Bitcoin is ‘better form of value’ than fiat, says Binance CEO CZ
In a special video interview, Binance CEO CZ also explains why — despite DeFi’s spectacular rise up to now — he thinks many current DeFi projects will fail.
Binance CEO Changpeng Zhao — also known as “CZ” — praised bitcoin as a “better form of value” over fiat currencies, explaining that its advantages became apparent during the 2020 economic turmoil.
Zhao’s comments followed a 20% plunge in bitcoin prices from its all-time high of over US$40,000 on Jan. 8 and then tumbled 20% for four days before recovering. Bitcoin is currently trading at around US$35,000 at the time of publication.
“Covid paused all economic activity globally, and then this quantitative easing by every country — I think 20% to 30% of the U.S. dollars were printed last year, and other countries are probably printing more than that,” Zhao told Forkast.News. “If you’re holding fiat currencies, your purchasing power was probably devalued by 20% to 30% percent if you keep holding onto it.”
As pandemic-related stimulus checks flooded the global economy, rising fears of inflation have led to an influx of institutional investment into bitcoin.
“If you were going to press me for a prediction, I would say bitcoin is probably going to do another 5 to 10x this year alone,” Zhao said, adding that even Binance — the world’s largest cryptocurrency exchange — has been struggling with the massive trading volumes. “There’s no 100% guarantee, but I think currently, we do have less outages compared to other players in the industry.”
See related article: New 2021 bitcoin price report forecasts risks and opportunities
Though Zhao and many in the cryptocurrency industry remain bullish toward bitcoin, others are warning about bitcoin’s volatility. Notably, Bank of America’s chief investment strategist Michael Hartnett and other bitcoin bears are calling bitcoin “the mother of all bubbles.”
But according to Zhao, bitcoin’s volatility is not actually all that high compared to other assets and companies of similar size in market capitalization. “Bitcoin’s volatility is actually lower than, for example, even Tesla’s,” Zhao said.
Aside from bitcoin’s price rise, the blockchain and crypto industry also saw a nearly 35-fold growth in decentralized finance (DeFi) since early January last year. In what is now called “DeFi Summer,” total value locked (TVL) — or the amount of money locked in DeFi, grew so much mid-2020 that even DeFi insiders described it as a “craze,” and others wondered whether the phenomenon was similar to the 2017 ICO bubble. But DeFi has only kept growing, and its TVL is now closing in on US$24 billion at the time of publication.
Despite Zhao’s optimism toward bitcoin, he predicts that most DeFi projects “probably will fail” as the industry is still in its infancy.
“I think we’re seeing the first iteration of DeFi right now,” Zhao said, explaining his belief that second-generation DeFi projects are more likely to achieve long-term success than current first-generation projects. “Google is not the first search engine. Facebook is not the first social media.”
But the CEO’s misgivings toward first-generation DeFi projects have not stopped Binance from entering the DeFi space. The Binance Smart Chain offers both decentralized exchange (DEX) and centralized exchange (CEX) services.
Zhao said that Binance would also continue to invest in projects like CoinMarketCap, which was acquired by Binance in March 2020.
Watch CZ’s full conversation with Forkast.News Editor-in-Chief Angie Lau on bitcoin’s rally, the future of stablecoins, his outlook for DeFi and the plans in store for Binance.
- Why bitcoin prices have risen dramatically over the past year: “I think 2020, that was a pretty crazy year. Covid paused all economic activity globally, and then this quantitative easing by every country. I think like 20 to 30% of the U.S. dollars were printed last year, and other countries are probably printing more than that. Which means that if you’re holding fiat currencies, your purchasing power was probably devalued by 20 to 30%if you keep holding onto it.”
- How bitcoin is less volatile than Tesla or Apple: “In every market there’s volatility. If you base yourself in any asset, every other asset is going to be volatile. In every other asset is a mass psychology play. And also, bitcoin’s volatility is actually lower than, for example, even Tesla’s. Tesla is going up, really, a lot. And then they have corrections, of course, then there’s volatility. So it’s actually less than Apple’s [and] Tesla’s stock volatility. So it’s nothing. And it’s also about the same market cap around those areas.”
- Why many DeFi projects likely will not survive: “I think we’re seeing the first iteration of DeFi right now. And as in any industry, there’s a very high chance of failure. Most DeFi projects probably will fail. There will be a few that will be successful and a very high likelihood those are going to be second generation DeFi projects. Google is not the first search engine. Facebook is not the first social media. There is a learning curve for any new industry.”
- What is the value of stablecoins? “I think stablecoins do serve a very important use case for people coming into crypto and for people who want to hedge against crypto price drops, they can move into stablecoin, etc. So, they do serve a pretty important purpose in the ecosystem, so I do think they’re quite important.”
Angie Lau: Is bitcoin the mother of all bubbles? What’s behind DeFi’s extraordinary growth? And how is Binance, one of the world’s largest cryptocurrency exchanges, reshaping the future of finance?
Welcome to The Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast News. I’m Forkast Editor-in-Chief Angie Lau.
