Changpeng “CZ” Zhao still sees possibilities amidst the ruins.
The founder and CEO of Binance, the world’s largest cryptocurrency exchange by volume, shared his thoughts about the current battered state of the sector in a statement posted on Twitter on June 23.
“So far, I believe the blockchain industry has shown tremendous resilience,” Zhao said. “If two years ago, on March 12, 2020, you told me bitcoin’s price would be $20,000 in June 2022, I would be pretty happy. So, why not zoom out for a more balanced perspective?”
“With this in mind, let’s take the situation as a chance to reiterate proper risk management and educate the masses,” Zhao said.
The closing price for bitcoin on March 12, 2020 was $4,858.38.
As Zhao made his comments, bitcoin was down nearly 1% as the world’s most popular cryptocurrency struggled to remain above the critical level of $20,000.
“As you all know, current market conditions are tough. With our position as one of the largest industry players with healthy cash reserves, we have a duty to protect users,” Zhao wrote. “We also have a responsibility to help industry players survive and hopefully thrive. This is the case even if there are no direct benefits to us or we experience negative ROIs.”
Online trading firms specializing in crypto were hit hard Wednesday after BinanceUS, the company’s American affiliate, eliminated its bitcoin spot trading fees.
He noted that all bailouts are not alike, citing some companies, products, or projects that are “poorly designed, poorly managed, and poorly operated.”
“In short, they are just ‘bad’ projects,” Zhao said. “These should not be saved. Sadly, some of these ‘bad’ projects have a large number of users, often acquired through inflated incentives, ‘creative’ marketing, or pure Ponzi schemes.”
‘Let Them Fail’
Bailouts don’t make sense for these companies, he added, as, in any industry, there are always more failed projects than successful ones.
“Don’t perpetuate bad companies,” he said. “Let them fail. Let other better projects take their place, and they will.” Industry players. schools, and governments “need to educate people on financial literacy, risk management, diversification, and, most importantly, how to evaluate fundamentals,” Zhao said.
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Other companies have good qualities but made some mistakes, he said, and “these can be bailed out and subsequently ensure changes are made to fix the problems that led them to this situation in the first place.”
“The third category contains projects that will survive, but barely,” Zhao said. “They are tight on cash. They don’t have a sufficient budget to grow healthily anymore. They could either wait it out, get a cash injection, or explore M&A possibilities. Obviously, all of those make sense from a potential investor or acquirer’s point of view.”
Zhao noted that he believes that a key difference between the current situation “and 2018’s bear market is that there is now more leverage in our industry.”
“You’ll find fast leverage on centralized exchanges, often with futures products,” he said. “These work, as you might guess, very ‘fast’.”
Zhao said slow leverage occurs when funds lend to other funds or DeFi protocols to invest.
‘Survival of the Fittest’
“When one of these gets liquidated, the affected lenders typically take a few days or weeks to realize or admit the pain,” he said. “These can also have a cascading effect, but the propagation speed is much slower. I believe we have not seen the end of these yet.”
“Luckily,” he added, “the more these cascading events happen, the number becomes smaller and more spread out.”
His comments were generally well-received on social media.
“Agreed, survival of the fittest as with everything in todays world,” one person tweeted.
“Well put,” another person said. “So many people hear bailouts and automatically think of the negative implications. But as a community, anyone who is capable to provide assistance to solid projects in order to help maintain their development through the bear market have a responsibility to help.”
Earlier this month, Binance temporarily paused bitcoin withdrawals “due to a stuck on-chain transaction.”
The company also had to contend with reports that it had processed $2.35 billion in transactions stemming from investment fraud, hacks and illegal drug sales.
Zhao is the 80th richest person in the world, according to the Bloomberg Billionaire Index, which put his net worth at $18.5 billion.