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  • February 13, 2022

The world’s biggest crypto fortune began with a friendly poker game.

Bloomberg — Every year, the Abu Dhabi Grand Prix attracts monarchs, Hollywood stars, and world-famous athletes to the entertainment hub of Yas Island, roughly 30 minutes from downtown Abu Dhabi.

Last month, among them was a figure on the rise: Changpeng Zhao, a former McDonald's burger flipper and software developer who has risen to the ranks of the world's wealthiest people almost overnight.

CZ, as he's known among cryptophiles, is swiftly becoming a regular in the United Arab Emirates, meeting with aristocracy in Abu Dhabi who are keen to bring his Binance exchange to the country, according to people with knowledge of the situation. He's bought an apartment in Dubai and hosted meals near the world's tallest structure, the Burj Khalifa, and on the city's Palm Jumeirah island, making him the most visible figure in the country's burgeoning crypto scene.

Zhao, 44, fits in in in a region noted for its opulence: He is worth $96 billion, according to the Bloomberg Billionaires Index. It's the first time Bloomberg has calculated his worth, which tops Mukesh Ambani, Asia's richest man, and rivals tech heavyweights Mark Zuckerberg and Larry Page and Sergey Brin of Google.

Zhao's riches might be even bigger, given the wealth estimate excludes his personal crypto assets, which include Bitcoin and his company's own token. Last year, the so-called Binance Coin saw a 1,300 percent increase in value.

Despite recent falls, Binance's performance demonstrates the immense wealth being made in the unfettered cryptoverse, yet controversy has surrounded the company.

The company has been kicked out of China, where it was formed, and is now being investigated by regulators around the world. According to persons familiar with the situation, the US Department of Justice and the Internal Revenue Service are looking into whether one of Zhao's companies, Binance Holdings Ltd., is being used as a conduit for money laundering and tax evasion. The Department of Justice and the Internal Revenue Service also declined to comment.

Binance's future may be determined by its ability to reach an agreement with global regulators and find a suitable location for its headquarters.

For the time being, however, the cash is flooding in.

The firm made at least $20 billion in income last year, according to a Bloomberg analysis of its trading volume and fees. That's nearly three times what Coinbase Global Inc., a publicly traded company with a market capitalization of $50 billion, is expected to earn in 2021, according to Wall Street analysts.

"From a U.S. standpoint, Coinbase may look to be the 800-pound giant, but Binance is substantially larger," said DA Davidson & Co. analyst Chris Brendler.

Binance questioned the veracity of Bloomberg's estimations of the firm's market value and Zhao's net worth. Zhao declined to comment for this report.

"Crypto is still in the early stages of development," Binance said in a statement. "It is more vulnerable to high levels of volatility." Any number you hear one day may not be the same number you hear the next."

Zhao spoke at the Bloomberg New Economy Forum in Singapore a month before seeing Formula One stars Lewis Hamilton and Max Verstappen duke it out on the Yas Marina Circuit, where he rattled off the numbers behind the spectacular ascent of the firm he founded in 2017.

Binance recently performed $170 billion in transactions in a 24-hour period. On a truly sluggish day, he added, it's over US$40 billion — up from as low as US$10 billion just two years ago.

These are enormous numbers in the crypto realm. Binance supports more trade than the next four largest exchanges combined on a regular basis.

During a November interview in Singapore, Bloomberg's Erik Schatzker asked Zhao about his fortune, but Zhao declined. He stated, "I don't care about wealth, money, or rankings."

The skinny crypto entrepreneur, who wore rimless glasses and a slightly oversize striped tie, went on to say that such matters are a distraction and that he is willing to give away nearly all of his riches before he dies.

It remains to be seen if Zhao can hold on to what he's achieved, and he has every reason to be anxious about his company's unfettered expansion.

In addition to the DOJ and IRS investigation, the Commodity Futures Trading Commission is probing into alleged market manipulation and insider trading within Binance, as well as whether it illegally permitted U.S. clients to trade futures connected to cryptocurrencies, according to people familiar with the matter.  The CFTC did not respond to a request for comment.

Binance has also received consumer warnings in the United Kingdom, Japan, and Germany, among other nations. A Canadian securities regulator fined the company on Dec. 30 for informing users of its trading platform that it was authorised to continue operating in the nation despite the fact that it still lacked the necessary registration.

Binance is "working with regulators throughout the world and we take our compliance obligations extremely seriously," according to a spokeswoman.

Zhao has stated that he embraces and desires regulation.

At the Bloomberg forum, he stated, "I'm not an anarchist." "I don't think human civilisation has progressed far enough to be able to exist in a world without rules."

Fortunes built on crypto have ballooned along  with the value of digital tokens, which reached $2.09 trillion on Jan. 7 from $135 billion three years ago.

It was unusual for a crypto entrepreneur to emerge on global wealth rankings until recently. As more companies in the industry turn to venture capital or public markets for investment, the worth of these enterprises becomes increasingly transparent.

Binance's popularity with consumers and many products may be even more tempting to investors than exchanges like Coinbase, Gemini, FTX, and Kraken which fetched significant values in public and private markets.

Cryptocurrency fortunes, on the other hand, are erratic. Bitcoin has lost more than 8% of its value this year, falling to around US$42,400, considerably below its early November highs of nearly US$69,000. Over the last two months, Coinbase's stock has dropped by around 35%.

