Navigating The Crypto Landscape: Unpacking 2023 and Gearing Up for 2024
Steven Ehrlich, the director of digital assets for Forbes, joins ‘Forbes Talks’ to give a 2023 recap of cryptocurrency and 2024 outlook.
Transcript
00:00 Hi, everyone. I'm Rosemary Miller here with Stephen Ehrlich, the Director of Digital Assets
00:07 here at Forbes, here to give us a 2023 wrap up of crypto and things we can look out for
00:14 in 2024. Thank you so much for joining me today, Steve.
00:19 Thanks, Rosemary.
00:20 Absolutely. So, Steve, with Sam Begman-Fried in jail in Changpingzao by Nancy's ousted
00:27 now, what can we expect in 2024?
00:32 It's an interesting question because I think if you ask a lot of enthusiasts in the industry,
00:39 they would like us to kind of forget that Sam Begman-Fried FTX sort of ever happened.
00:45 The month-long trial in October, in which he was convicted of multiple counts of fraud,
00:50 was a cruel reminder to some of them. But they're anxious now to kind of turn the page.
00:56 And then again, with Binance, their CEO, Changping Zao, as you said, he pled guilty, the company
01:02 pled guilty to violating various statutes of the Bank Secrecy Act. They're going to
01:08 be paying a record $4.3 billion fine to a suite of U.S. regulatory agencies. And it
01:14 appears that CZ, who Zao is more commonly known as, is going to spend perhaps up to
01:20 18 months in prison himself. That's a far cry from the 100-plus year sentence that Sam
01:25 Begman-Fried might be looking at. But it appears that at least for 18 months, those two individuals
01:32 will be very much out of sight. And again, for crypto enthusiasts, hopefully out of mind.
01:38 What does that mean for the industry as a whole? It's difficult to say. There is a broad
01:44 hope or expectation that sort of now that these sort of wild west rogue elements are
01:49 gone, that the regulatory compliant cavalry is going to ride in. They point to the expected
01:56 approval of multiple spot Bitcoin ETFs, which we've spoken about multiple times, Rosemary,
02:01 that could happen as soon as January 10th, where blue chip firms like BlackRock, Fidelity,
02:06 Invesco, Banek, billions and trillions in assets will be able to offer an easy on-ramp
02:13 for anyone to get exposure to crypto from their brokerage account.
02:18 Let me stop you right there, Steve. So that's a lot of traditional finance you just named.
02:24 Is crypto kind of leaning on traditional finance to stand these days?
02:28 A little bit. And I'm kind of glad you went into that. Actually, just finished working
02:32 on a report that I'm going to send out to subscribers of my research service for crypto
02:38 asset and blockchain advisor. And one of the things that I looked at is it's this metric
02:43 known as market dominance. The crypto market cap, basically looking at the total value
02:49 of the crypto market cap, which at least as of today is about 1.5, 1.6 trillion dollars.
02:56 Of that, Bitcoin and Ether is at the highest level that it has been basically since 2017,
03:03 right before the ICO craze started out. And what that basically means is that there's
03:07 a lot of focus, especially for this coming year, on Bitcoin and Ether and some of the
03:11 more side projects like ICOs and NFTs and DeFi and so on and so forth. They're not going
03:19 away, but they're not nearly as important as they were perhaps a couple of years ago
03:23 or during the COVID driven stimulus where everything went up across all asset classes.
03:29 So one of the things that I'm really looking forward to or really looking to watch going
03:34 into 2024 is really kind of like what does the approval of spot Bitcoin ETFs mean for
03:41 the development of the Bitcoin ecosystem as a whole? There is sort of this perception
03:45 out there that Bitcoin is this like stayed payment system without a lot of innovation,
03:54 without a lot of functionality. And that really is not the case. There are multiple networks
03:59 being built on top of Bitcoin to help make payments faster and cheaper than just the
04:04 Bitcoin network itself. There are projects such as Stacks that are trying to bring smart
04:09 contract composability onto Bitcoin. I know that's a mouthful, but what that kind of means
04:13 is that some of the projects, decentralized applications that we see on Ethereum and Solana
04:19 and other blockchains themselves might have a way to be put on top of Bitcoin. So putting
04:25 that square peg into a round hole, trying to find a way to make that fit. There are
04:29 now NFTs on top of Bitcoin, which is not something that many people thought was possible years
04:34 ago. So there's a lot of there's a lot of other elements to Bitcoin that I'm anticipating
04:40 are going to sort of sprout up, especially as more regulated institutions go into Bitcoin.
04:46 Related to your other question, though, about just like are we going to ride the coattails
04:49 of Wall Street and what does all that mean for Bitcoin and crypto in general? I think
04:54 there's a little bit of that. And I think, Rosemary, we spoke about that to some degree
04:58 when we talked about tokenization a few weeks ago. But I also believe that aside from these
05:05 ETFs, the other real thing that people want to see is clarity, regulatory clarity in the
05:10 U.S. And that's in the form of legislation coming out of Congress that can help set the
05:16 rules of the road for crypto projects, in particular, determining which federal regulator,
05:22 the CFTC or SEC, has primacy over digital assets. I don't think that's going to happen
05:27 this year. I've spoken with numerous people in Congress and congressional watchers across
05:31 both sides of the aisle. And I mean, aside from the fact that Congress is having trouble
05:36 to pass anything right now, crypto seems to be a nonstarter, if nothing else, because
05:40 the chair of the Senate Banking Committee, Sherrod Brown, just does not seem to be interested
05:45 in doing anything related to crypto. So my long answer short, I'm anticipating a big
05:52 surge in Bitcoin, a fall on surge in Ethereum and just a lot of activity around these ecosystems
06:01 to try to add more functionality.