We saw massive sell off of bitcoin after it reached a new all-time high of US$41,900, and then Bank of America’s chief investment strategist called it the “mother of all bubbles,” while JP Morgan predicts bitcoin will go over US$146,000 as it competes with gold as an alternative currency.
Who’s right? Well, how about if we ask the man who made the bet before the institutional pundits all weighed in and created a marketplace for crypto. Let’s welcome co-founder and CEO of Binance Changpeng Zhao — or better known as ‘CZ.’
CZ, Welcome to the show.
Changpeng Zhao: Hi Angie, thanks for having me on the show.
Lau: It’s great to have you. It’s your first interview of the year, so thanks for welcoming 2021 with us, right here at Forkast. How did things kick off for you? There’s no doubt, a lot of volume — a lot of trading volume — and a lot of activity on Binance since the start of the year.
CZ: I think things are really, really busy. I think 2021 kicked-off in high gear. So I think in the end of 2020, we saw the bitcoin price going up and institutions coming in and that just continues now. The first two weeks of 2021, I think we’ve seen five or six all-time highs both in terms of price and also system volume. So we’re seeing a massive number of users coming in now. So everything sort of busy, everything’s really cranked up. Everything is in high gear. So things are going pretty well from that perspective.
Lau: Are these new accounts and what are the volumes that they’re trading? Do they suggest that they are retail investors or are they bigger, more sophisticated investors making a bigger bet? What is the make up in your view?
CZ: We actually have seen an increase in both institutional and retail. So we’ve also seen some older accounts waking up, like people contacting our customer support, saying they forgot their passwords from two years ago. Now, they’re finally back. I even have friends calling me saying that they have an account that’s locked, they lost 2FA (two-factor authentication) because they changed phones. We’re seeing some of that, but we’re seeing also a massive number of new users come in. From a peak user trader volume perspective is much, much higher than the peak of 2018, or end of 2017-ish. So, we’re also seeing a lot of new institutions coming in this round.
I think now, especially given the high profile institutions coming in the U.S. — worldwide, there are many institutions coming in now. So we’re seeing a mix of them. The proportions are actually pretty much the same as before, so we haven’t seen one rising above the other but it’s just massive volumes increasing all around — which is pretty interesting to see.
Lau: Yeah, as you note, institutional investors like Guggenheim and MassMutual, and others, really bringing in those dollars as you track trading volumes and flows. What do you think is behind the demand for bitcoin? What is creating that floor for the value?
CZ: If you look at the really fundamental parts, bitcoin is just a better form of value. So it is a better form of money, in a sense. So it has a lot of advantages over traditional fiat currencies, especially. But I think there’s a number of contributing factors for people realizing that, and for corporates, institutions realizing that and then rushing into this industry now.
I think 2020, that was a pretty crazy year. Covid paused all economic activity globally, and then this quantitative easing by every country. I think like 20% to 30% of the U.S. dollars were printed last year, and other countries are probably printing more than that. So basically, which means that if you’re holding fiat currencies, your purchasing power probably devalued by 20% to 30% if you keep holding onto it. And then we’ve seen that the corporate treasurers of course — these are the professional users, these are the experts that understand economy and understand money — they now have to manage their corporate treasuries. They’re now allocating into bitcoin or other cryptocurrencies. And then this kicks off a race — that’s the institutional race right now that we’re seeing in North America and also in the rest of the world.
Once the price starts to go up, all the retail guys flood in as well because everyone wants a piece of the rising value. So I think there are multiple factors contributing to it, but the overall economic situation last year definitely contributed to that.
Then DeFi’s pretty hot. The ‘OGs’ (or industry veterans) in the industry are all rushing to DeFi, including ourselves. I think there’s a number of contributing factors, but there’s nothing really negative about cryptocurrency. The regulations are getting clearer around cryptocurrencies and cryptocurrency businesses. Bitcoin and Ethereum, the top cryptocurrencies are generally viewed to be accepted as non-securities, etc., in most countries, and they’re also seen as valid assets — there are court cases protecting users assets, etc. So I think a number of those things have all come together. So there are multiple factors contributing to the ride and they all feed on each other. So now we’re seeing, I would say, a bull market.
Lau: Why do we see such volatility? It’s par for the course for those of us who’ve been tracking it. But for these huge price swings, for more conservative investors who are observing this space, why is there such massive volatility?
CZ: Well, I think in every market there’s volatility. If you base yourself in any asset, every other asset is going to be volatile. In every other asset is a mass psychology play. And also, bitcoin’s volatility is actually lower than, for example, even Tesla’s. Tesla is going up, really, a lot. And then they have corrections, of course, then there’s volatility.
So it’s actually less than Apple’s [and] Tesla’s stock volatility. So it’s nothing. And it’s also about the same market cap around those areas. So it’s actually not out of the ordinary. Volatility is still happening in trading markets where the asset is actively traded. And this natural price discovery and this mass psychology going on. Everyone wants to rush in, and then the price goes up, and then somebody says, “Okay, now the price is high enough,” they want to cash out a bit and they start selling. Sometimes that triggers a cycle and then everyone wants to sell.
