The CEO of the world's largest crypto exchange is
calling for regulations to be put in place in the booming industry.
Changpeng Zhao, the CEO of Binance, has spoken about
the need for strict rules to be established on the market. This week, the
company released a list of "10 fundamental rights for crypto users"
that they hope will begin conversations among policymakers and regulators.
"This year, most of the regulators around the
world are looking at crypto intently, and many of them are communicating with
us," Zhao told the Associated Press. He also said that he and the rest of
Binance "feel this is the right time" to talk about regulations.
"We feel that it is important for industry
players to have a seat at the table," he continued. "And we also feel
that some regulations, if they're made in a vacuum, may not have practical
considerations in how they are applied, and they don't get applied very
Scrutiny of the cryptocurrency industry has
intensified in recent years. This is primarily because the industry has become
more mainstream. Last week, Bitcoin reached a record high of nearly $68,991.
Cryptocurrency has become so mainstream that the Staples Center will be renamed the Crypto.com Arena in December. Other industries, such as ride-sharing,
encouraged regulations before becoming significant companies within the field.
"Right now, we just don't have enough investor
protection in crypto," said Securities and Exchange Commission Chair Gary
Gensler, who also referred to the industry as equivalent to the Wild West.
"This asset class is rife with fraud, scams and
abuse in certain applications," he said. "There's a great deal of
hype and spin about how crypto assets work. In many cases, investors aren't
able to get rigorous, balanced and complete information."
For more reporting from the Associated Press, see below.
Binance CEO Changpeng Zhao
answers a question during a Zoom meeting interview with the Associated Press on
November 16, 2021. Binance is the world’s largest crypto exchange and hosts
tens of billions of dollars’ worth of trades every day. It’s calling for a
global regulatory framework for crypto markets.
The company acknowledges that crypto platforms have
an obligation to protect users and to implement processes to prevent financial
crimes, along with the responsibility to work with regulators and policymakers
to set standards to keep users safe.
The call for regulation might seem strange for an
industry whose popularity exploded in some part precisely because it sought to
operate outside the heavy hand of governments and other authorities. But Zhao
says more regulation for the industry is inevitable, and this allows his
company to play a role in the discussions. It may also help draw in people who
are still hesitant to get into crypto.
Big businesses, professional investors and even the
government of El Salvador are all buying in, even if critics struggle to see
the value of digital currencies created by non-governments.
The move could also prove to be wise if Binance's
U.S. business ultimately tries to sell stock on a U.S. exchange, something Zhao
hopes will happen in the next few years. A competitor, Coinbase, has already
fetched a nearly $74 billion market value on Wall Street following its initial
public offering this spring.
Such opportunities for wealth have drawn more new
investors into crypto, as well as the eyes of regulators.
Analysts said they expect Binance to agree to report
transactions to U.S. regulators looking for movements involved in the financing
of terrorism, among other things. One of Binance's "fundamental
rights" also calls for strict regulations on marketplaces that offer "derivatives
and leveraged instruments," which can be lucrative but also very risky
trades for investors.
Most regulators around the world are focusing on
"know your customer" rules, where financial companies try to verify
the identity of who's using their services, Zhao said. They're also keyed in on
protections for consumers.
But even there, "different countries do have
different interpretations and different meanings for these very simple
words," Zhao said. In the U.S., for example, the emphasis for anti-money
laundering is on blocking financing for terrorism, while Chinese regulators are
looking more for people moving money out of the country.
Campbell Harvey, a finance professor at Duke University who recently wrote a book titled DeFi and the Future of Finance,
said regulators are playing catch-up with complicated and fast-moving
technologies, while trying to find a balance between protecting investors and
not squashing innovation or driving it to other countries.
The stakes are rising to get it right. The
uncertainty now around what regulation will eventually look like is keeping
some big institutional investors like pension funds out of crypto. And that's
where the opportunity for even bigger money for the industry lies.
Given all the complexities, Harvey said the best
solution may be for the U.S. government to create a new agency to oversee
cryptocurrencies and the ecosystem around them, rather than relying on a
combination of regulatory bodies.
"It's complex, and it just doesn't fit many of
the usual regulatory models," he said.
Zhao, who said the only cryptocurrencies he owns are
Bitcoin and Binance coin, said some parts of the cryptocurrency world look more
like securities, while others look more like commodities or currencies. And the
ecosystem is growing by the day as people can create new tokens with just a few
clicks of a mouse and keyboard.
He likened it to the early days of the internet, when
people were trying to figure out what kind of media it was. Is it radio? TV?
"People may have a tendency to view crypto as a
single asset, which I think is a little bit misleading," he said.
"Crypto is a fundamental technology that can improve on many of the
traditional asset types."