your immediate reaction to the crisis in Ukraine?

Wu: It’s definitely very sad. I mean, a war is very heartbreaking, and my immediate thoughts, of course, were with all the people affected by the war, and the whole world does whatever it helps to help relieve the situation. And we’re also living in a world today that’s very divided. I think there are people losing control of more and more things. That’s very unfortunate, so I immediately felt very, very bad about the situation.

Lau: There were also immediate calls for exchanges and other blockchain firms and cryptocurrency interests to really clamp down and participate by carving out Russian interests, by ceasing activity by Russian-based accounts and the like. Did that ever cross your mind?

Wu: We’re globally compliant and regulated firms, so we will have to follow whatever the international standard is when it comes to compliance — AML (anti-money laundering) sanctions etc. — in this particular case… whatever  global rules and regulations were put out. We’re a firm that’s compliant with global regulations, and we’ll have to follow them.

Lau: Well, let’s talk about the humanitarian potential of cryptocurrencies here, because I think that’s something that we’re all seeing in the industry right now. And in real time, we’re seeing how cryptocurrencies are being used and potentially setting precedents for the future. Stablecoins have also received a lot of attention lately as safe-haven digital assets without the high volatility of cryptocurrencies like Bitcoin and Ethereum.

How do stablecoins, in your view, Michael, compare to legacy safe-haven assets like gold and government bonds? What’s the upside of stablecoins in emergency situations, as you’re seeing play out in the market?

Wu: I think when we’re talking about stablecoins, essentially you have to understand, in a sense, they are fiat dollars mapped over to the blockchain. But by mapping them over to the blockchain, you make them crypto assets. You immediately bring a lot of additional benefits to the dollar, such as it becomes more easily transferable, accessible… and (there’s an) inherent higher return on it because of the structural interest rate arbitrage we’ve talked about before between crypto assets and fiat assets.

And also, in terms of being a safe-haven asset, I think globally the U.S. dollar is a safe-haven asset, when it comes to crises like this. And, in many places in the world, people don’t have access to dollars easily, at least among the ‘commoners.’ And therefore, I think dollar stablecoins also offer very easy, convenient access to dollars, and an easy, convenient way for people to hold their own dollars in dollar stablecoin terms, and even earn interest.

Lau: And beyond even just stablecoins and cryptocurrency, we’re also seeing blockchain proving to be a versatile financial tool in crisis situations. We’ve recently seen the emergence of the Ukraine DAO. This is a decentralized autonomous organization dedicated to helping Ukrainians and civilians in the military, for example. In your view, will the Ukraine DAO represent a turning point for blockchain and decentralized autonomous organizations? It really is using blockchain technology to help those most in need almost immediately.

Wu: I think it’s definitely a very interesting and important event in the development of DAOs. I think this is the first time it’s been brought to the main stage in a global political setting, with government sort of endorsing or participating in it. I think this, again, is both proof and another catalyst for further adoption of crypto finance technologies such as the DAO. Whether it’s a turning point, I guess depends on how you define that, but I think this potentially could be a catalyst for more adoption, for sure.

Lau: Well, to that point, according to Circle CEO Jeremy Allaire… he says exactly that —  that Russia’s war with Ukraine has become a catalyst for crypto adoption. When you think about that, do you think there’s a growing focus on crypto’s potential for aid distribution? Now that we’re seeing the real-life impact of crypto in a humanitarian crisis, do you think it’ll receive a brighter spotlight in emergency situations as a catalyst, maybe more broadly for using the technology more globally?

Wu: For sure, and I think it definitely helps in all kinds of humanitarian efforts, whether in emergency situations or day-to-day continuous efforts. One area we always promote is sustainability investing, where, in the West, (there’s) the power of crypto finance and blockchain technology. I think people can participate in sustainability efforts every day, and we’re in the final stage of being about to launch a few products that will support people in doing that. And besides that, of course, in all kinds of charity efforts, I think there are more and more donations happening in the form of crypto, and there are more and more NGOs, global humanitarian programs, that accept crypto as a form of donation. Who knows, one day very soon, we could have all of them also running their own DAOs.

And I think, again, this shows both the power of crypto adoption and also, in terms of more use cases in these charity, sustainability or humanitarian efforts, I think crypto finance, as the underlying technology, will enable us to — what we often call on our platform ‘WhaleFin’ — do good to the world while doing well financially.