And especially when prices go up really heavily. I think we’ve probably seen bitcoin go from like US$10,000 to US$41,000 in the span of like a month or two. When that kind of price rises, a 20% correction is very, very normal, especially considering a lot of new guys coming in, buying at the new higher prices, they are not the sort of what we call strong hands holders that are in this for the long term. Many of them are for short term gains, and then as soon as they see any price drop, they rush to sell. So they’re not yet the core believers. They had not converted 100% of their wealth into crypto. So there are different stages of people. So the corrections are very, very normal. So I don’t think anything out of the ordinary and I think we’ll continue to see corrections and volatility going forward. But compared to other similar market cap assets, bitcoin is actually not that volatile now.
Lau: And you do note the speculative nature and the volatile nature, but hey, when you’re an exchange, any time somebody does a trade on Binance, that’s dollars for your bottom line. That really is what differentiates Binance from the very early days — getting into crypto, seeing a marketplace, creating a marketplace for exchange. And here you are, fast forward, there’s no doubt of the success. How has Binance handled the expansion and handled all of the machinations, if you will, from 2019, 2020 and into 2021?
CZ: I think for us, it’s really, really just a focus on how to handle growth. So even in mid to late-2018, when bitcoin prices [were] at rock bottom, say, around US$3,000, I was telling our team, “Look, we’ve got to scale up. We’ve got to be ready for the next wave.” So we have been spending the good part of the last two and half years expanding our systems, expanding our team, etc. To be very honest, even today, we have expanded so much capacity, [but] we’re still struggling a little bit.
On peak days, there’s a few different parts. There’s a system which got to stay up when there’s peak volume, and we’re seeing 20 to 30X volumes on a 5% rise of bitcoin. So the volumes on the systems are growing much more exponentially than bitcoin prices. Luckily, we’ve done a lot of work in the last two years, but the system’s not production tested at those volumes and the system’s like a really complex organism right now. There’re so many different moving parts. It’s like a small city grid. If you imagine — there’s traffic going on different roads, and we never really know which road is going to be more congested beforehand. So we actually had to see the new volume coming in and then adjust as we grow.
Even though the core infrastructure is quite scalable, we are still seeing some issues here and there as the system grows to newer levels that we have not seen before. But so far, the system has been holding up.
The other aspects, the second aspect, which is really hard to scale, is customer support. So there’s still a very large portion of customer support which is handled by humans. And you can’t just hire a 10x team before the volume gets there and everybody will be bored, and that’s demoralizing. But when the volume hits, you want to hire 10x people, it doesn’t happen that quickly. So we’re struggling a little bit on that front. We’re making a lot more automated tools to help users, etc., but it’s going to take some time. To be very honest, I think we were always anticipating this type of wave of growth for the last three years. It’s finally happening — which is great — but we are still struggling a little bit to keep up, to be honest.
Lau: There’s no doubt it, and Binance is not the only exchange that is experiencing server outages and pauses — Bithumb, Coinbase and others. It just seems to be increasingly frustrating for the trader. And then your trading position is suddenly lost or it’s paused. People are losing some money here. How are you planning to make it right or mitigate these system failures? How can users be sure that when they want to make a trade in their position that it’s going to go through?
CZ: So to be honest, there’s no 100% guarantee, but I think currently, we do have less outages compared to other players in the industry. But that’s not a valid reason or to say that we’re okay on any outage. So we do try to minimize it. We can’t guarantee that we will avoid all of them. There’re so many different parts: internet messed up, Google goes down sometimes as well. So we do try to minimize those.
One of the advantages we actually have is when Binance goes into the system maintenance, for example, we’ve had to do an upgrade for like eight hours. Because we have so much volume on our order book, the price doesn’t move in that eight hours because everybody knows, given the thick order book on our exchange, when we turn it back on, the price is going to be dragged right back into our spread. So the price will naturally come back to where we paused it, if we’re doing system upgrades. So that’s one of the huge advantages for having a big exchange.
But we do suffer here and there and we try our best to make it right for users if it’s our fault. But sometimes it’s very difficult to figure out whose fault it really is. So when there’s a massive outage, we do try to make up for it. We have a SAFU (Secure Asset Fund for Users) fund, which is an insurance fund that’s used for these types of situations, including security issues [and] system outages. Even when third-party projects get hacked, that coin price goes to zero, we have actually used [the] SAFU fund to cover some of these positions, including the cover incident recently. So there’s no perfect solution, but we do put protecting users as our top priority and top principle in the team.
Everybody on the team knows [that] this is our model and they make decisions that way. But nobody can guarantee 100% no issues. This is a new industry. We’re seeing five to 10x volumes every month or so. It just keeps going up, and we just have to expand systems and also customer support to support that kind of volume. It’s a challenge, but so far we’re dealing okay. I wouldn’t say super great, but I think we’re faring better than most other exchanges in the industry. Hopefully we can continue to grow it and cope with demand.
