Cryptocurrencies rally after Binance CEO announces recovery fund

Yahoo Finance Live anchors discuss the rally of cryptocurrencies after Binance CEO Changpeng Zhao announces a recovery fund.

Video transcript

[AUDIO LOGO]

BRAD SMITH: We begin today with our top story, cryptocurrency prices. They are rallying this morning after Binance CEO CZ, or Changpeng Zhao, announced his plans to launch a recovery fund for crypto projects facing a liquidity crisis. Now, this follows the downfall of rival FTX and its founder Sam Bankman-Fried. There have been a lot of fighting words that have come out over the course of the weekend.

We do know that CZ is going to offer kind of an ask me anything as well over social media today. And so we'll see exactly what he discloses about what his intents really were leading up to those days that was a less than 24-hour due diligence period around this potential Binance-FTX deal that was no more.

BRIAN SOZZI: Brad, it's tough to keep track of everything that's coming at this industry right now. And I wrote in the Morning Brief newsletter this morning, there are a couple of positives. One, eventually-- and I'm of the mind that once we get past the situation, it will set the stage for some form of recovering crypto. Maybe there's lots of less nefarious cryptos out there. This is a resetting of the industry. But even still, getting to that ultimate reset where everybody's flushed out, all the bad actors are flushed out, it's taking time. And it can still get very ugly.

JULIE HYMAN: And it's costing a lot of people a lot of money.

BRIAN SOZZI: Yeah, a lot of money.

JULIE HYMAN: Let's not forget about this, right? The other thing that you pointed out in the newsletter that I thought was a great point was that there is not a contagion. It doesn't appear to be contagion beyond crypto, right? There doesn't appear to be a ripple effect in the equity markets, for example, where people are trying to cover their losses by selling in equities.

But nonetheless, there are people who have lost money here either because of the initial crumbling of FTX or then the news that it had gotten hit by a hack of, what, some $470 million worth of cryptocurrencies. So people there getting their money taken. And then now, the likes of crypto.com coming out and having to sort of disavow involvement and contagion there as well. Other crypto platforms freezing withdrawals as well. So it's unclear at this point how much exactly has been lost versus just sort of paused in terms of activity.

BRIAN SOZZI: Yeah, well, key to making any investment, whether it's stock or crypto, is trust, Brad. Of course, you have to trust-- I trust that Target is going to open for business tomorrow. I trust that the numbers they put in their financial statements are in fact their financial numbers. If you do not trust the next couple of days in crypto or you don't trust crypto more broadly, you can't put your money to work into it. It's that simple.

BRAD SMITH: But what's that trust also based on, especially for the numbers that they have to put in their financial statements? It's based on regulation. And that would be the next leg forward for viability for people to maintain trust within crypto. And it has to come forward in fair regulation that sets the boundaries and offers these kinds of borders so that companies in crypto know how they can operate, how they need to operate, but then also that customers know that they're protected on the other side of this. And we know that there's going to be class-action suits that come forward as a result of this wipeout.

JULIE HYMAN: Well, it's also unclear, regulation or no regulation, like, did this violate existing laws?

BRAD SMITH: Sure, yeah.

JULIE HYMAN: It very well could have. Now, as we know, FTX is based in the Bahamas. And Sam Bankman-Fried reportedly has been questioned by Bahamian authorities and is also under various investigations here in the United States, including the Manhattan District Attorney's Office, reportedly maybe under SEC scrutiny as well, because if he indeed take-- took money from FTX to sort of fund activities at Alameda, I don't know where that would be legal, right?

So in other words, I guess what I'm saying is I don't know if regulation would have prevented this unless it would have increased transparency on the platform and what it had to disclose.

BRAD SMITH: Yeah. Just one added thing about this, too, is that there is this bill that was supposed to be moving forward further in Congress as well that was actually cowritten by SBF and SEC Chair Gary Gensler. So there's a larger question of, what type of scrutiny is going to continue to move forward from Congress now, given SBF's tie-up end and the broader bankruptcy, him stepping down from his role at FTX as well? And then now for Gensler being pulled into the conversation, what credence he now even has with this particular bill that sits with Congress too.

BRIAN SOZZI: As I say, guys, this is a developing story.

[LAUGHTER]

JULIE HYMAN: One more thing I just quickly want to mention here, as CZ does that ask me anything on Twitter Spaces, he's basically telling people, if you have cryptocurrencies and you're confused about all this and you're worried about all of this, don't do anything. Just hold onto your cryptocurrencies, which is not terrible advice, I guess, if you want to look at like panic selling and whatnot. But I think the bigger question of what this means for the crypto universe, should people be concerned about holding this stuff? I guess it depends on where you're holding it and trading it and whether it's on a regulated entity or not.