Source: Real Vision

Compiled by: Felix, PANews

Moulik Nagesh, a macro researcher at Binance Research, appeared on the "Real Vision" podcast to discuss how cryptocurrencies are maturing as institutional investors, ETFs, stablecoins, tokenization, and clearer regulatory policies reshape the market structure. Nagesh believes that the next phase of cryptocurrency development will be centered on practical applications, from dedicated L1 and stablecoin payment channels to AI agents, on-chain finance, and deeper integration with traditional markets .

PANews has compiled the highlights of the conversation.

Host: What stage of the current market cycle are we in? In other words, what defines this current market cycle? How does this cycle feel different to you compared to previous cycles?

Nagesh: The biggest change we've seen is the maturation of the entire space. This is due to the institutionalization of the crypto market and increased clarity provided by regulation. Previously, the market was largely driven by retail investors, but now the structure of the buying group has changed, leaning more towards institutional investors. This has led to more authorized buying and a general trend of decreasing volatility. In the past, due to a lack of data, there were many different opinions about Bitcoin's role, such as whether it was an inflation hedge, a currency devaluation hedge, or a speculative asset; but now it is officially recognized as a macro asset that can provide higher risk-adjusted returns and is being formally included in portfolios. Institutions have a set of evaluation methods when buying it.

As for altcoins, they were highly speculative and full of various narratives in previous cycles, but now the market has become more discerning, and people are returning significantly to fundamentals to evaluate the value of altcoins. Another difference is liquidity; stablecoins, ETFs, digital bonds, and other structures have become key drivers of market liquidity.

Host: With governments and institutions entering the market and geopolitical volatility causing volatility, ETFs have still seen significant inflows. Do you think Bitcoin is becoming a safe-haven hedging tool in this environment? Is this different from the previous cycle? How should we view this issue now?

Nagesh: That's an excellent question. The first point I'd like to make is that Bitcoin is still a very early-stage asset class. Therefore, in terms of the existing data points, it remains relatively limited compared to traditional assets. This naturally means that the viewpoints on what Bitcoin and cryptocurrencies are inherently about are constantly evolving, and we'll continue to see that evolve over time. For Bitcoin, I think what we can infer from past data is that it's a very good risk-adjusted asset class in terms of providing enhanced risk-adjusted returns. I think we're seeing a trend of inclusion of around 2.5% in traditional 60/40 portfolios, and we're seeing this momentum really emerge and play a role across a wide variety of asset management firms throughout the space.

Regarding correlations, I think we've seen several distinct trends. Initially, prior to 2020, Bitcoin exhibited more diversification characteristics. More recently, with institutional entry into the space, it tends to react as a "risk-averse" asset in the short term, especially during stressful events like the geopolitical tensions we've recently witnessed. However, over a longer timeframe, it often acts as a semi-diversification tool, purely due to the inherent differences in the asset class's underlying structure, whether based on supply metrics, specific cycles, etc. Therefore, it naturally provides a degree of diversification compared to traditional stocks. But I want to return to my first point: this perspective is still evolving. I don't think we've truly seen Bitcoin operate within a context of geopolitical volatility and high interest rates. Historically, interest rates have almost always been close to zero or the zero-premium level. So this is something we're learning. I believe that as we move towards the next macroeconomic environment, this data will become richer, and we'll be able to develop a better, clearer perspective and picture of Bitcoin and its role as an asset class.

Host: In the last cycle, retail investors seemed to be the engine driving market trends, but now it seems like corporations and governments are pushing them. What will happen when retail investors are no longer the engine of volatility?

Nagesh: This doesn't mean there are fewer retail investors, but rather that a large portion of the demand now comes from institutions. Previously, when the market fell by 30% to 40%, the decline in ETF assets under management was relatively smaller. This reflects that institutional capital is more sticky and less volatile; they primarily buy based on fundamentals and mandates. Retail investors, on the other hand, are more speculative and sensitive to market changes. This shift in demand structure has led to a substantial reduction in volatility across the sector; the extreme surges and crashes of previous cycles are no longer as pronounced. Institutions prefer the largest and most mature assets by market capitalization, like Bitcoin, while altcoins continue to attract responsive retail investor funds.

Host: We know that ETFs are buying Bitcoin and Ethereum. Do you think this trend will extend along the risk curve to other L1 ETFs?

Nagesh: This has already happened. Bitcoin was the first ETF, Ethereum followed closely, and now we're seeing Solana-related ETFs approved, and even pushes for BNB-related ETFs. Whether it's L1 or any other asset, as long as it has a strong value capture mechanism, generates strong yield utility, and has low network fees, it will naturally move towards an ETF structure because it provides a natural channel for institutions that want to allocate to them.

Host: What are your thoughts on L1 today?

Nagesh: In the early days, many general-purpose L1 platforms tried to compete with Ethereum in terms of liquidity, decentralized applications, and trading volume. But now, this competitive mindset is slowly shifting towards convergence, with these chains consolidating towards specific market segments and specializations.