Lau: Well, you seem to be providing some customer service to potentially a VIP client that you’re trying to woo over to bitcoin — this is Elon Musk. We’ve been enjoying your Twitter exchange. You said you’re going to buy a Tesla if he buys crypto. He inferenced that he was curious if you could buy a billion in bitcoin. And apparently that is possible. A lot of people are paying attention to this because, once upon a time, we didn’t think corporate treasuries were getting into the game and here they are.
CZ: So basically, number one, I enjoy trolling Elon Musk. That’s always good fun. He’s openly talking about cryptocurrencies, bitcoin, memes, Ethereum, etc., but I don’t think we can get him on Binance.com as a customer just yet because I think most of his assets are probably in the U.S. and he’s probably a U.S. citizen. So I think Binance U.S., our partner in the U.S., is going to probably try to win over his business if he wants to buy bitcoin. I don’t have any private information, I don’t have a private conversation with him, etc., but I would imagine that he’s probably buying loads of bitcoin right now and trying to figure out ways to buy.
Because for corporates in America, I would imagine there’s probably a lot of compliance procedures to go through, especially giving a public company, etc. And also being the world’s richest man, there’s probably a lot of additional hoops that he has to go through to acquire bitcoin at a billion dollars of scale. But he obviously talks about it, he understands it, he knows how good it is. So I wouldn’t be surprised if in a few months he announces that, finally, Tesla owns, I don’t know, how many bitcoins. That’ll be really good for the industry. I think it’s going to happen sooner or later — maybe this year, maybe next year. Who knows?
Lau: I think on the record, he said that he only has 0.25 BTC.
CZ: That was a couple of years ago, so we don’t know.
Lau: We don’t know if he added to the position.
CZ: And that’s also him personally. So more likely, he will have to use Tesla’s corporate treasury to buy first before he buys personally. That would be the right thing to do, because otherwise, they may be seen as conflict of interest, etc. He hasn’t said anything about Tesla or other corporate treasuries. I’m sure he couldn’t right now. So someday we may see an announcement. I’m pretty sure the day will come.
Lau: The funny thing about bitcoin is that a lot of people are paying attention to bitcoin right now, and yet, the biggest story of last year and going into this year has been DeFi. And I remember sitting down with you a few years back before all of the buzz, we were talking about DeFi, we were talking about decentralized exchanges when really few people were in here.
And here we are in 2021, total value locked is, I think north of US$22 billion right now. Where do you think DeFi is going? Is this the real story we should be paying attention to? And what is Binance’s strategy when it comes to DeFi and decentralized exchanges?
CZ: I think there’s definitely some core value in DeFi. DeFi is not a fad that will just go away. I think there’s some core principle or core concepts and core use cases and core applications that will stay.
There’s the concept of automated automated market makers (AMM) which provides liquidity in a very transparent way. On the user side, there’s liquidity farming — you stake your coins and you know how those coins are used and you can calculate whether you’re making money or not, you can check. So it’s a very transparent, white box, a see through type of mechanism for users to lock their cryptocurrencies and make the cryptocurrency earn interest for you.
Whereas now, in the fiat world, most of the banks are now starting to charge negative interest rates and they’re pretty heavy. So I think there’s definitely a core use case for that. That’s a very valid use case. Having said that, I think we’re seeing the first iteration of DeFi right now. And as in any industry, there’s a very high chance of failure. Most DeFi projects probably will fail. There will be a few that will be successful and a very high likelihood those are going to be second generation DeFi projects. Google is not the first search engine. Facebook is not the first social media. There’s a learning curve for any new industry.
Right now, I think for the projects that’s already in the industry, I hope they become successful, but the chances are there’s going to be a very large number of failures. But I think the industry will definitely stay. The concept works. The concept is good. There will be more iterations based on those concepts. Basically, it is a very compelling use case. So I think DeFi’s going to grow.
At the same time, if you look at the population mass adoption as a whole, 99.8% of the population still don’t have crypto of any kind. When we speak about DeFi, we’re talking about the marketplace in that 0.2% market share. The rest of the world are still figuring out how to buy bitcoin, and those guys are going to go on a fiat to crypto exchange to buy bitcoin.
DeFi cannot interface with banks or traditional payment channels, so they use stablecoin and other mechanisms. I think there’s still a very large place for centralized exchanges, CEX, to sort of facilitate the next mass adoption that’s going to come in.
I think there are demands for all business types, and for Binance, we actually offer products in both places, we give users multiple options. We offer Binance Smart Chain. On top of that, there’s a number of DeFi solutions growing on that. That’s an entire ecosystem on its own. And we’re trying to add similar kinds of services on the CEX, on the centralized exchange. We’re providing liquidity mining, staking, super savings, super earnings, type of products on the CEX as well, for the kind of novice users. We try to give users options and then we’ll see how the industry grows.
Lau: I mean, with the current state of Binance Smartchain as it relates to DeFi, you’re also planning to work on a stablecoin, I understand.
CZ: Yes, so we actually have been working on multiple stablecoin projects. We have a sort of a basket project that’s called Venus. That’s not a specific coin — well, now there is a specific coin called Venus.
