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This crypto collapse has a human cost
02:15 - Source: CNN
New York CNN  — 

The reeling crypto industry faces a 2008-style crisis that will lead to a much-needed regulatory crackdown, crypto CEO Changpeng Zhao warned on Friday.

“It’s devastating for the industry. A lot of consumer confidence is shaken. We’ve been set back a few years,” Zhao, the CEO of cryptocurrency exchange Binance, said during a conference in Indonesia.

The Binance boss, known as CZ, was speaking amidst the stunning implosion of rival FTX, which filed for bankruptcy just hours later.

“We’ve just seen another very big player going down,” said Zhao, who noted this collapse follows the downfall 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 almost immediately fell apart, paving the way for Friday’s bankruptcy filing and the resignation of FTX founder Sam Bankman-Fried.

The moderator noted the crypto turmoil feels much like the 2008 global financial crisis, which brought down Bear Stearns, Lehman Brothers and other leading Wall Street players.

“That’s probably an accurate analogy,” Zhao said.

He urged regulators to look beyond just anti-money laundering and know-your-customer (KYC) rules and focus instead on the operations, business models and reserves of exchanges like FTX.

“Regulators, rightfully, will 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 longer-term, this is another wakeup call to say, ‘Look, we are in a new industry. There are a lot of risks and we need to learn how to deal with these risks.”

Zhao also detailed his interactions 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 wasn’t created in the last three days,” Zhao said, adding the trouble has been there for much longer.

The Binance CEO accused FTX of “misappropriating” user funds.

Bankman-Fried, the 30-year-old crypto wunderkind behind FTX, said on Friday he’s “really sorry” about what happened at his firm.

“I’m piecing together all of the details,” Bankman-Fried wrote on Twitter, “but I was shocked to see things unravel the way they did earlier this week.”