NEW YORK (AP) – The CEO of Binance, the world’s largest cryptocurrency exchange, doesn’t try to explain why some cryptocurrencies that started out purely as a joke have soared in price.
It also doesn’t mean if the exuberance of coins like Dogecoin is an indication of a dangerous bubble. But Changpeng Zhao, who calls himself “CZ,” says it shows the power of decentralization, which has supported crypto’s enormous growth.
Led by Bitcoin, cryptocurrencies have swelled in value to over $ 2.6 trillion, putting them on par with the world’s most valuable stock, Microsoft. Such rapid growth is attracting more and more investors and attracting the attention of regulators around the world.
Zhao spoke to The Associated Press after his company called for more regulation of crypto markets around the world. Besides bubbles and coins, he talked about the cryptocurrencies he owns and his pledge to donate most of his wealth. This conversation has been edited for clarity and length.
Q: What do you remember when cryptos that started out as a joke go up in value?
Zhao: To be honest, I don’t get Dogecoin. But it shows the power of decentralization. What I think may or may not matter. If enough people in the community like it because it’s cute, because they like the meme, then it’s valuable.
And Dogecoin has lasted so many years. It went up and down, up and down, but it lasted. And now we have Shiba, which is also a coin. We have many more parts even. But guess what? For something to be of value, it is enough that another person wants to buy it.
In order for something to have cash, a lot of people have to want to buy or sell it. Once you have liquidity, something has value, according to the neutral market. It is therefore not for me to judge.
As a platform, we want to provide a market for all relatively valuable cryptocurrencies in the world.
Q: When people buy things just because the next person will buy them, isn’t that a sign of a bubble?
Zhao: To a certain extent, yes. But it’s not a black and white thing.
There is no clear definition of what a bubble is. What if the price of an asset drops by more than 80%? Bitcoin fell more than that and then recovered. Amazon has fallen (over 90% from early 2000 to September 2001) and is now one of the most valuable companies in the world. Did he go through a bubble? By the definition of most laymen, it probably is. For Jeff Bezos, he would probably disagree.
What is important is that there are strong fluctuations. As long as people understand what they’re holding, what the risks are, then that’s fine.
Q: Why are crypto prices so volatile and rise and fall so fast?
Zhao: For mass consumers, the first thing I want them to understand is that everything is volatile.
You have to park your value somewhere. It could be a house, it could be stocks, it could be US dollars. But all of these things fluctuate relative to something else.
Crypto has high volatility because it is a relatively smaller market. It’s much, much smaller than traditional assets. The higher the market value of its asset, the lower the volatility. It’s just math.
Let’s say you are looking at a small coin with a total market value of $ 10 million. If someone tries to use $ 1 million to buy the coin, the price will go up by a lot more than 10% because not everyone is selling that coin. If you look at a $ 100,000 billion asset market, investing $ 1 million won’t move the price at all
If you have to pay rent in US dollars next month, then you must hold US dollars. You can’t just put that at risk in very volatile assets. But the money that you can put aside for two, five years, you can transfer it into very volatile assets.
Q: Is this volatility the biggest obstacle preventing people from accessing crypto today?
Zhao: Today in the crypto space there are a lot of active traders. There are a large number of people who are in this industry for investment gains or speculative transactions, and these guys actually prefer volatility.
In fact, I think the biggest factor blocking or hindering the growth of crypto is ease of use. Today, it is quite difficult to keep your cryptocurrency secure, which means that if your computer crashes or your computer is infected with a virus, your crypto is still safe. If you lose your computer or lose your crypto wallet device, you can still get it back. And that means you must have backups and the backup must be secure. They cannot be stolen. And the last part that a lot of people don’t think about is: what if you go? People are dying. If you suddenly become unavailable, can your kids get it? How do they get it? Are there ways to guarantee that they will get it and that they will not get it until after you die?
There are not very good tools to deal with all of these aspects. Centralized exchanges offer a solution: we have custody of people’s parts. (But) how to keep your tokens safe is a fundamental limiting factor. We haven’t provided tools that are easy enough to use and secure enough today. But I think as the industry evolves things will get better.
Q: How do you personally invest your money?
Zhao: Actually, I don’t make a lot of investments. I’m one of those really bad examples for most other people to follow.
I bought Bitcoin in 2014. I spent a little bit over time, but kept most of it. I did not sell.
The other asset I own, which makes up the majority of my net worth, is BNB (Binance coin). Personally, I do not hold any other pieces. I’m a decent sized shareholder in Binance, if we ever want to realize equity value someday.
Personally, I do not hold any stake in any other project, crypto or not. I do this very deliberately because I don’t want any potential conflicts of interest. So I’m very, very undiversified, which I actually recommend against most people.
But for me, I can take the risk. As long as I don’t do anything unethical – even if something happens to Binance, and we don’t, and if I say I’m going to do another project, I believe my credibility is there for that other people invest a lot of money.
Personally, I am financially free. I don’t need a lot of money so I can maintain my lifestyle. I intend to donate most of my wealth, as have many wealthy entrepreneurs or Rockefeller founders until today. I intend to give 90%, 95% or 99% of my fortune.
Q: Crypto seems to divide so much, where people are either big believers or think it’s worthless. Will it always be this all or nothing thing?
Zhao: For a few years, it’s been this bipolar thing. There’s a small group of guys who are die-hard crypto fans, and then there’s a majority of people who don’t even know what crypto is. But as more and more people get into crypto, we see that happy medium.
I talk to a lot of athletes who are now watching NFTs (or non-fungible tokens, which use the technology behind crypto to create unique digital collectibles). They now realize the value of it. They might not be a die-hard crypto fan, but they’re not very skeptical of crypto anymore.
Even the central bank governors, when I spoke to them a year ago, were very skeptical. But now when I talk to them they say, “We need it to grow our economy. But they still have concerns about certain aspects of crypto.