But originally, it was a basket project that’s targeting multiple stablecoins. We have fiat-backed stablecoins like BUSD, which is actually not issued and minted by us, it’s actually minted by our partner in the U.S., Paxos, which is a NYDFS-regulated entity. So they hold all the money. They are constantly being audited. It is a very transparent and fairly safe stablecoin. We launched a BGBP which is the British pound stablecoin. We did Korean Won stablecoin, but we are going to wind that down. That’s kind of like a small failed project. That’s fine.
Lau: Why did it fail?
CZ: Just not a whole lot of users use it. I think basically, the other fiat to crypto exchanges in Korea are very well established. So we just didn’t see a strong uptake on that product. So we tried, it didn’t work, so we’ll wind it down.
On Binance Smart Chain, there’s a number of stablecoins launching on there as well. There’s Venus, which is an algorithmic stablecoin similar to Dai on Ethereum. So there’s multiple stablecoin projects going on. I don’t hold that many stablecoins, I only hold like a couple of thousand dollars here and there. But I think stablecoins do serve a very important use case for people coming into crypto and for people who want to hedge against crypto price drops, they can move into stablecoin, etc. They do serve a pretty important purpose in the ecosystem, so I do think they’re quite important.
Lau: You talk about this brand new space, and we’ve been talking to newsmakers as it relates to the space as well. And you talked about that regulatory clarity that is so important for growth. Do you see that coming into the DeFi space?
CZ: That’s a pretty tough one.
I think we’re seeing regulatory clarity in terms of recognition of cryptocurrencies as a legal asset to hold in most countries. In most countries as well, crypto businesses are being more and more accepted. But for DeFi, I think it’s still a relatively new thing that came up mid of last year that started like a year ago, but only really sort of grown into a size that’s noticeable six months ago-ish. I think the regulators are probably scratching their heads on how to deal with it.
I’ve seen multiple discussions publicly, and so it’s going to be very tricky. Do they regulate the guys writing code or do they regulate the blockchain? What’s there to regulate? I think that’s going to pose some really interesting challenges for regulators all around the world. I don’t really have good suggestions, to be honest. I think that’s a really tricky puzzle, that’s a really hard puzzle to solve.
But I think fundamentally, though, there are some shifts with DeFi. You can’t really regulate what’s going on on the blockchain. I don’t think you can regulate a smart contract. People just write code and deploy on the blockchain. If you regulate the developers, people are probably going to just do it more anonymously. People are already doing it more anonymously now.
The current DeFi AMMs or liquidity pools actually provide transparency so you can actually track transactions as they go through the DEXs, etc. There’s actually way better tracking provided by DeFi than traditional financial institutions. There are different pros and cons. So it’s going to be interesting to see how different regulators around the world try to attack that or try to address the DeFi regulations. It’s going to be really challenging.
Lau: It’s really interesting. We’re both based in Asia. And what’s really innovative here is that the ecosystem is supported by some really interesting developments and sometimes they are at the polar opposites but also meet somewhere interestingly in the middle and really inform a global regulatory audience. Hong Kong, Singapore, these are two really strong entities and leaders in this space. How would you compare the two?
CZ: So I think it’s too early to compare the two, to be honest. I think basically, Asia is quite interesting.
So Asia, China was really, really big, but they clearly said they don’t want exchanges to be operating inside China and they are pushing a CBDC. So they have a specific path that’s kind of clear. They are promoting blockchain very heavily. They are promoting bitcoin and other crypto currencies, much, much less.
Hong Kong has a sandbox program and I think there’s a number of Hong Kong exchanges that’s fairly active pursuing that. BC Group in Hong Kong, I think those guys are the same ANXPRO or ANX exchange guys, back in the day. So those guys are pushing in Hong Kong quite well.
I think Singapore has always been very open for fintech innovation. In some of these smaller sorts of islands or locations where they’re less concerned about their own currency — Hong Kong dollar, not so much — but the Singapore dollar has been free trading against other currencies for the longest time. And I think the Singapore dollar has no ambition to become the world dominant currency. So it’s not trying to compete with the U.S. dollar. I think they will probably take a much more open approach to welcome blockchain innovations, cryptocurrencies, etc.
There’s Taiwan and Japan. Japan has legally recognized bitcoin as a currency from 2017. So they’re one of the early adopters on that front. But the Japanese regulations, especially for exchanges, have been relatively strict, especially in the number of coins exchanges can list. They kind of missed out on this alt season in 2018, and that’s probably why most of the exchanges in Japan have become lower in volume. Taiwan, I’m actually not so sure. There’s a lot of discussions in Taiwan, but I have not seen any clear indications of which way the regulations are shaping up.
That’s kind of like at a very high level, my limited understanding of the situation. But I think fundamentally, though, it’s good that different places are trying different things. So they’re not just exactly copying each other. So Hong Kong had the sandbox going on.
