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Regulatory clarity will ‘ease’ crypto adoption, Binance CEO says

Binance CEO and Founder Changpeng Zhao (CZ) joins Yahoo Finance Live to discuss how investors can weather the crypto winter, Fed Chair Powell's call for greater regulation, adoption of digital assets, the SEC's approach to regulation, and the correlation between cryptocurrencies and stocks.

Video Transcript

- Welcome back to Yahoo Finance. I'm Jennifer Schonberger. Well, Bitcoin getting a bit of a bid in today's session. But the token and cryptocurrencies overall remaining largely under deep pressure as this cryptocurrency winter persists. Changpeng Zhao, CEO and founder of Binance, the world's largest cryptocurrency exchange, out exclusively with an op ed on our website this morning offering advice to investors and crypto firms on how to wade this crypto downturn. He joins me now in a Yahoo Finance exclusive. CZ, welcome back to the program. Thanks so much for being here.

CHANGPENG ZHAO: Jennifer, thank you for having me.

JENNIFER SCHONBERGER: Before we get to your op ed, I want to kick off the interview with your reaction to US Federal Reserve Chair Jay Powell's comments this morning on regulating crypto, in which he said, basically, monetary policy normalization, raising interest rates around the world has revealed structural issues with decentralized finance that really needs to be regulated properly. He also pointed to some of the novel inventions replacing intermediaries with smart contracts that also require regulatory attention. Your reaction to that.

CHANGPENG ZHAO: Yeah. So that's a very interesting problem to look at right now. The central banks give banks money to pay interest rates, et cetera. With crypto, there's no direct way to do that. And they are interest generating products. But actually, in the US, I don't think that most of them are allowed. I think there are some regulatory agencies that have a view against that. So it'd be interesting to see which view pans out.

JENNIFER SCHONBERGER: Building on that, back to that op ed, in terms of regulations, you write that advancing regulations for crypto goes against the ethos, but that it would foster innovation and establish trust. So my question is if the US were to come out with clear rules for regulating crypto, would that really helped crypto blossom? Would we see more money funneled into the sector, advancing faster adoption, both on the part of corporations and consumers? And, ultimately, does that lift us out of the crypto winter?

CHANGPENG ZHAO: I think having regulations today definitely helps. Having regulatory clarity definitely helps. But it's not to say that all regulations could be good. We have to look at the specific regulation. For example, we've seen in other countries where they have a clear ban on crypto, that's one type of regulation. That's clearly not good. Whereas I don't believe that would be the case in the US. I think the US still has a very strong pro-innovation culture.

So we have to look at more specifically to see what it looks like. Bad regulations are bad. Good regulations are good. But overall though, I think given the level of sophistication and maturity of the US regulators, I do believe that having regulatory clarity will actually ease adoption. There is a group of guys who got into crypto early, many of them may be libertarians, anarchists, et cetera. They hate any kind of regulation. But I think for the mainstream users, the rest of the 95% of the users that's still not in crypto yet, having regulation will actually ease them into crypto.

JENNIFER SCHONBERGER: SEC Chair Gensler has repeatedly asked crypto firms, crypto exchanges to come in and register with the commission. Is Binance in talks with the SEC to formally register? And how do you view the SEC's approach to regulating crypto? Would you like to see more specific rules specifically written for crypto?

CHANGPENG ZHAO: Yeah. So my understanding is I think both Binance US and Binance.com are talking with all regulators pretty much at the same time. So I'm sure they're dialogues that's happening. I don't know the specific details of those dialogues. At the same time, I believe classifying all of crypto as security is probably a bit simplistic. There are many different types of cryptocurrencies.

Some of them do look-- are closer to currencies. Some of them are closer to as other asset types. I would clearly point to many different tokens that are clearly not securities. So I think that's a more simplistic view. It's very similar to the early days of internet. People ask, is internet a radio, a magazine, or something else? But internet has internet magazines, internet radio, and many other things. So I think we can't look at this technology as one asset class.

JENNIFER SCHONBERGER: Crypto seems to be mounting a little bit of a comeback today, but again, largely remaining under pressure. How much of this crypto winter is going to persist based on the Federal Reserve's action? So long as the Fed is raising rates, does crypto remain under pressure? Or is this more of a byproduct of the Bitcoin halving cycle, which can take some years to play out?

CHANGPENG ZHAO: So to be honest, it's very hard to tell. Well, there's a few different logics here. One is when there's high interest rate, people should want to hoard cash or deposit back into banks. But the bank interest rate is nothing comparable to crypto right now with staking, yield generating products. And even like DeFi. DeFi give you very good returns, much higher than the banks. And the money doesn't leave the DeFi protocol.

So the other aspect is crypto is still very much correlated with the stock market, which is actually counterintuitive. But I guess, today, most of the crypto traders are also stock traders. So when the stock market tanked and they want to hoard cash and then actually crypto market goes with it. In theory, that should be inversely correlated. But we have not seen that quite just yet. I think it would take a couple of years to see that. So there's a few different aspects at play.

It's very hard to predict in one shot. Like what other Fed policy is going to affect crypto? And also, yeah, crypto is much more international. The user base for that is much more diverse. We see like other continents, like Africa, Latin America, they use it mainly for commerce, for payments, where they're not using that as an investment asset.

JENNIFER SCHONBERGER: Unfortunately, we are out of time today. We do want to point viewers to our website finance.yahoo.com to read your comments in that op ed. And also, some news coming out I know from Binance on a new law enforcement training program. Unfortunately, we didn't have time to get to that today. But there's more on our website on that. And CZ, we want to thank you so much for your insight. And we hope to have you back again soon.