Why government adoption of Bitcoin is a ‘big win’ for crypto
Co-Founder & COO at CoinGecko Bobby Ong joins Yahoo Finance to break down the factors contributing to Bitcoin's sudden dive and the global push of governments to use Bitcoin as Ukraine becomes the latest country to legalize and regulate the cryptocurrency.
- Bitcoin prices have steadied a little after getting rowdy earlier in the week, following the crypto's rollout in El Salvador. But given some fresh negative sentiment in the crypto space, that steadiness may prove fleeting. Let's dive in here with Bobby Ong.
He's the co-founder and COO of CoinGecko. Bobby, good to good to see you here. Look, so the price action has steadied.
That's good for crypto fans. What do you sense could be next? Is there another shoe to drop in terms of prices here?
BOBBY ONG: It's always very hard to predict what's coming next in the crypto price. But I mean, a couple of days ago, Bitcoin dropped 17% from roughly $52,000 to $42,000. It's recovered a little bit since then. This came on the back of El Salvador adopting Bitcoin as legal tender.
There was some technical challenges with regards to its rollout. But this really wasn't the main reason for a correction. The crypto market has been on a rise since late July with Bitcoin going up 70% from its 30k levels.
And many traders were looking for a point to take profits. And large sell orders resulted in the [INAUDIBLE] market, futures market liquidating overleveraged traders causing a flash crash. I'd even look at the funding rates for Bitcoin [INAUDIBLE] Bitcoin futures. Yes, it turned positive in the days leading up to the correction, signifying that traders have become overleveraged and have largely gained back the confidence loss in the large draw down in May when Bitcoin went from 64K to [INAUDIBLE] in a matter of weeks.
The funding rates at this point in time is still slightly negative. So it doesn't seem that the traders are very bullish yet. So I think my guess is it's a [INAUDIBLE] more. We don't know if it's going to go up or down at this point in time. I would say that a market correction was [INAUDIBLE] very common in crypto to have like 20% drawdowns. And that's taken place multiple times in the history of Bitcoin.
- Bobby, we had a guest on yesterday pushback back on this notion that there's a lot of leverage in the crypto space. What's your take on that?
BOBBY ONG: Yeah, I would agree with that. There is a lot of leverage in the crypto space. Though, this has gone down over the years, I would say. So you have offshore crypto exchanges offering up to 100x leverage for you to trade on the futures market.
So this is very common with bitmex, with FTX, with binance futures, and so on. But recently, I think regulators have cracked down massively on all this offshore crypto exchanges. So the leverage levels have dropped.
Binance and FTX have both announced that they are reducing the leverage offered to crypto traders. But there are other alternatives out there in the market, like exchanges such as [INAUDIBLE] that users can sort of gravitate to trade with high leverage. So there is a lot of leverage using the market. And the funding rates are usually one of the methods we use to track how much leverage there is in the market.
- Bobby, it's Julie here. When we're looking at this adoption that's happening around the globe, places like El Salvador, Ukraine now formally putting some regulation around the trading of Bitcoin and allowing it, which it didn't before, do you see that more as a risk or a potential upside for crypto when you're looking at government intervention of various kinds?
BOBBY ONG: Oh, I certainly view this positively. Ukraine and El Salvador adopting Bitcoin as a legal tender is definitely a big win for crypto. Ukraine adopting Bitcoin is also a big news.
I think governments worldwide are starting to see that Bitcoin and blockchain technology, they're not here to disappear. They won't disappear anymore. They're here to stay.
You can't put a genie back into the bottle once it's out. And countries are starting to realize that. If you can't ignore it, it's probably best to try to put in place favorable regulations to encourage investment in this sector and to tax this growth areas appropriately.
What I would say is I think-- I would expect a lot more countries to legalize cryptocurrencies. Most will not take the extreme steps like El Salvador to make it legal tender. El Salvador I think is a unique case because the economy is a dollarized economy in the first place.
So they don't really have much to lose in the sense. They are effectively making a bet that things may pan out well by stopping one foreign currency, which in their case was US dollar, to another foreign currency, in this case Bitcoin. Things may or may not work out.
In which case, if things do not work out, they can always move back to the US dollar. And if things do work out, then it could be a very interesting case study. And I'm sure a lot of their neighbors are watching the economic experiment that is happening in El Salvador.
- Yes, I'm sure that they are. Speaking of economic experiments, what's been catching my eye recently is the huge market cap increases in some of the once obscure coins. And it's happening really quickly. I'm looking at our list of cryptocurrencies on our site.
And yes, you have Bitcoin and Ethereum up there. Cardano is now one of the biggest coins. You've got Solana on there as well, which came out of nowhere as well.
Hex coin, whatever that is, although that's a smaller market cap, is on there as well. But some of the ones that have really gained in size and coming from nowhere, I mean, how much do people need to be aware of those? And how much do people need to be careful of those?
BOBBY ONG: So yeah, I mean, among the list that you mentioned, maybe not everyone, not all these coins are legit. I mean, there's a lot of scam tokens out there in the market. But I think what's interesting is a lot of these tokens, the coins, they have crafted a niche in the space. No doubt many are created just for speculation.
But some of them have interesting use cases. So Bitcoin gone on this stall value narrative. So it becomes a coin because it's a fixed supply. It become supposedly perilous as-- it draws parallels to digital gold.
Ethereum goes around the narrative of it being decentralized world computer. And because Ethereum has pretty fixed capacity on this network, resulting in high gas fees, this has spurred the growth of other competitors. And one of the other competitors would be Solana.
But the main reason-- the main thing's driving the growth of Ethereum would be things like decentralized finance applications, things that are building exchanges in a decentralized manner and all the lending platforms in a decentralized manner, and so on. Also, NFTs are a big driver for picking up the block space in ethereum.
So if you look at Solana, because ethereum's full in gas fees, and the transaction fees are really high and really expensive on ethereum, a lot of people have moved on to other alternative blockchains like Solana. Solana has grown 10x in a matter of months from $20 to up to $200.
And I think there's a lot of growth. I mean, if you look at the amount of money locked in the smart contracts on Ethereum, on Solana, on Polygon, and so on, we have seen like more than eight times growth in the total value locked. So early in January 2021, like $20 billion worth of cryptocurrencies or tokens of value are locked in contracts.
But now it's over $170 billion in total value locked-- in terms of amount of cryptocurrencies locked in the smart contracts. So I think there's a lot of strong growth. I view the world that all these financial applications that are built in the traditional manner will be migrated over to the blockchain to be placed in decentralized finance applications.
And on a broader level, I view the world that a lot of these web two applications, things that have a centralized manner will be moving on to the web free applications, things that are built on the blockchain in the coming years.
- I really appreciate these insights. Bobby Ong, Co-founder and CEO of CoinGecko. Have a great rest of the week.
BOBBY ONG: Thank you. You, too.