Source: "Real Vision"

Organization: Felix, PANews

Binance Research macro researcher Moulik Nagesh appeared on the "Real Vision" podcast to delve into how cryptocurrencies are maturing as institutional investors, ETFs, stablecoins, tokenization, and clearer regulatory policies reshape market structures. Nagesh believes that the next phase of cryptocurrency will focus on real-world applications, from dedicated L1s and stablecoin payment channels, to AI agents, on-chain finance, and deeper integration with traditional markets.

PANews has summarized the highlights of the conversation.

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

Nagesh: The biggest change we are seeing is the maturity of the entire space. This is due to the institutionalization of the crypto market and the increased clarity provided by regulation. Previously, the market was largely driven by retail investors, but now the structure of the buying demographic has shifted to favor the institutional side. This has led to a more authorization-driven purchasing approach, and overall volatility has shown a downward trend. In the past, due to a lack of data, there were many differing views on Bitcoin's role, such as it being an inflation hedge, a protection against currency depreciation, or a speculative asset; but now it is formally viewed as a macro asset that can provide higher risk-adjusted returns, and it has been formally included in investment portfolios. Institutions have developed a set of evaluation methods for its purchase.

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

Host: Now that players such as governments and institutions are entering the field, geopolitical issues have caused market turbulence, but during this period, ETFs are still seeing substantial inflows. Do you think Bitcoin is becoming a hedge tool against this kind of environment? Is this also different from the last cycle? How should we view this issue now?

Nagesh: This is a very good question. The first point I want to make is that Bitcoin is still a very early asset class. Therefore, in terms of existing data points, it remains relatively limited compared to traditional assets. This naturally means that views on what Bitcoin and cryptocurrencies essentially are have continuously evolved, and over time, we will continue to see this evolution. For Bitcoin, I think we can infer from previous data that it is a very excellent risk-adjusted asset class when it comes to providing enhanced risk-adjusted returns. I believe we have seen a trend of about 2.5% being included in traditional 60/40 investment portfolios, and we see this momentum indeed having an impact across various different asset management firms in the whole field.

Regarding correlation, I believe we have seen several different trends. Initially, prior to 2020, Bitcoin exhibited more diversifying properties. Recently, as institutions entered the space, in the short term, it tends to show a "risk asset safe haven" reaction during stress events like the geopolitical tensions we recently witnessed. But over a longer time span, it tends to serve as a semi-diversifying tool, which is purely due to the differences in the underlying structures of this asset class, whether based on supply metrics, exhibiting specific cycles, etc. So it naturally provides a certain diversification effect relative to traditional equities. However, I want to return to my first point, that this view is still evolving. I believe we have never truly seen Bitcoin operate while being surrounded by geopolitical fluctuations, at the same time in a high-interest rate environment. In the past, interest rates were almost always close to zero or at the zero lower bound. So this is something we are learning as we move toward the next macro environment, and as this data becomes richer, we will essentially be able to form a better and clearer perspective and picture of Bitcoin and its role as an asset class.

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

Nagesh: This does not mean that retail investors are fewer in number, but a large part of the demand now comes from institutions. When the market previously fell 30% to 40%, the asset management scale of ETFs dropped significantly less, reflecting that institutional capital is stickier and reacts less violently; they primarily buy based on fundamentals and authorization. Retail investors, on the other hand, are more speculative and sensitive to market changes. This change in demand structure has led to a reduction in overall volatility in the space, as the extreme rise and fall of the previous cycle is no longer as pronounced. Institutions prefer assets that are the largest and most mature, such as Bitcoin, while altcoins still carry the reactive retail capital.

Host: We know that ETFs are buying Bitcoin and Ethereum; do you think this trend will extend along the risk curve to other L1s?

Nagesh: This has already happened. Bitcoin was the first ETF, followed closely by Ethereum, and now we are seeing ETFs related to Solana also being approved, and even a push for BNB-related ETFs. Whether L1 or any other asset, as long as it has a strong value capture mechanism, generates robust yield utility, and incurs network costs, it will naturally gravitate toward ETF structures because this provides a natural pathway for institutions that want to allocate them.

Host: What do you think of today’s L1s?

Nagesh: In the early days, there were many general-purpose L1 platforms trying to compete with Ethereum in liquidity, decentralized applications, and trading volume. But now, this idea of competing against each other is slowly transforming into convergence, where these chains are integrating towards specific niches and specialization.

Today, Ethereum is seen more as a settlement layer, providing liquidity and security for DeFi; the BNB chain provides a very good "funnel" for retail to enter decentralized applications from exchanges, and enables early asset price discovery through products like Binance's Alpha product; while Solana's moat lies in its transaction volume, throughput, and smooth user experience. This convergence has also given rise to more underlying networks focused on specific applications, such as chains dedicated to stablecoin payments, the entire industry is shifting from general-purpose to application-specific L1s.