Ethereum is now largely seen as a settlement layer, providing liquidity and security for DeFi; the BNB chain offers a very good "funnel" for retail investors, allowing them to enter decentralized applications from exchanges and achieve early asset price discovery through products such as Binance's Alpha product; while Solana's moat lies in its trading volume, throughput, and smooth user experience. This integration has also spurred the development of more application-specific underlying networks, such as chains for stablecoin payments, and the entire industry is shifting from general-purpose to application-specific L1 networks.

Host: When institutions accumulate for ETFs, are they thinking based on these specific use cases? For example, buying BNB for distribution, or buying Solana for throughput.

Nagesh: Primarily based on fundamentals and the token's value capture mechanism. Network activity, on-chain applications, and fee revenue are core indicators of whether the chain is generating revenue and converting it into token value. They also look at supply-side indicators such as token issuance and inflation data. While institutions are just beginning to establish mechanisms for evaluating these structures, we will see more developments in token transparency classifications and similar investor relations practices in the future.

Host: You just mentioned Binance as a distribution layer and a "funnel" for asset discovery, which is very interesting. Is this an undervalued advantage of L1?

Nagesh: Yes. The seamless switching between CEX liquidity and DEX is BNB Chain's strongest competitive advantage. From a UX perspective, this makes asset price discovery easier and aggregates liquidity from various dimensions. This provides retail investors with a strong and liquid entry point to various tokens early on, which is more systematic than simply listing assets on-chain.

Host: In the next 3 to 5 years, how do you think the specialization of this blockchain will develop? Will Ethereum dominate the settlement layer, or will there be serious fragmentation among multiple chains?

Nagesh: Consolidation is already underway, and fragmentation is actually the cause of it. Fragmentation not only leads to a poor user experience but also weakens liquidity efficiency and DeFi composability. Cross-chain bridges even pose significant security risks. Consolidation will be the ultimate outcome, and specialization will be the final result. Specific chains will focus on specific liquidity and use cases. Each chain has a different technological foundation; for example, Ethereum needs L2 to compensate for the insufficient scalability of the base layer, while Solana and BNB inherently possess high throughput. All trends point to further consolidation.

Host: When we move towards a more unified and integrated financial system, what will it look like? What can ordinary users expect?

Nagesh: The core theme right now is the intersection and convergence of traditional finance and the crypto space. Crypto assets are built on traditional tracks (e.g., ETFs, or the utility of Bitcoin-backed loans); meanwhile, traditional finance is also built on crypto tracks (primarily the liquidity and payment layers provided by stablecoins, and the tokenization of stocks, commodities, and even private assets). This convergence will ultimately lead to the rise of "super apps." Currently, new banks, fintech companies, and crypto exchanges are best positioned to build super apps because they are moving faster and have taken the lead in payments and diversified asset exposure, while traditional institutions are still waiting for regulatory clarification. It's important to note that this isn't just about a unified UX; the valuation systems for the assets themselves remain different (token valuations and stock valuations are completely different).

Host: So, between TradeFi shifting to crypto and crypto shifting to TradeFi, which transition is faster? Who will build the super app – crypto institutions like Binance or traditional institutions like JPMorgan Chase?

Nagesh: The crypto industry is more agile and responsive, so the transition from crypto to traditional finance is much faster. For example, the massive growth of stablecoins and tokenization has been driven by the crypto industry. Crypto exchanges are also listing traditional assets, providing the ability to respond to geopolitical news outside of trading hours. Regarding super apps, the market will naturally gravitate towards areas of expertise. Crypto platforms have an advantage in native crypto assets, tokenized infrastructure, and stablecoin payment tracks; while traditional institutions specialize in using stablecoins to provide compliant access to assets for their large existing institutional users. These two directions will cater to different audiences, and traditional institutions will gradually follow suit as infrastructure and regulation mature.

Host: We've seen many large traditional banks, such as HSBC, UBS, and JPMorgan Chase, adopting stablecoins and blockchain technology. At what point will traditional finance surpass the crypto industry in these areas?

Nagesh: The shift is already underway, but primarily for institutional use cases. Future use cases will naturally diverge; crypto platforms are already very mature in consumer-to-consumer (C2C) transactions and product adoption, while traditional institutions will dominate in areas such as business-to-business (B2B) transactions and corporate treasury management. The market will further consolidate and specialize based on their respective strengths.

Host: In this mature market, which use cases do you see truly sustained growth, and which are just temporary narrative hype?

Nagesh: The most powerful and core use case is stablecoins. They bridge the gap between traditional and crypto. The biggest growth comes from payments (including B2B and consumer-to-business payments) because of their immense efficiency. Beyond that, how stablecoin funds held by businesses generate interest is also emerging as a new use case, which is central to current regulatory discussions such as the Clarity Act. Stablecoins play different roles in different markets; in the US, they are financial infrastructure for improving efficiency, while in emerging markets like South America, they are used for “digital dollarization” to combat high inflation. Most importantly, stablecoin adoption brings massive liquidity on-chain, which naturally leads to the next level: finding the return efficiency of on-chain capital and driving further development of DeFi use cases for retail and institutional investors.

Host: We've seen many exchanges start offering 24/7 on-chain perpetual contracts and even talking about tokenized stocks. What are the advantages and potential risks of such a market that never closes?