Lau: To your point, it’s about the power of adoption, the power of crypto as a financial vehicle, and the power of innovation.  

Well, crypto market movement, major coins — Bitcoin, ETH, Cardano, Solana — looked quite volatile following Russia’s incursion, moving similarly to other risky assets. If one’s taking a medium-term view, where do you see, Michael, the market heading in the next few months? Do you expect the same level of price volatility we’re experiencing right now?

Wu: If anything, I don’t expect the same price level. I think there will certainly be a lot of volatility. In terms of long-term or even medium-term directions, I think I’m always quite clear in my view that crypto is here to grow, not only to stay, so, therefore, in blue-chip assets like Bitcoin, Ethereum, I think the price will go up over time. I think we’re still quite early in the adoption cycle. I think crypto, or Bitcoin at least, itself should be more than a US$10 trillion asset at some point.

In the very medium term — let’s call it the next few months — there are just too many uncertainties. Now, very unfortunately, there’s a war happening, and also, before that, we were in the last stage of the (U.S. Federal Reserve’s) zero interest rate cycle, and the Bank of England, in fact, has already started hiking rates, and we’re expecting six or even seven hikes this year. Now, will that change because of the war? I think potentially. But we’re also looking at global energy prices, commodity prices, flying due to a lot of the potential supply issues as the aftermath of the war and all the sanctions, so there are a lot of uncertainties, I guess. So it’s very hard to pinpoint exact timing and exactly the level for crypto prices.

However, what I will say is, again, for blue-chip assets like Bitcoin and Ethereum, every large sell-off is almost by default a buying opportunity, so you’ll see my bets laying down there on every major sell-off because I believe, in the long term, the assets are there to grow a lot more.

Lau: Yeah, I think a lot of people are in ‘buy’ territory, exactly… to your point. If you take a look at the current situation, as well, according to analysts, the drastic drop of the Russian ruble could be one of the main factors driving up Bitcoin prices. But as we all know, there are numerous factors — as you’ve said — to consider when it comes to the crypto market.

What do you see are the biggest factors currently influencing Bitcoin prices beyond the conflict between Russia and Ukraine? You’ve touched on it a little bit. You’ve talked about the Fed and the BOE (Bank of England) action. But are there other reasons that potentially we could see some price movements, backing up what we’re seeing in crypto?

Wu: Sure. I think a lot of that right now is also in the cycle of adoption. From the second half of 2020, we saw a large wave of institutional adoption. A lot of traditional big-name asset managers started to put Bitcoin on their balance sheets, on their territory. In 2021, of course, that accelerated. And I will say that was a year where we saw more and more institutional adoption, and it went from the norm for most institutions to stay away from crypto, flipping to the norm being most institutions at least open to or even already involved in crypto.

Now, clearly we enter a little bit of a correction, since the fourth quarter of 2021. And for institutions that have started to poke their fingers around crypto, we’ll see whether this is a further entry point for them, or this is where they take a pause and say, ‘Hey, guys. Let’s review this. Let’s monitor how this goes.’ I’m of the view that once things stabilize, it will be the former case. But we’re hearing different opinions or even discussions among our customer base on the institutional side, as well.

Lau: What do you think the market conditions need to be — the maturity level, potentially the ratio of institutional to retail. What do you think the market environment needs to look like before the crypto market stabilizes, before we see this excessive volatility that has been really the unique, characteristic marker of crypto.

Wu: I actually think retail and institutional adoption always have to take turns. I mean, crypto started as a grassroots retail movement, and some early institutions got involved because they saw a lot of potential. They saw a … large community of very early crypto adopters already, and clearly the early adopting institutions benefited a lot, both financially and reputationally from that. Then, of course, that led to the price increase, and more retail adoption. And then, institutions also noticed, saying, ‘Hey, we have to take this seriously.’ And you have more institutional adoption, which in turn, led to more mainstream reputation for assets like Bitcoin, and further retail adoption. So, as you can see, the cycle goes on and on.

Institutions have been more involved. We probably need more consumer adoption. And, as I’ve kept saying, we have a slightly different belief from many in the industry. Even though right now, trading and financial speculation is probably still the largest use case for crypto applications, we think, over time, that will not be the case. We think, over time, real consumer applications will dominate the crypto finance space. So, there are companies like ourselves building towards that vision, and therefore, hopefully, we can start the next wave of broader consumer adoption.