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: It is mainly based on fundamentals and the value capture mechanism of the tokens. Network activity, on-chain applications, fee revenues—these are core indicators that signify whether that chain is creating income and converting it into token value. They will also look at supply-side metrics such as token issuance and inflation data. Although institutions are just beginning to build mechanisms for evaluating these structures, in the future we will see more classification of token transparency and similar developments regarding investor relations.

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

Nagesh: Yes. The seamless switch between CEX liquidity and DEX is the strongest moat of the BNB chain. From a UX perspective, this makes the transition for asset price discovery easier and gathers liquidity from various dimensions. This provides retail investors with a strong and liquid entry point to interact with various tokens, 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 these chains will develop? Will Ethereum dominate the settlement layer, or will there be significant fragmentation among multiple chains?

Nagesh: Consolidation is already occurring, and fragmentation is actually a reason triggering consolidation because fragmentation not only results in a poor user experience but also weakens liquidity efficiency and DeFi's composability; cross-chain bridges also carry significant security risks. Consolidation will be the ultimate outcome, and specialization will be the end game, where specific chains will focus on particular liquidity and use cases. Each chain has different technical foundations; for example, Ethereum requires L2 solutions to compensate for insufficient scalability of the base layer, while Solana and BNB naturally boast high throughput. All trends point toward further consolidation.

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

Nagesh: The core theme now is the intersection and fusion of traditional finance and the crypto space. Crypto assets are being built on traditional tracks (such as ETFs or obtaining Bitcoin-backed loans); at the same time, traditional finance is also being built on crypto tracks (primarily the liquidity and payment layers provided by stablecoins, as well as the tokenization of stocks, commodities, and even private assets). This fusion will ultimately lead to the rise of "super applications." Today, new banks, fintech companies, and crypto exchanges are most advantaged in building super applications since they can act more quickly and have entered payment and diversified asset exposure first, while traditional institutions are still waiting for regulatory clarity. It is important to note that this is not only about the unification of UX; the valuation systems of the assets themselves remain different (token valuation and stock valuation are completely different).

Host: So in the transition from TradFi to crypto and from crypto to TradFi, which transformation is faster? Who will build the super applications, crypto institutions like Binance, or traditional institutions like JPMorgan?

Nagesh: The crypto industry moves much faster from "crypto to traditional finance" because it is more agile. For instance, the massive growth of stablecoins and tokenization is driven by the crypto industry. Crypto exchanges are also launching traditional assets, providing the capacity to respond to geopolitical news during non-trading hours. Regarding super applications, the market will naturally gravitate towards their respective areas of expertise. Crypto platforms have the advantage in crypto-native assets, tokenized infrastructure, and stablecoin payment tracks; while traditional institutions excel at utilizing stablecoins to provide asset-compliant access for their large existing institutional clients. These two directions will cater to different audiences, and traditional institutions will gradually follow as infrastructure and regulations mature.

Host: We see many large traditional banks, such as HSBC, UBS, JPMorgan, adopting stablecoins and blockchain technology. At what point will traditional finance surpass the crypto industry on these tracks?

Nagesh: Transfers are already occurring, but mainly targeting institutional use cases. Future use cases will naturally split; crypto platforms have become very mature in consumer-to-consumer (C2C) transactions and the adoption of goods; while traditional institutions will dominate business-to-business (B2B) transactions and corporate treasury management. The market will further merge and specialize according to their respective expertise.

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

Nagesh: The most powerful and core use case is stablecoins. They connect the traditional and crypto tracks. The largest growth comes from payments (including B2B and consumer-to-business payments) because they bring significant efficiency. Additionally, the way companies earn interest on the stablecoin funds they hold is also becoming a new use case, which is central to current regulatory discussions like the Clarity Act. Stablecoins play different roles in various markets; in the U.S., they are financial infrastructure that enhances efficiency, while in emerging markets like South America, they are used for "digital dollarization" to combat high inflation. The most important point is that the adoption of stablecoins has brought massive liquidity on-chain, which will naturally lead to the next level: seeking yield efficiency for on-chain capital, promoting further development of DeFi use cases for both retail and institutional investors.

Host: We see many exchanges starting to offer 24/7 on-chain perpetual contracts and even discussing tokenized stocks. What are the benefits and potential risks of a market that never closes?