06:04 And once upon a time, we all heard about Web3 nonstop. This was mainly when NFTs were booming.
06:10 So are we going to start hearing more about Web3, blockchain, NFTs? Is that coming up
06:16 in 2024?
06:18 So I'm glad you brought this up because Web3 can mean a lot of different things to a lot
06:23 of different people, kind of like a Rorex test, like crypto in general. I think of it
06:29 as a couple of, in a couple of ways. I mean, for one, Web3 is very commonly thought of
06:34 as this immersive, interactive internet, virtual reality, metaverse, what have you. Another
06:39 definition sort of kind of takes an extension from Web2 and creating a more, I guess, a
06:48 more equitable internet where people have more control over their personal data, their
06:53 ownership of digital assets. And they are the ones that can kind of dictate who has
06:57 access to what, for when and under what conditions.
07:03 And Web3 in particular, I think, is very much associated with NFTs. And some of that has
07:08 fallen a little bit out of favor, especially as the bear market really kind of dug its
07:13 teeth in. NFTs are actually starting to start a life a little bit just in the last month
07:18 or two, but they're still well behind Bitcoin, Ether and some of the other major alternative
07:24 currencies or alternative cryptos out there like Solana and Avalanche. I do think we're
07:29 going to see more excitement towards that, especially around gaming, where there seems
07:34 to be like an easy use case, an easy marketing pitch for people to be able to own digital
07:41 assets, weapons or clothing or whatever in games. But I think there's still a big gap
07:48 that needs to be crossed between sort of like what Web3 might look like at maturity and
07:54 sort of the embryonic stages in which it resides now.
07:58 Melissa, is there anything else on your radar regarding crypto in 2024 that you believe
08:04 should be on ours?
08:06 So there's two other items that I'm really paying attention to as we move into 2024.
08:12 One is going to be the fate of the stablecoin industry. As we've spoken about before, Rosemary,
08:17 the stablecoin industry or stablecoins are essentially digital replicas of some underlying
08:24 asset that reside on top of blockchains, most commonly the US dollar. It's about $130 billion
08:31 industry right now, and the vast majority of it is dominated by a single company called
08:36 Tether, whose sort of regulatory track record leaves something to be desired. And that's
08:44 putting it pretty, pretty mildly. They've never been audited. And there's a lot of momentum,
08:50 especially in Congress and at the Treasury Department, to try to find a way to get more
08:54 oversight over this company, especially because now that FTX is down, Binance has agreed to
09:03 a compliance or monitoring agreement for the next five years and likely will become, I
09:09 think, a shell of what it once was. Tether is sort of seen as the 800 pound gorilla in
09:14 the room that is mission critical for crypto. But there's still some important questions
09:19 that need to be asked about that. And sort of the fate of what happens to Tether is going
09:23 to sort of lean into what happens with privately issued stablecoins in general. Congress right
09:28 now is working on a bill to sort of figure out whether banks or non-bank regulated, non-bank
09:36 but still regulated financial entities can issue stablecoins and how might all that dovetail
09:41 with federally issued central bank digital currencies that get sent right from central
09:46 banks by fiat. So how all that's going to fit, because that will impact certain tokenization
09:51 projects that regulated companies run on top of blockchain, as well as the fact that stablecoins
09:57 provide necessary liquidity for crypto trading. So that's one thing. I don't know what's going
10:01 to happen, but I'm very excited to watch. The other point that I kind of want to is
10:07 something I think a little bit less on people's radars, but I think it's important. One of
10:12 the reasons why I think as much as there was a crackdown in Washington and other capitals
10:18 surrounding the collapse of FTX and the crypto collapse, it wasn't as bad as perhaps it could
10:22 have been, was because this industry was still relatively air-gapped from the broader financial
10:27 community. Yes, stablecoins are a big link. They were then, they're bigger now. But there
10:35 is a growing trend with MICA, a landmark piece of legislation in the EU with a proposed market
10:42 structure bill here in the US. And I know that there's a lot of exchanges and marketplaces
10:48 out there that are trying to find a way to let people buy and sell Bitcoin and shares
10:52 of Apple or any other stock all in one platform, using one as collateral to take out loans
10:59 for another. And there's nothing wrong with that, but that's going to increase the linkages
11:04 between crypto and traditional finance. This is a good thing because in one sense, maybe
11:08 it helps provide a degree of reliability and acceptability towards this industry. But at
11:18 the same point, if things go awry, it means that there's going to be a lot more ways for
11:24 the traditional financial sector to be impacted by what happens in crypto. And that's, I guess,
11:29 for better or for worse. So I'm really curious to see how this develops and what questions
11:34 come out from regulators, because as much as many crypto enthusiasts on the Hill in
11:39 Washington and around the world want to see this happen, there are still important questions
11:44 that need to be asked.
11:46 Thank you so much for joining me today, Steve.
11:48 Thanks Rosemary.
11:49 Thank you.
11:49 Thank you.
11:50 [END]