The Case for Why Consumers Will Still Want to Use Cryptocurrencies

The market for bitcoin and other digital assets has swung wildly in 2022, pushing prominent crypto firms into bankruptcy—and leaving many investors poorer.

For a look at the state of the industry, and where it might be heading next, The Wall Street Journal’s Jason Dean spoke with Ravi Mhatre, founding partner of Lightspeed Venture Partners, and Sam Bankman-Fried, founder and chief executive of cryptocurrency exchange FTX , at The Wall Street Journal’s annual Tech Live conference. Here are edited excerpts of the conversation.

The state of play

WSJ: Some investors have compared the current crypto winter to the dot-com bust. Where are we now and where are we going?

MR. MHATRE: We’re absolutely in a down-market period, to state the obvious. Anytime something seems too good to be true, it probably is. The unbelievable heights that lots of things in crypto and in other areas of technology went to, those were not realistic. In blockchain, and crypto in particular, it’s hard to know exactly when we’ve hit bottom in terms of prices.

WSJ: Do you have a view on how long this is going to last? And how long can the crypto companies hold out?

MR. MHATRE: The market value of cryptocurrencies like Ethereum and bitcoin, it’s still in the hundreds of billions. There’s a healthy ecosystem that will survive. The core level of value is still pretty large. Also, if you look at the stream of developers going into crypto and user activity going on, the transactions on the blockchain, it’s quite healthy.

MR. BANKMAN-FRIED: If we see a further selloff in all risky assets that we saw across the board this year, if we see interest rates going higher than expected, that’s going to have a negative impact very likely on crypto prices. If we don’t see that, then I think we might have already seen maximum pain.

WSJ: What do you say to people who invested last year and got burned, bought in at the top?

MR. MHATRE: I have compassion for the fact that many people got caught up in the hype, including Lightspeed Venture Partners, as investors. But I think that does not at all negate the fundamental opportunity for crypto and blockchains to be transformational.

MR. BANKMAN-FRIED: It wasn’t just crypto. Every investment is down from the peak. Everyone who was long has gotten burned to some extent. By and large what we saw this year was a broad-based risk-asset selloff, as this monetary inflation reared its head, became noticeable enough to inspire policy change.

The best argument

WSJ: What do you think it’s going to take to bring back investors who feel burned or skeptical, who are really focused on very practical issues right now, like paying the bills?

MR. MHATRE: We’re involved with a company called Blockchain.com. They make it relatively easier for consumers to use wallets for bitcoin. Why would that be intuitively, emotionally something that people really need?

Maybe not in the US or Europe right now, but in Latin America, where you have countries that have hyperinflation, anytime we get into this kind of environment, you just see an explosion in interest in cryptocurrencies. If your paycheck is worth next month half of what it’s worth this month, you can put some of your money in bitcoin—and even with all the volatility, it’s a safer place to have some store of value than to keep it all in local currency . Way easier than getting dollars.

Today it’s not perfect, it’s not like you can go exchange a bitcoin at the local retail store in some other Latin American country. But the promise of saying, “I can hold an asset that isn’t going to be at the whims of whatever nation-state government I don’t have full confidence in.” If I can have a way to get that and keep it with me on my iPhone, there is an emotional pull around that.

WSJ: What about skeptics who aren’t persuaded that we need this technology? It’s not really solving problems, at least for people who are not in countries with wildly volatile currencies. Why is this technology necessary?

MR. BANKMAN-FRIED: Look at what it’s like to buy a bagel from a grocery store. You’re standing two feet away from a guy, you want to pay $6 to them. For card transactions, we pay 2% of the sale right now, roughly, to payment processors to process that. You look internationally, and it’s way worse. It might take a week for a transaction to clear, and you might be paying 10% in fees there. It’s an enormous pain right now.

In theory, with blockchain technology, it would cost a 20th of a penny to make the transaction, take three seconds, and you’ve gotten it anywhere in the world.

Look at a similar thing with settling stocks. The day that GameStop and AMC went crazy, all the retail brokers froze and in some cases liquidated their retail clients. It was because stock settlement was incredibly messy. It takes two days, there are like 10 intermediaries, and any one of them could fail to deliver for two days. Dogecoin and bitcoin had no problem that day because you could actually settle the transactions in real time with the blockchain. It was extremely clear who owned what. In general, settling assets is the clearest and cleanest use case of blockchain.

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