Regulators have also gotten in the way of some firms. BitMex, previously the largest crypto-derivatives exchange in the world, serves as a cautionary storey.

BitMex agreed to pay the CFTC and the Financial Crimes Enforcement Network $100 million to settle charges that it allowed illicit derivatives trades and broke anti-money laundering regulations. The firm made no admissions or denials in response to the charges. Founders Arthur Hayes, Samuel Reed, and Ben Delo are awaiting trial after pleading not guilty to violating the Bank Secrecy Act in a separate Justice Department lawsuit.

Binance's 2021 revenue was calculated using its U.S. dollar-denominated spot and futures exchange volumes as disclosed by industry analysts Coingecko and Nomics, as well as its claimed trading fees, according to the Bloomberg Billionaires Index. Margin lending, technology, consultancy, and non-financial transactions are not included in the computation. The enterprise value-to-sales multiple of publicly listed peers is used to determine its worth. Based on Zhao's public remarks and regulatory filings in nations where that information is needed to be revealed, it is assumed that he controls 90% of the company.

Binance's revenue is distributed across hundreds of crypto tokens, which the company does not convert into traditional currency, according to Zhao in a November interview with Bloomberg.

"All we do is hold them," he explained. "If you compute the number now, it's one number, but 5 minutes later, it's a different number since prices fluctuate."

Zhao, a Canadian citizen, was born in the Chinese province of Jiangsu. During the Cultural Revolution, his father, a university professor, was exiled to the countryside and moved the family to Vancouver when CZ was 12 years old.

Zhao grew up around technology and went on to study computer science before landing finance roles in Tokyo and New York, including a four-year tenure at Bloomberg LP, the parent company of Bloomberg News.

In Shanghai in 2013, he met Bobby Lee, then-CEO of BTC China, and investor Ron Cao, who both persuaded him to invest 10% of his net worth in Bitcoin during a casual poker game.

He took the plunge after spending some time researching it and ended up selling his condo for Bitcoin. Binance (a combination of binary and finance) was launched in 2017 and soon grew into a crypto powerhouse. Zhao even got a tattoo of the company's emblem on his arm.

The CEO of Binance goes all-in on tokens, saying, "I just want to keep crypto."

Binance has risen to the top of the cryptocurrency market for trading "alternative coins," which are less liquid than more established tokens like Bitcoin and Ethereum and have become some of the most speculative areas of the market. The company's international exchange provides trading in more than 350 coins, which is more than double what Coinbase offers, according to Coingecko.

Binance succeeded in building "user stickiness" in part by allowing clients to utilise Binance Coin to minimise trading fees, According to Tim Swanson, head of market intelligence at Clearmatics, a London-based blockchain startup.

"They don't have to be the first to publish a currency for liquidity to aggregate there anymore," Swanson said of Binance.

Zhao's company is also the largest volume supplier of derivatives trading, allowing customers to speculate on cryptocurrency with even greater risk and reward.

Binance enabled customers to register accounts with just an email address at first. It limited its interactions with traditional banks and their regulators to crypto-to-crypto transactions. The corporation declared in August that all new customers must authenticate their identities, and that existing users who haven't will only be able to make withdrawals.

There has never been a recognised headquarters for it. Binance was formed in China, exiled to Japan, and then self-exiled to Malta, where the exchange's financial authority later refused oversight. While the company has a significant presence in Singapore, it recently suffered a setback when its local unit withdrew a proposal to run an exchange in the city-state.

Binance is now looking for a location, Zhao stated in November, adding that an announcement on the headquarters will be made "in a very short amount of time."

That's a change from 2020, when Zhao claimed the company's headquarters would be wherever he went. The firm's lawyers have stated in legal documents that it is incorporated in the Cayman Islands, which is well-known as an offshore tax and regulatory haven.

Because of Binance's capacity to operate almost anywhere, regulators have found it challenging to establish jurisdiction over the company.

"Their idea was, 'We don't need a regulator because we're decentralised,'" said DA Davidson analyst Brendler. "It worked incredibly well for product development, scalability, and growth."

As Binance looks to acquire money from outside investors, Zhao's unconstrained attitude may need to change. Outside investors normally desire some level of government monitoring as assurance that a business is legally solid. According to those acquainted with Zhao's discussions in the UAE, he is driven to find a supporting regulatory system.

Binance has been hiring former UAE regulators for key positions, and it recently struck an agreement with the Dubai World Trade Centre Authority to assist in the development of a crypto regulatory framework.

Binance's attempts to ingratiate itself with regulators have not all gone successfully.

Binance.US, the exchange's separately managed trading division, hired a former US acting comptroller of the currency as its CEO last year. His appointment was viewed as a positive move toward addressing regulatory issues, but he only lasted three months, citing strategic differences as the reason for his departure in August.

Investors may be enticed to take a risk on the world's most successful crypto exchange despite its legal issues. Binance was looking to raise money from sovereign wealth funds late last year, and its U.S. branch was also looking for investors in preparation for an IPO. Former executives thought the corporation might be worth up to $300 billion, according to the Wall Street Journal in November.

Zhao would be even wealthier than Elon Musk, the world's wealthiest person, and Jeff Bezos, the second richest person, whom Zhao admires.

"I don't know him personally," Zhao said of Amazon.com Inc. founder Jeff Bezos at a Bloomberg event in November. "However, I would welcome the opportunity to work with him in the future."