New York
CNN
—
The crypto industry is facing a 2008-style crisis that will lead to a much-needed regulatory crackdown, crypto chief Changpeng Zhao warned on Friday.
“It is devastating for the industry. Much of the consumer confidence has been shaken. We have been set back a few years, Zhao, CEO of cryptocurrency exchange Binance, said during a conference in Indonesia.
The Binance CEO, known as CZ, spoke amid the stunning implosion of rival FTX, which filed for bankruptcy just hours later.
“We’ve just seen another very large player go down,” said Zhao, who noted that this collapse follows the demise of Celsius, Voyager, Three Arrows Capital and other crypto firms.
Zhao was a key player in the downfall of FTX. Binance reached a tentative rescue deal with FTX earlier this week, but that transaction fell apart almost immediately, paving the way for Friday’s bankruptcy filing and the resignation of FTX founder Sam Bankman-Fried.
The moderator noted that the crypto-euro feels a lot like the global financial crisis of 2008, which brought down Bear Stearns, Lehman Brothers and other leading Wall Street players.
“It’s probably an accurate analogy,” Zhao said.
He urged regulators to look beyond just anti-money laundering and know-your-customer (KYC) rules and instead focus on the operations, business models and reserves of exchanges like FTX.
“Regulators will rightfully scrutinize this industry much, much harder, which is probably a good thing to be honest,” Zhao said. “Short-term, it’s very painful for retail investors … We feel that pain. But in the longer term, this is another wake-up call to say, ‘Look, we’re in a new industry. There’s a lot of risk, and we have to learn how we must manage these risks.”
Zhao also detailed his interaction with FTX, saying his firm decided to dump its holdings in FTT — an illiquid token backed by FTX — after a CoinDesk report raised questions about the balance sheet of FTX’s sister hedge fund.
“This problem was not created in the last three days,” Zhao said, adding that the problem has been there for much longer.
The Binance boss accused FTX of “misusing” user funds.
Bankman-Fried, the 30-year-old crypto wunderkind behind FTX, said Friday that he is “really sorry” for what happened at his firm.
“I’m piecing together all the details,” Bankman-Fried wrote on Twitter, “but I was shocked to see things unravel the way they did earlier this week.”
