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Binance CEO: ‘We have a lot of dry powder’ for crypto acquisitions

Binance CEO Changpeng Zhao joins Yahoo Finance Live to discuss crypto regulation, market transparency, crypto hacking, the delisting of the AMP token, consumer engagement, and the outlook for the crypto industry.

Video transcript

- Bitcoin and Ethereum are getting a slight boost today after both cryptocurrencies saw double digit gains in the month of July as economic concerns shift investor focus. Let's see if these bullish vibes will continue for the balance of August. Joining us now to discuss the state of crypto is Binance CEO Changpeng Zhao. CZ, always great to get some time with you.

So look, last time we spoke to you, there has been since a pickup in crypto crimes, a pick up in crypto bankruptcies. Can regulations solve any of these things that continue to pop up?

CHANGPENG ZHAO: Yeah, thanks for having me, Brian. I think regulations will help to reduce the occurrence of them and also introduce more transparency into the market. But regulators, I don't think any regulator will promise you they can eliminate that problem. Even in regulated markets, bankruptcies happen, companies go down. So, yeah, I mean I don't think we will eliminate that problem.

- Will the hacks that we've seen so far, for companies like your own, for other players in the industry, are we going to see more of a concerted effort to really get ahead of, and I know that you guys have been doing this for years now, but at the same time, it just seems like they're coming even more fast and furious. What types of mechanisms and changes are you putting into place to counter some of that?

CHANGPENG ZHAO: Sure. I mean there's a few different type of issues that we need to deal with. Security hacks, that's a huge topic. We won't be able to cover much of that. And we invest billions of dollars on security alone. The other types, the other hacks like the bugs in software, et cetera, that happens on DeFi smart contracts, et cetera. Again, I think the industry will learn through experience. You can't avoid all the problems while you're innovating in a new industry.

- Well, there have been so many problems across-- I mean, as we've been talking about, right? Of a lot of different flavors. And, you guys, while you're in discussions with regulators, you're also under investigation from some regulators. Does any of that pose an existential risk to Binance?

CHANGPENG ZHAO: Well, let me make one correction. There's no official announcement from any regulator with investigations on us. So that was some news sites have published similar things like that. And other news sites have published things correcting them. They've used the America's Freedom of Information Act, there was no investigation per se.

We do communicate with all regulators all around the world. And they do scrutinize issues that happens in this new industry. And, I think, that's a very good thing. Because that's how we learn. And that's how regulators learn. And that's how some of the regulations will shape up. So, today, there are more scrutiny on stablecoins. There's more scrutiny on many things in the industry.

But I think those things are good. Because this is how this is how we develop as a industry. So we maintain that very open communication. And many of the regulators want to learn from us. Because we are the player operating at scale. By most metrics, we're the largest in the industry.

- We know that Binance also had to take action to delist Amp, which is a collateral token offering. And so with that in mind, that was really prompted by regulators, by the SEC. And, particularly here, are you expecting that there will be even more of the coins that are listed currently on Binance that will have to be delisted as the regulators start to get even more understanding and insight around where consumers are engaging with these offerings?

CHANGPENG ZHAO: Sure. So I think that's on Binance US. They may make those decisions relatively independently. I'm not an expert on the US security laws, et cetera. But that's how they test, et cetera. There's some debates in the industry about which coins are securities or not. We try to stay on the safer side of it. So when there's an SEC filing, or there was a lawsuit with some of the names involved, there's one coin out of the nine that was on that list, I think they took the safer approach just to delist it for now.

So that's as much as I know. So but, yeah, I mean there are still things that are not clear. So we would like to see more clarity in this space. Like what is a security, what is not? But we try to do our best.

- CZ, do you want to be an aggressive acquirer of some of these assets that have fallen into trouble out there? And how much dry powder do you have to put towards acquisitions?

CHANGPENG ZHAO: So we have a lot of dry powder. So we have more dry powder than almost anyone we know in the space. So we do want to use that to do acquisitions. But today, many of the companies, projects that are in trouble today are not well managed. If that's the case, then we can't really acquire them. If it's well managed projects, good products where they are just short on cash, then that's OK. We can give them cash.

So we are looking at a large number of deals. And we actually just announced a new head of M&A, of Binance Labs. She's a co-founder, Yi He. She's now leading the charge. She's very aggressive. So we will be making quite a lot of investments in the next little while.

- At the same time, CZ, we've seen a lot of belt tightening among corporations right now, right? Robinhood being the latest example with its cut of personnel. Are you guys seeing any reduction in demand, and are you considering any kind of expense cutting as well?

CHANGPENG ZHAO: We definitely have seen a reduction in demand. The Bitcoin price is basically the industry index. When the Bitcoin price drops, the demand is lower. So compared to the all time high, we're seeing lower demand. We're seeing lower trading volumes. But compared to like a year or two years ago, we're still seeing like 5X increase from two years ago.

So and five years, two years ago, we were desperately short on people. Now we're a little bit better. So we're still hiring. And today, we're around 6,000 people, we want to get to 8,000 people by the end of the year. I think $8,000 for our current business volume is still very small. But I think it's also right for companies to tighten their belt a little bit. Because the macroeconomic conditions are unstable.

There's a lot of things happening, many of them look negative. So it's better to be a bit more cautious as a business. But we are cautiously growing. So luckily, we do have the dry powder.

- Yeah, let's just stay on that dry powder, CZ. How do you have all that dry powder? And a lot of your competitors are fumbling or declaring bankruptcy, how do you run the company differently than them? Well, number one, it's like we are the largest exchange by far. By most trading volume matrices we're ten times bigger than the second largest exchange.

So we do have more revenues from before even today. But number two, our team size is not that much bigger than some of the other teams. So we have always kept expenses low. And, also, during the bull market, like a year and a half ago, we didn't spend money on big ads like Super Bowl ads, naming stadiums, stuff like that. We just didn't spend. And most of those cost hundreds of millions of dollars.

And we actually started doing some of that recently but at a smaller scale. So yeah, that's a number of things. We've been very cautious about spending during the bull markets. We've been through a few different cycles. We understand that this market is very dynamic. And there will be a bear cycle, there will be a bull cycle. Market's go in cycles. We've just got to be prepared for it.

- A lot of companies pulling back on their marketing spend. It sounded like you were alluding to some of that. And so with regard to where those advertising dollars are going, and the big partnerships that we had seen come through the cryptocurrency landscape, the big names, are they done? Are we done looking at some of those partnerships, the major advertising campaigns, and the different celebrity influencers?

CHANGPENG ZHAO: I think things will slow down for a while. I wouldn't say we're done. I think a couple of years later, there may be another, most likely there will be another bull market. I'm not trying to predict the markets, but that's how markets go in cycles. By the next bull market, all of those things will be back. And we just signed a Cristiano Ronaldo like a couple of months ago. We signed Khaby a couple of months ago. So we're still pushing on that. As an industry, I think those things slowed down. But they are still going.

- Very quickly, CZ, when's the next bull market coming?

CHANGPENG ZHAO: Historically, we see the market going in cycles every four years. So, usually, historically, like two years, bear market, two years bull market, very roughly. History doesn't predict the future. But, I think, that's a high probability of repeating. But we can't guarantee it. But we prepared the business for the worst case. So if this is a bear market for ten years, we'll be fine.

- So either way you slice it, it sounds like we still have a little ways to go here. CZ, good to catch up with you. Thanks for being here, CEO of Binance.