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Why investors shouldn’t worry about the future of blockchain technology

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John Wu, Ava Labs President, joins Yahoo Finance Live to discuss to the dip in Bitcoin and the volatility in crypto.

Video Transcript

[MUSIC PLAYING]

ALEXIS CHRISTOFOUROS: Crypto prices continue to crater on Wall Street despite the broader rally we're seeing in the equity markets today. Bitcoin is down another 7% right now and is down about half from its peak that we saw back in April. Remember when Bitcoin was above $65,000?

We also have other smaller digital currencies following suit. This is as China expands its crackdown on Bitcoin mining. Joining us now is John Wu. He is president of Ava Labs. Good to see you, John. Thanks for being with us.

I want to start with the latest out of China because authorities in the southwest province ordered Bitcoin mining projects to shut down. What are the larger implications there for cryptocurrencies? And do you think that investors in the space are overreacting a little bit?

JOHN WU: Hi. Nice to be here. So first of all, China cracking down on Bitcoin, cryptocurrencies is actually nothing new. Basically, a decentralized computing source as well as distributed governance is almost antithetical-- it is antithetical to what the Chinese Communist Party believes. What they want is more control. And simply put, when you have a decentralized currency like Bitcoin, it reduces their effectiveness in terms of capital controls.

And China, as we all know, has hugely strict capital controls. So them coming down and attacking the Bitcoin miners is really not a surprise. They did it in 2013 against the banks. They did it in 2017 against exchanges. And they started the mining narrative, actually cracking down on miners in 2019. This is just the latest in their effort.

KRISTIN MYERS: So John, is this dip that we're seeing right now, is this a buying opportunity for Bitcoin as you're seeing it? Or do you think that it could actually go even lower than it is right now, perhaps in the 20,000 range?

JOHN WU: So obviously, the short-term impacts due to the noise related to the government announcements will not help. But this selloff recently, this is just another example of the recent worries in the macro environment. First it was we're printing too much money in the US. The rest of the world is printing too much money. Then you had us potential for regulation against not just Bitcoin but against various things out there.

And the fear of that, capital gains taxing, fear of more taxing in general led people to take profits. So that started with the 30 times sales SaaS companies. Then we saw-- you guys just had a moment about Lordstown Motors. That was a SPAC. So a lot of the high-risk-related industries all sold off.

Crypto and Bitcoin is part of that last two and a half, three-month movement of higher risk, more speculative asset classes selling off. As it relates to today's news again with China, they are far more focused on their own central bank digital currency, the digital yuan. They love the best aspects, which is transparency. But they want to take the control of the network.

So that's why decentralized and a distributed governance scenario with Bitcoin is their enemy. However, they are deploying the digital yuan and using the best parts of blockchain technology in order to get more control.

We should be very worried about this in the US in general. And the fact that they are going to crack down on the miners, in my opinion, is a good thing. Because there are great new companies in Texas who are going to take up the slack here. There is great solar as well as wind power that is very cheap and renewable. And if we can have more hash rate in the US, these are professional managers who have done data centers for a long time and can contribute to the grid in Texas or in upstate New York for hydro.

ALEXIS CHRISTOFOUROS: John, I want to get your thoughts on something happening with crypto that's pretty technical. And it's called the death cross. And I know that sounds really ominous. But it means the average price, over the last 50 days, for Bitcoin fell below that of its 200-day moving average. And that indicator is typically seen as a closely watched technical measure for where that cryptocurrency is going to be going in the future.

Most see that as a bearish signal. Do you think that that's the case this time?

JOHN WU: Right. So the technical analysis people have used the same death cross. Regardless of what asset class, they've used that as an indicator. Well, in this case, this time, if you look at the selloff now versus a couple of weeks ago, there was high volume a lot of weeks ago. There was a lot of leverage in the system.

Right now, it just seems like there's a lack of buyers because the volume is not as big. The curve for the futures is not really in huge contango, another indication the forward outlook is not as great as it was in the past. So I do feel that there is some worry in the short-short term.

However, I don't think anyone should worry about the future of the blockchain technology and where prices will be in the medium to long term. Reality is, there's more and more utility. And the utility is coming and looking at things like Ethereum, like other first layer protocols like Avalanche. So there are plenty of DeFi NFTs as well as other use cases now sprouting up. So some of the Bitcoin lack of enthusiasm, if you will, is partially the regulation in China, but also because there may be other things that they need to look at because utility is just down the corner.

KRISTIN MYERS: So I want to ask you about some of the other cryptocurrencies. I know we've been focusing a lot on Bitcoin in this conversation. But we were looking at the cryptocurrency chart not too long ago. We're seeing some of the other cryptocurrencies taking a leg lower. There it is. Litecoin, Ethereum, Dogecoin all in the red right now. How should, really, investors be considering some of these other digital currencies as we go forward? It does seem as if what happens with Bitcoin does have these knock-on effects with some of these other cryptocurrencies, even if they're not being targeted specifically.

JOHN WU: That's right, Kristin. You're right. There is high correlation in the space still, just like other asset classes. When one big growth stock sells off, the others usually will follow along with it in some level.

But if you look at the underlying metrics like unique visitors or addresses being created on the DeFi protocols like Ethereum, Avalanche, and some of the others, you'll see that users and interest is actually picking up, even though prices are down. So prices coming down is actually, in a weird way, beneficial to people who want to operate and grow the functionality in this space. That's what we're doing here at Ava Labs for helping the Avalanche protocol. And I know others are doing the same.

And I'm telling you, the traditional finance world is taking note of this and they will be looking at more applications that they can have for use cases as well in the near term. So yes, short-term, a little worrisome. Medium-term, long-term, there's $70 trillion of millennial capital that will be coming towards this space in the next, call it five to 10 years.

ALEXIS CHRISTOFOUROS: Yeah, great insights. John Wu, president at Ava Labs, thanks so much for being with us today.