Lau: We’re going to move from the speculative phase of crypto into the more utilitarian phase — I guess you could say, the fundamentals of crypto. But I want to touch back on one of the points that you made. We often talk about the crypto winter, the volatility of the market, and we’re seeing macro events. Despite tightening by the U.S. Federal Reserve macroeconomic headwinds, we’re hearing from Bank of America that they see no signs of an impending crypto winter due to the level of — as you said — crypto user adoption.

What do you see as the main driver of future user adoption? Do you think that, right now, what we’re seeing in the conflict between Russia and Ukraine is a catalyst that forces people to see what the system truly looks like under duress, and what cryptocurrencies can offer as an alternative?

Wu: I actually think, without this current crisis, people are seeing that already. People are seeing it is, at the end of the day, a more efficient technology, and also it has been built on fundamentally more efficient technologies, anyway. I mean, the use of the internet, the automation of finance — even without crypto and blockchain — was going to happen. But crypto and blockchain sort of offer this really, really neat and scalable solution for that transition from legacy finance to more dynamic fintech, and with a lot more innovative capabilities, so I do think there are all kinds of catalysts and all kinds of accelerations for this inevitable trend.

Lau: I’ve got to ask you about some capital raising that you did recently, and what you’re going to do with all of these crypto, or dollars, funding in your war chest. Temasek fundraising — here you’ve raised US$200 million in another round of funding, valuing Amber now at US$3 billion. A unicorn for sure now. The round was led by Singapore-based Temasek, along with existing shareholders pitching in. Clearly, there’s institutional interest in Amber. What are you going to do with, No.1, investor interest — the support that you’re getting from the institutional side, and then also all of those dollars that you’ve raised? What are you going to do with that war chest?

Wu: I do think, like you said, there’s further and further institutional interest in companies like ourselves, like Amber, that bridges between this new technology, the powerful offering because of crypto finance, and the existing, broader use cases with traditional financial institutions, with average consumers etc.

In our case,  we’re very excited to bring in partners like Temasek. Being a Singapore-headquartered company, to have the support and backing of the Singapore sovereign wealth management fund is a very exciting deal for us. And, regarding the funds raised, that definitely further increases our war chest. But the company has been quite profitable since early on, so that capital will add to a lot of our existing expansion plans, but it doesn’t alter the path of them. So, I think the company is still in a fast expansion phase. We’re hiring globally, very aggressively. We’re also looking at strategic investments and acquisitions. And we’re also investing a lot in key areas such as products, security etc., so that we can better serve our global customers. And we think that’s really the most important thing. That’s way more important than fundraising or any other events — if we can really serve our customers better, really bring long-term value to them because of crypto finance innovation, because of this new Web 3.0 economy, I think that will set the company for success in the long run more than anything

Lau: You’ve previously said you’re looking to take Amber public, possibly in 2023. Is that still on the cards?

Wu: I think that’s always been an ongoing internal discussion. I mean, no decision has been made, but there have been a lot of talks externally and internally. We do have such plans. But again, this is up to a lot of things. This is up to what’s best for the company. How does it best help us in the service of our customers, and what’s the external capital market environment? We have to take all of that into consideration. So again, as I’ve always said, there’s no firm decision or firm answers there yet, because we haven’t decided internally, but this is always an option we’re looking at.

Lau: As you sit here, a final question for you, Michael. Where do you see the future of this industry going, from a financial point of view, from a financial infrastructure point of view? It feels like we’re at the crossroads, and here you are, you’re building up something for the future. Where do you see this cross-section at some point in the future?

Wu: I think crypto finance is here to grow, and I think at some point this will evolve and expand broadly, this new wave of Web 3.0 fintechs, which I think we’re already building toward. At that point, I think it’ll be beyond just what we define as crypto right now. I think it’ll be broadly digital assets or digital finance, because I think everything is being digitized as we speak. That’s probably the biggest paradigm shift in our lifetime. And therefore, eventually, I do believe the digital economy will be larger than the so-called physical or real economy. And, therefore, the financial infrastructure that serves in that digital economy will also be bigger than the financial industry right now.

Lau: And there could be a role for everyone, no doubt, at some point. Michael Wu, always a pleasure. Thank you so much for joining us on this episode of Word on the Block.

Wu: Thank you, Angie. Thanks for having me.

Lau: And thank you, everyone for joining us on this latest episode. I’m Angie Lau. Editor-in-Chief of Forkast. Until the next time.