Singapore has been pretty progressive in terms of: DBS, one of the largest banks in Singapore is launching a cryptocurrency exchange. But it looks it’s only targeted for large institutional traders, etc., so they’re kind of tiptoeing. But at least, that’s like a real big bank offering a cryptocurrency exchange. That’s probably one of the world’s first. I think there are different things being tried in different places. Hopefully, nobody knows which one’s better, to be honest. We have to try and see. And whichever works better, the other ones will copy. So I think that’s good that multiple countries are trying different things. So that’s really good for the industry.
Lau: Well, talk about being a reference point. Did you ever imagine that an institutional bank like a DBS, a legacy financial firm, would be getting into your space? When we talk about reshaping the future of finance, it really feels like what once upon a time were two disparate things are now merging together. They’re competing with you, in essence.
CZ: Yes, they’re competing in a very sort of broad way — a very sort of a generic way. But if you look at the product, the two products are very, very different. They’re geared towards really the traditional institutional investors, which we don’t have anyway. So from a clientele perspective, there’s almost zero overlap.
And also, they are increasing the sort of credibility and validity of cryptocurrencies to the traditional users, which have always been somewhat skeptical and slow to adopt. Userbase wise, I think there’s almost zero overlap. So that’s really good, and they’re growing the industry — that’s good for everyone, for us and for them. And as you said, I’m really impressed that a huge old traditional (well, not old, kind of old) financial institution…
Lau: Older than Binance.
CZ: Sure. And much, much bigger as well. It’s really good to see that happening. And Singapore has always been one of these sort of early innovators in the fintech space. It’s really, really good to see that banks in Singapore are trying this now. Everything triggers everything else. So this is going to be a big trigger for the banks in the U.S., the banks in Europe, even the banks in China, or banks in Japan, Taiwan, to try to do something along those lines.
This is a brand new industry. Everyone’s looking at each other, looking over their shoulders to see what other people are doing and trying to copy homework kind of thing. But I think that’s really, really good.
So I think DBS coming in will really facilitate a lot of traditional banks to say “look”… Now, I think if you are working at China Merchant Bank, it’s probably much easier to get a cryptocurrency exchange project approved, or there’s a much higher chance to get that approved because there’s a reference point of DBS in Singapore. So I think this is good. So we don’t view them as competition at all.
I think basically, they are completely different business models being tried and we don’t know which one is going to be big. They may win, we may win, or we may both survive and do well. So I think right now, given that we have such a tiny market share in terms of mass adoption, we probably only have 0.2% market share of the world’s population. So we have to do a lot more to grow the pie. So that’s the focus really.
Lau: Well, you also shared at Forkast that you planned for Binance to have profits of US$800 million to a billion this year. That’s up from US$570 million dollars last year. A lot of the market uncertainty pushing traders into digital coins was your remark. And that’s really what we’re seeing. But as you expand your business and your products, what else can we expect from Binance that gets you to that one billion dollar mark?
CZ: To be honest, that was a discussion with a Bloomberg journalist. She was really asking and asking about the numbers and said, “give me a number, give me a number.” So I threw a random number out of thin air out there.
One of the difficulties we have with estimating revenues for our business, especially in U.S. dollar terms, is that it changes every minute, even if nothing happens right now, the bitcoin price moves every second, and our revenue moves with it. Because we only hold crypto and we own it and there’s no single currency we can evaluate because we hold like 300 different cryptocurrencies because our income comes through those. So that’s a very generic estimate. And now, bitcoin prices have gone up so much, I actually don’t know what that number is.
But more fundamentally, though, for Binance, I think our mission is really just to increase access to crypto. So anything that can help people access crypto, we want to provide. So that’s kind of the general sort of overall direction or the larger direction that we were kind of heading. And for me, that’s the granularity I tell my team, and then they go figure out what they want to do within that really broad band.
And there are a number of things. I think we’re kind of ripe for a payment solutions now. So in addition to sort of just exchange trading, high frequency trading, et cetera, There’s DeFi, there’s wallet, and there’s also payments. Payments is one the most obvious use cases for cryptocurrencies, but it has not really taken off in any big way for a number of reasons. I think we may know one or two of the reasons and we think that we have different solutions that may be able to address those issues. So we’re launching a Binance card and we’re launching more additional payment solutions for crypto. And we’re hoping that that’s an additional point for people to — oh, there’s a little bug here — so that’s an additional solution for people to have more access to crypto. I think payments is really important because it’s an offramp. When you would think that — there’s a little bug here.
Lau: Go get it. Go get it. CZ. Did you get it?
CZ: No, it’s okay, it flew away.
But anyway — so basically before, without direct crypto offramps, without payment solutions, people have to think about selling crypto and then converting to fiat, hold fiat, and then pay for their other credit card bills or use that to transfer that to PayPal or other payment solutions to pay for stuff.
With a direct payment solution, people can stay in crypto much longer to the point where they just want to buy a cup of coffee — that is the Binance card. And for them, they just paid crypto. For the merchant, they accepted it, they got fiat. So we’re working on those types of solutions now. That hopefully will allow people to stay in crypto for much, much longer. For me, I now can move literally close to 100% of my money into crypto now. So we’re working on a lot of those types of solutions.