Nagesh: The advantage is accessibility. During periods of geopolitical tension, crypto derivatives markets (like Hyperliquid) can immediately reflect risk aversion, and traditional institutions are also considering adopting this 24/7 access mechanism. As for the challenges and risks, they mainly concern price discovery and liquidity. Currently, on-chain liquidity is relatively shallow, which can lead to discrepancies between on-chain tokenized stock prices and actual quotes in the traditional stock market. Solving this problem requires traditional market makers and institutions to inject more liquidity.

Host: With the rise of AI Agents, they are starting to use stablecoins and crypto tracks for transactions. What do you think of this trend?

Nagesh: This is a very emerging demand layer. In the agent economy of AI, traditional bank account requirements face KYC and compliance obstacles, making it difficult for AI to automatically execute transactions on behalf of users in traditional systems. This is where stablecoins and crypto wallets come in. This is a direction in which the crypto space is heavily investing in infrastructure. Once the first step (the stage of using AI as a co-pilot) is completed, the next step of automated transaction execution will greatly promote the application of crypto payment tracks and stablecoins.

Host: News reports often mention astonishing stablecoin trading volumes, but after excluding trading pairs, the actual payment volume isn't that high. How do you sift through the data to identify the truly important signals?

Nagesh: In the past, stablecoins were essentially used primarily as trading assets, which is why trading volume dominated. Now, the industry has more metrics to filter out the noise, breaking down and tracking individual trading volumes in specific sectors, such as B2B payments, e-commerce consumer purchases, and cross-border remittances. Tracking these allows us to truly understand its use beyond traditional trading pairs. The good news is that growth in these real-world application areas is very strong, with the strongest currently being institutional-driven B2B use cases.

Host: When private credit and debt markets begin to emerge on-chain, what is the actual process like?

Nagesh: It's very similar to the typical equity tokenization process. You need an issuer, a mechanism to link off-chain data to the on-chain system, and the surrounding security and compliance infrastructure. For private lending to run on-chain, you must build all the operational processes that traditional institutions are accustomed to on-chain. The key is the evolution of regulation to ensure transparency, and overcoming the thousands of integration issues of traditional legacy systems, which is currently still in the infrastructure building phase.

Host: Let's talk about the Clarity Act, which requires regulation of traditional banks. If this act passes, what will it mean for the market? And what if it doesn't pass?

Nagesh: Regulation is definitely a key catalyst for the crypto market this year. The Clarity Act primarily focuses on the "yield" perspective, namely whether and how the returns generated by stablecoin issuers or crypto entities can be passed on to retail and investor users. From a pricing perspective, the market reacts quickly to any regulatory pause or passage because institutional buyers are currently the primary buyers. The act is not just a restriction, but more like a gatekeeper; for example, the passage of a certain act last year significantly boosted the adoption of stablecoins. While institutional product development and adoption will be a gradual, structured process after the act passes, the market's asset pricing will be the most rapid indicator.

Host: Regulators should perhaps also consider the risks of quantum mechanics. Have you seen any data showing that quantum technology is revealing vulnerabilities in technologies like Bitcoin?

Nagesh: Quantum risk has been a topic of background discussion, especially after Google's paper was published this year, which accelerated the process. Developers in the industry have begun exploring implementation-level solutions for Bitcoin and various L1 cryptocurrencies. Next, we will begin to see the market reflect this risk premium of whether a particular asset is quantum resistant in its pricing. Although it's early, this is definitely the future trend.

Host: Regarding DeFi, we saw a lot of news about hacking attacks in April due to various vulnerabilities such as cross-chain bridges. Has this already been reflected in market pricing and data?

Nagesh: Absolutely. April was one of the months with the highest number of exploits and attacks since the beginning of last year. We saw funds flowing out of on-chain DeFi protocols, on-chain TVLs being hit, and DeFi assets falling in value. This sparked discussions within the industry about establishing market recovery funds and prompted reflection on whether current DeFi yields mispriced in this risk, or whether they need to be more attractive, as well as the application of insurance. Additionally, with the rise in risk-free yields on government bonds in a high-interest-rate environment, the yield spread in DeFi has been compressed. There are many rent-seekers using on-chain stablecoins, but insufficient actual lending demand; this supply-demand dynamic is also prompting reflection. However, these attacks will ultimately serve as a learning curve, driving innovation in the crypto industry and building better, more secure products.

Host: Finally, since you can see real data on Binance, what characteristic of the current crypto market do you most hope that people in the traditional financial sector can truly understand?

Nagesh: I want them to understand the different use cases in the crypto space, and most importantly, how crypto assets are valued. Traditional market investors are used to using traditional metrics like earnings calls and cash flow. But crypto is a completely new world with entirely new value capture mechanisms. I strongly suggest they place "token economics" at the core of their research, understanding the role of tokens within specific protocols and how token value returns are generated dynamically based on supply and demand. These mechanisms are fundamentally different from traditional finance.

Related reading: Interview with macro guru Raoul Pal: The economic singularity is approaching; don't get off the train too easily in the next four years.