Binance, the world’s largest exchange for trading Bitcoin and other cryptocurrencies, says it’s time for global regulators to set rules for crypto markets. He released a list of “10 fundamental rights for crypto users” this week that he wants to guide discussions with regulators, policymakers and other exchanges.
The company recognizes that crypto platforms have an obligation to protect users and implement processes to prevent financial crimes, as well as a responsibility to work with regulators and policymakers to set standards to ensure security. user safety.
The call for regulation may seem odd to an industry whose popularity has exploded in part precisely because it sought to operate outside the heavy hand of governments and other authorities. But Binance CEO Changpeng Zhao, who calls himself “CZ,” said increased regulation for the industry is inevitable, allowing his company to play a role in the discussions. It can also help attract people who are still hesitant to get into crypto.
“This year, most regulators around the world are carefully reviewing crypto, and many of them are communicating with us,” Zhao said. “So we think now is the right time” to call for a global framework.
“We think it’s important that industry players have a place around the table,” he said. “And we also believe that some regulations, if developed in a vacuum, may not have practical considerations of how they are applied, and they are not applied very well.”
Regulatory scrutiny of cryptocurrencies has intensified as they have become more common. Big corporations, professional investors, and even the government of El Salvador are all on board, though critics struggle to see the value of digital currencies created by non-governments. They are expanding the crypto base beyond its initial core of fanatics and sent Bitcoin last week to a record high of nearly $ 68,991, doubling more in 2021.
Binance’s call for regulation reminds some on Wall Street of the handbook companies have followed in other disruptive industries after becoming big winners.
“They are doing what Uber and Lyft did,” said Gil Luria, technology strategist at DA Davidson. “Build a business before regulation. When it reaches a certain scale, recognize that regulation will help, and then help shape it. ”
Zhao said Binance welcomes regulations “for many reasons. One of those minor reasons is a selfish reason: that in a regulated industry, the few big players will stay. The smaller players are cut off, which is unfortunate. for these guys. ”
The move could also prove to be a good one if Binance’s U.S. activity eventually tries to sell shares on a U.S. stock exchange, which Zhao hopes will happen in the next few years. A competitor, Coinbase, has already recovered a market value of nearly $ 74 billion on Wall Street following its IPO this spring.
Such wealth opportunities have attracted more new investors to crypto, as well as the eyes of regulators.
“At the moment, we just don’t have enough investor protection in crypto,” Gary Gensler, chairman of the Securities and Exchange Commission, said in a speech this summer while calling it the “Wild West.” .
“This asset class is rife with frauds, scams and abuse in some applications,” he said. “There is a lot of hype about how crypto assets work. In many cases, investors are unable to obtain rigorous, balanced and complete information.”
Analysts said they expected Binance to agree to report transactions to U.S. regulators looking for moves involved in terrorist financing, among others. One of Binance’s “fundamental rights” also calls for strict regulation in markets that offer “derivative and leveraged instruments,” which can be lucrative transactions but also very risky for investors.
Most regulators around the world focus on “know your customer” rules, under which financial companies attempt to verify the identity of those who use their services, Zhao said. They are also focused on consumer protection.
But even there, “different countries have different interpretations and different meanings for these very simple words,” Zhao said. In the United States, for example, the fight against money laundering focuses on blocking terrorist financing, while Chinese regulators are more searching for people who transfer money out of the country.
Campbell Harvey, a professor of finance at Duke University who recently wrote a book called “DeFi and the Future of Finance,” said regulators are catching up with complex and rapidly changing technologies, while trying to strike a balance between protecting investors and not crushing innovation or driving it to other countries.
The stakes rise to get it right. The current uncertainty as to what the regulations will look like are preventing some large institutional investors like pension funds from accessing crypto. And therein lies the opportunity to make even more money for the industry.
Given all the complexities, Harvey said perhaps the best solution would be for the U.S. government to create a new agency to oversee cryptocurrencies and the ecosystem around them, rather than relying on a combination. regulatory bodies.
“It’s complex and it just doesn’t fit most of the usual regulatory models,” he said.
Zhao, who said the only cryptocurrencies he owns are Bitcoin and Binance Coin, said some parts of the cryptocurrency world look more like securities, while others look more like commodities or currencies. And the ecosystem is growing day by day, as people can create new tokens with just a few clicks of the mouse and keyboard.
He compared it to the early days of the Internet, when people were trying to figure out what kind of media it was. Is it the radio? TV? Something else?
“People can tend to think of crypto as a single asset, which I think is a bit misleading,” he said. “Crypto is a fundamental technology that can enhance many types of traditional assets.”