Binance CEO explains how herd mentality causes bitcoin price volatility - but argues the same behavior can be seen in the stock market

• Binance founder Chaopeng Zhang said herd mentality is one of the reasons why bitcoin's price is volatile in an interview with Bloomberg.
• But he said this volatility is nothing new to cryptocurrencies - and the same drivers are seen in the stock market as well.
• The founder also said that companies such as MicroStrategy that buy to hold help push bitcoin's price higher permanently.

Binance founder and CEO Changpeng Zhao points to herd mentality as one of the causes of bitcoin's price volatility.

"The herd followers are less committed," Zhao said in an interview with Bloomberg TV Monday. "Whenever there's some negative news, they run away. Whenever there's positive news, they try to rush in."

The founder of the world's largest crypto exchange said that "die-hard fans who understand and really love the project" usually buy to hold.

Zhao, who goes by CZ, added that it isn't only retail traders who cause the price of the world's largest cryptocurrency by market capitalization to fluctuate.

"There are also large institutions that do volatility trading," he said. "They seek volatility and they sometimes even want to generate the volatility. So it's not to say that just because there's more institutions trading, then there's less volatility."

The CEO added that companies like Microstrategy that buy large amounts of bitcoin to hold reduce volatility and even "push the price up permanently."

MicroStrategy, helmed by bitcoin evangelist Michael Saylor, bought bitcoin on multiple occasions, and how holds more than $5.4 billion as of April 2021 according to a regulatory filing. The company last August became the first publicly listed company to buy the cryptocurrency as part of its capital allocation strategy.

Binance, which was founded in July 2017, counts more retail investors in its client base than institutional investors, the CEO said.

Bitcoin this year has gained 95%. It briefly breached a record high of $64,000 ahead of cryptocurrency exchange Coinbase's direct listing, then plummeted to around 36% to $47,000 around 10 days after.

Still, Zhao wasn't perturbed, adding the same movement can be found in the stock market.

"It's nothing new in crypto," the CEO said. "Volatility is everywhere. Um, and actually Bitcoin is probably less volatile than a similar-sized asset like an Apple stock or even a Tesla stock."