So that’s on the fiat side, and then there’s DeFi. DeFi, the Binance Smart Chain, we’re pushing very, very heavily. We launched a hundred million dollar fund to try to bootstrap the ecosystem, etc. So we’re doing multiple things on those fronts.
Lau: How about acquisitions. I’ll just remind the audience, Binance acquired CoinMarketCap in 2020. Are you going to ever tell us how much you paid for it? Was it US$400 million?
CZ: Unfortunately, there’s an NDA governing the price of that information.
Lau: For a reported figure of US$400 million dollars, CZ can neither confirm nor deny, due to an NDA. It is held under a holding company. At the time you said that it was a really good website. You think you could help it grow further? What’s your vision for CoinMarketCap in 2021?
CZ: I think CoinMarketCap just got to continue to grow the product. I think it has a very good base product, especially in terms of the traditional crypto assets like the top crypto assets. They added a lot more DeFi coins last year, and I think they launched the new portfolio tracking a feature just like a week ago. And so now, they’re making much faster revamps to the product.
After the acquisition, we increased the team size — we added a lot more developers and product guys. We just want to continue to build the product. I think basically, as I said before, we want to increase access to crypto. And I view there are two subcomponents to it.
There’s one: access to liquidity, which is the exchange business, which is Binance.com, Binance DEX, Binance Smartchain, DeFi, etc. There’s also access to information. So before, we had Binance Academy, but now we have CoinMarketCap, which is the largest website in the industry. That’s the highest traffic website , and people go there to look for information. So we want to add more and more information that people want to use in a clear and easy to find way. So we don’t want to over-clutter the page, but we want to put more useful information on there.
There are so many things we can do if we just look at Bloomberg, there’s much useful information that’s on there. We want to build that type of portal for the crypto industry. So that’s kind of the overall sort of higher level direction. And then the specific features, I’m actually not dictating it. I’m usually told after they go live. So the team’s working on a large number of features.
And also on the acquisition side, we will continue to make a lot of a lot of acquisitions. Our internal number’s usually around 20 to 30 acquisitions a year. We don’t really have a hard number, but when we see good products with good teams, that share the same vision and values with us, we try to get them into our ecosystem. There are a lot of projects which are very good, but they may not have the same kind of monetization strength as Binance.
Binance has a much more solid cash flow, which can sustain more or less many of our portfolio projects so that we can give them a much longer runway, have them focused much more on building products, and also, let them have a much longer-term vision instead of, “Hey, I got to raise money every six months or so.” So we’ve got to get them away from that mentality so that they just focus on building products. So we’ll continue to do a lot of acquisitions.
Lau: So acquisitions, what specifically will fit your thesis, and how much in your war chest have you carved out for acquisitions this year?
CZ: So I think basically we don’t have a specific carve-out or a war chest, per say. I think we have probably invested in, probably close to billions of dollars in terms of investments. Some of them are cash-based, some of them are equity swaps, some of them are other types of deals, token swaps, etc.
So there’s different types of deals. Some deals, we are just a minority investor and we just get a financial report every so often and we don’t interfere with the business. We don’t run it. We try to help it the way we can, but we’re not the operation team.
Some, we acquire and then we try to merge into Binance. So there’s different degrees of acquisitions. Three years ago now — if we calculate 2021 — in 2018, we announced a US$1 billion fund. I think we probably invested more than that now and we continue to invest in the industry, but that’s not all cash. So a lot of that is equity swaps, et cetera. So we don’t have that much cash yet. Our investment thesis is basically anything that helps to grow the industry.
So typically, those are infrastructure projects in the industry. We have invested in multiple wallets. We acquired Trust Wallet, 100%. Even after that, we invested in multiple other wallets like SafePal, which is a hardware wallet. We’ve recently invested in Math Wallet, which is another mobile wallet, which is an altcoin wallet. They support a very large number of blockchains. They have a very active development team.
We invest and acquired payment services businesses; Swipe, other payment solutions. We fund other blockchain developments. We have an ecosystem fund. We give our grants — those are typically much smaller in number 100K here, 50K there, 250K somewhere else, those type of numbers for much earlier prototype level projects. We do a combination of those things.
From my personal perspective, we also try not to invest in projects that are short-term driven. So if the project’s actually purely profit-based driven, we actually don’t want to invest. Those are typically much, much short-term focused. We want to look for companies that are building products people will use five years, 10 years from now, and we want those typically, ideally, that people don’t even think about using those products. So we want things like really low-level infrastructure stuff. That’s kind of what we are aiming for.
Lau: Bitcoin just celebrated its 12th birthday. You’re not in your teens yet either, but you’re close. When you reach that age you’ve been in the ecosystem, in the next five years, in the next 10 years, how would you describe Binance? Once upon a time, in its early days, it was a cryptocurrency exchange. A decade from now, how do you envision that we would describe Binance? How would we describe your business?
