AP — NEW YORK No attempt is made by Binance's CEO to explain why some cryptocurrencies that started as a joke have surged in price so much.
It is also unclear if the popularity of meme coins like Dogecoin is a warning sign of an imminent bubble. It's also a good example of the power of decentralization, according to Changpeng Zhao, better known as CZ.
The value of the world's most valuable stock, Microsoft, has been dwarfed by the value of the world's most valuable cryptocurrency, Bitcoin. Investors and regulators all over the world are taking notice of the industry's rapid expansion.
The Associated Press spoke with Zhao after his company called for more regulation of cryptocurrency markets around the world. Additionally, he talked about his cryptocurrency holdings and pledged to donate the majority of the money he earned. For the sake of readability and length, this conversation has been condensed.
Q: As the value of once-joke currencies soars, what conclusions can we draw?
Zhao: Actually, I don't understand Dogecoin. The power of decentralization is demonstrated here. I don't know if my opinion matters or not. A meme has value if a large enough number of people in the community find it amusing and appreciate it.
And Dogecoin has been around for quite some time now. While the market has risen and fallen many times, it has remained steady. Shiba, a meme coin, has also been added to the mix. There are a greater number of meme coins in our possession. Then what happened? It only takes one other person to be interested in purchasing something for it to be valuable.
You need a lot of people to want to buy or sell something in order for it to have liquidity. The value of a commodity is determined by its liquidity, according to the market. So, judging it isn't in my purview.
All the valuable cryptocurrencies in the world should be able to trade on our platform.
Q: Isn't it a sign of a bubble when people buy something because they think someone else will buy it in the future?
Zhao: I'd say so, to some extent. However, the reality is a little more complicated than that.
The term "bubble" is a bit of a misnomer. Should you sell an asset if its value has dropped by more than 80%? Bitcoin fell by a larger margin before regaining some of its lost ground. Amazon's stock price plummeted (by more than 90% between January 2000 and September 2001), but it has since rebounded to be one of the world's most valuable companies. Possibly, but I'm not sure. Most people's definitions would say it did. Jeff Bezos, Amazon's CEO, is likely to disagree.
The most important thing is that there are a lot of swings. It's fine as long as people know what they're holding and what the dangers are.
Q: Is there a reason why cryptocurrency prices fluctuate so much?
Zhao: If I were a mass market consumer, I'd tell people that all things are in flux.
You need a place to store your fortune. Any of these things could be used as collateral: a house, stock, or even US dollars. All of these variables, however, are dependent on another.
There is a high degree of volatility in the cryptocurrency market because it's a smaller market. It's a tiny fraction of the size of traditional investments. The lower the volatility of an asset's market value, the more valuable it is. Just do the math.
Suppose you're looking at a coin with a $10 million market value. The price of the coin would rise much more than 10% if someone tried to buy it with $1 million, because not everyone is selling it. A $1 million investment in a market with $100 trillion in assets will have no effect on the price at all.
When it comes time to pay your rent, you'll need some US dollars on hand. There is a limit to how much you can put at risk in volatile assets. When it comes to long-term savings, however, you can invest in highly volatile assets.
Q: Is volatility the main reason people aren't using cryptos?
Zhao: There are a large number of traders actively engaged in the crypto market today. Volatility is preferred by a large number of people who are in this business for financial gain or speculative trading.
Crypto's biggest obstacle, in my opinion, is that it's so difficult to use. If your computer crashes or your computer is infected with a virus and you lose your cryptocurrency, it's extremely difficult to keep it safe elsewhere. When your computer or crypto wallet device is lost, you still have a way to regain access to your funds. As a result, you'll need regular backups, and those backups must be protected. They can't be taken from you. The final consideration, which is often overlooked, is what would happen if you suddenly disappeared. There are deaths. Can your children get what they need if you suddenly disappear? How do they obtain it? How can you ensure that they will receive it and that they will receive it only after your death?
To deal with all of those aspects, there aren't many good tools. One solution is to use centralized exchanges, where we act as a custodian for the coins of others. However, one of the most important limitations is the inability to safely store your tokens. Today, we don't have tools that are easy to use and secure enough. Even so, I believe that the industry will improve as it progresses.
Q: What do you do with your own money?
Zhao: I admit that I doesn't invest a lot of money. For the most part, I'm one of those people who should avoid modeling their behavior after.
In 2014, I made a small Bitcoin investment. I spent some of it over time, but I kept the majority of it in my possession. I didn't make any money from it.
A large portion of my net worth comes from BNB, which I own (Binance coin). I don't have any other coins in my possession right now. If we ever want to realize the value of Binance's equity, I have a sizable stake in the company.
No other project, whether crypto or non-crypto, has any equity in me. This is something I deliberately avoid because I don't want there to be any misunderstandings. So I'm very, very unbalanced, which is something I actually discourage most people from doing.
But for me, the risk is worth it. Regardless of what happens to Binance, if I say I'm going to start a new project, I believe my credibility is there for others to invest a large amount of money in my company.
I, for one, am financially independent. Since I don't require a large sum of money to live comfortably, this is a viable option for me. I intend to give away the majority of my wealth, as many wealthy entrepreneurs and founders have done since Rockefeller until the present time. The vast majority of my wealth will be given away.