Nagesh: The benefits are accessibility. In times of geopolitical tension, the crypto derivatives market (such as Hyperliquid) can immediately reflect hedging sentiment, and traditional institutions are also considering adopting this 24/7 access mechanism. As for the challenges and risks, they are mainly around price discovery mechanisms and liquidity. Currently, on-chain liquidity is relatively shallow, leading to discrepancies between the prices of on-chain tokenized stocks and actual quotes in the traditional stock market. Solving this issue requires traditional market makers and institutions to inject more liquidity.

Host: With the rise of AI agents, who are starting to utilize stablecoins and crypto tracks for trading, how do you view this trend?

Nagesh: This is an emerging layer of demand. In the AI agent economy, the traditional bank account requirements face KYC and compliance hurdles, which makes it difficult for AI to automatically execute trades on behalf of users within traditional systems. At this point, the tracks composed of stablecoins and crypto wallets come into play. This is one direction where the crypto space is heavily investing in building infrastructure. As long as the first step (that is, the phase of using AI as a co-pilot) is completed, the next step of automatic trade execution will greatly promote the application of crypto payment tracks and stablecoins.

Host: The news often mentions staggering volumes of stablecoin transactions, but once removing trading pairs, the actual payment volume isn't that high. How do you sift through the data to identify truly important signals?

Nagesh: In the past, stablecoins primarily served as trading assets, which is why trading volume dominated. Now, the industry has more indicators to filter out this noise, specifically tracking independent transaction volumes in certain areas, like B2B payments, consumer purchases in e-commerce, and cross-border remittances. Tracking these allows us to truly understand usage beyond the traditional trading pairs. The good news is that these actual application areas are experiencing very strong growth, and the strongest of all is the B2B use cases driven by institutions.

Host: When private credit and debt markets begin to generate on-chain, what will its actual process look like?

Nagesh: It is very similar to the general process of equity tokenization. You need issuers, connections linking off-chain data to on-chain tracks, and surrounding security-compliance infrastructure. To enable private credit to operate on-chain, you must create on-chain processes that traditional institutions are accustomed to. The key points lie in the evolution of regulation to ensure transparency, and additionally overcoming thousands of integration issues with legacy systems, which are still in the infrastructure-building phase.

Host: Now let's talk about the Clarity Act. Traditional banks require regulation. What would passing this act mean for the market? And what would happen if it does not pass?

Nagesh: Regulation is definitely the core catalyst for the crypto market this year. The Clarity Act mainly focuses on the perspective of "yield," that is, how the yields generated by stablecoin issuers or crypto entities can and how they will be passed on to retail customers and investors using them. From a pricing perspective, any stagnation or passage of regulation will quickly be reflected in the markets, as the current buyers are institutions. The act is not just a restriction; it is more like a gate. For instance, after a certain act was passed last year, it greatly promoted the application of stablecoins. Although if the act passes, the structuring process for institutions to build products and adopt them will happen gradually, the market's asset pricing prelude will be the fastest.

Host: Regulation should perhaps also consider the risks from quantum computing. Have you observed in the data that the risk of quantum technology exposing vulnerabilities, like those in Bitcoin, is being reflected?

Nagesh: Quantum risks have been a topic of background discussion, especially after Google's paper was published this year, accelerating the dialogue on this process. Developers in the industry have already begun exploring execution-level responses to Bitcoin and various L1s. Going forward, we will start to see the market reflecting a risk premium concerning whether "specific assets have quantum resistance" in their pricing. Although this is still early, it is definitely a trend for the future.

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 been reflected in market pricing and data?

Nagesh: Absolutely. April was one of the months with the highest number of vulnerabilities and attacks since early last year. We saw capital flowing out of on-chain DeFi protocols, on-chain TVL was hit, and this also led to the decline of DeFi assets. This sparked industry discussions about establishing market recovery funds and also led to reflections on whether current DeFi yields have mispriced this risk or need to be more attractive, along with the application of insurance. Additionally, as the risk-free yield of government bonds rises in a high macro interest rate environment, the yield spread of DeFi is being compressed. Many are seeking rents on-chain with stablecoins, but actual borrowing demands are insufficient; this supply-demand dynamic is also provoking reflections. However, these attack events will ultimately serve as a learning curve, driving innovation in the crypto industry and building better, safer products.

Host: Lastly, given that you can see real data at Binance, what do you most wish that people from traditional finance could truly understand about the current characteristics of the crypto market?

Nagesh: I hope they understand the different use cases within the crypto space, and most importantly, understand how crypto assets are valued. Traditional market investors are used to relying on earnings calls, cash flows, and other traditional metrics. But crypto is a whole new world, with entirely new value capture mechanisms. I advise them to place "token economics" at the core of their research, understanding the role of tokens within specific protocols, and how the value feedback of tokens arises based on the dynamics of supply and demand. These mechanisms are fundamentally different from traditional finance.

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