CZ: When we first started, we started as a centralized exchange. We started as a centralized crypto to crypto exchange. So that’s very clear. And then, unfortunately, that’s the thing that people associate us with, still. That’s the largest part of our business, for sure, but we’re doing a lot of other things. So in 10 years from now, or five to 10 years from now, I ideally just hope people just think of Binance as a brand or a collection of businesses or ecosystem projects that’s kind of in the crypto space. So hopefully, it’s just a yellow brand that occupies a little corner in this crypto sphere.
There should be multiple projects going on. Probably there will still be the centralized exchange. There should be multiple decentralized exchanges, either developed by community members or some of our current core team members that may spin out. And they maybe wallet services, there may be payment services. I want Binance to be as decentralized as possible, to the extent possible. We may look at different ways to sort of just decentralize Binance completely, if we can.
So, in 10 years, I definitely want us to reach that level of decentralization. Hopefully, people don’t refer to Binance as a company or even an organization. It’s just an ecosystem that’s there. So hopefully we can reach that point. There’s a lot of challenges, a lot of hurdles to do that.
There’s also a lot of things I even haven’t thought through. I don’t have solutions for everything. But hopefully, as time goes on, those things will become clear. So I eventually just want Binance to be like, just kind of a brand of a collection of different businesses that we actually may or may not own or have even involvement with. That would be actually the ideal situation in my mind in 10 years.
Lau: Yeah, you don’t even have to run it, it’s an ecosystem. That is an incredible vision. We’ll certainly be keeping track.
And now it’s that point. As we wrap up, I’ve got to ask you to join us for Forkast Forecasts. This is where we ask newsmakers, thought leaders, and CEOs just like you, for their predictions 2021. So are you ready?
CZ: Well, I’m not very good at predictions, but I’ll try.
Lau: CZ, you have a pretty good track record considering what you’ve built, so I’ll give you that. 2020 was just almost an inexplicable kind of year. What precedes it now? We’re in 2021. We saw the rise of DeFi in 2020, we saw a whole host of things. In your view, what are the top three developments that you think are going to happen in this space in 2021?
CZ: I’ll pick the easy one first, I think institutional adoption is definitely going to increase in 2021, especially corporate treasury. So those guys have a lot of money and there’s probably like US$60 trillion just in the U.S. market alone in terms of just equity markets. If we look at derivatives and other things, that’s even bigger. So I think that alone probably will push the price of bitcoin and other cryptocurrencies up quite significantly.
I think for me, I always have a much longer-term vision in terms of where the industry is going, whereas even one year is kind of short for me to predict specifically. So I don’t know what the price is going to be at the end of the year, whether it’s like a million or 200K, etc. So that’s really hard for me to be accurate. But the way we have structured the business is that we know the long term thing. 10 year, 20 years out, crypto will be everywhere. The market cap will be 100x 1,000x from where it is, and we just want to be in this industry and we want to work on products that people use and then we try to dynamically adjust. If there’s a crypto winter, then we adjust accordingly. If there’s a crypto summer it’s the bull market, then we adjust accordingly, so we adjust fairly dynamically.
But if you were going to press me for like a prediction, I would say, look, bitcoin is probably going to do another five to 10x this year alone. I will put it somewhere around like 150K to 400K-ish, in terms of bitcoin price and the other assets probably going to rise more or less with bitcoin. Sometimes they’ll be slower, sometimes they’ll be faster. So that’s kind of my sort of range. I think there’s a very high chance of that happening. But of course, there’s also a chance we enter another crypto winter. I think the chances are smaller, but when it happens, it’s 100%. But so it’s very hard to put accurate numbers on those, but we are prepared for both scenarios, so we’ll just see where the market takes us.
Lau: All right, so that’s a price prediction. What about developments in this space? Are we going to see more activity in DeFi? What about interoperability? What do you think the big trends that we should be watching out for will be this year?
CZ: That’s a super hard one to predict. To be honest, even at the beginning of 2020, if you ask me what’s the next big thing, I would not have said stablecoin trading on a decentralized exchange. That just wasn’t intuitive, that’s actually counterintuitive. What’s going to be the next hot thing is really, really hard to predict. I think DeFi was hot in 2020, I think it will continue to grow, but I’m skeptical that it will be hot again. I think it’ll continue to grow. We should actually be healthier. But we don’t need to see another crazy exponential jump. What’s going to be the next thing. Actually, I’m not so sure, to be honest. I really don’t know. It’s just — yeah, we’ll wait and see.
Lau: Maybe I’ll make a prediction. Maybe you’re going to buy that Tesla and somebody is going to buy some bitcoin.
CZ: That, I think, has a very high chance of happening.
The other thing is I got to figure out where to donate a Tesla. I don’t drive, so I’ll have to give it away somewhere.
Lau: Well, judging on the contributions and the charity donations that Binance has made over the past year, I’m sure you’ve got many, many good causes that you’ve already chosen. Hey, CZ, thank you so much. I really appreciate the time that you’ve spent with us here at Forkast.
CZ: Thank you so much, Angie. Thanks for having me. Thanks to everyone for listening.
Thank you for joining us on Word on the Block, and thank you, everyone, for joining us on this latest episode. I’m Angie Lau, Forkast.News editor-in-chief. And that was CZ. until the next time.