World's biggest crypto fortune began with a friendly poker game

The net worth of Binance's Mr Zhao Changpeng is US$96 billion (S$130 billion), according to the Bloomberg Billionaires Index. PHOTO: ST FILE

NEW YORK (BLOOMBERG) - A former McDonald’s burger flipper and software developer has practically overnight vaulted into the ranks of the world’s wealthiest people - cryptocurrency pioneer Zhao Changpeng.

CZ, as he is known to cryptophiles, is quickly becoming a fixture in the United Arab Emirates, meeting with royalty in Abu Dhabi who are eager to bring his Binance exchange to the country, according to people with knowledge of the situation.

In a region known for dizzying wealth, Mr Zhao, 44, fits right in: His net worth is US$96 billion (S$130 billion), according to the Bloomberg Billionaires Index. It is the first time Bloomberg has estimated his fortune, which exceeds that of Asia’s richest person, Mr Mukesh Ambani, and tech titans such as Mr Mark Zuckerberg and Google founders Larry Page and Sergey Brin.

Mr Zhao’s fortune could be significantly larger as the wealth estimate does not take into account his personal crypto holdings, which include Bitcoin and his firm’s own token. The so-called Binance Coin surged roughly 1,300 per cent last year.

Binance’s success underscores the vast riches being created in the unshackled cryptoverse, even with recent declines, but controversy has swirled around the firm.

Banished from China, where it was founded, the company faces regulatory probes globally. The United States Department of Justice (DOJ) and Internal Revenue Service (IRS) are investigating whether one entity Mr Zhao controls, Binance Holdings, is a conduit for money laundering and tax evasion, according to people with knowledge of the matter.

Binance’s future may hinge on whether it can reconcile with the world’s regulators and find a welcoming location to establish its headquarters.

For now, though, the money is pouring in.

Binance generated at least US$20 billion of revenue last year, according to a Bloomberg analysis of its trading volume and fees. That is almost triple what Wall Street analysts expect Coinbase Global, a publicly traded firm with a market value of US$50 billion, will collect for 2021.

Mr Zhao declined to comment for this story, and Binance disputed the accuracy of Bloomberg’s estimates of the firm’s market value and his net worth.

“Crypto is still in its growth stage,” Binance said in a statement. “It is susceptible to higher levels of volatility. Any number you hear one day will be different from a number you hear the next day.”

A month before watching Formula One stars Lewis Hamilton and Max Verstappen battle it out on the Yas Marina Circuit, Mr Zhao spoke at the Bloomberg New Economy Forum in Singapore, where he rattled off the numbers behind the meteoric rise of the firm he created in 2017.

In one recent 24-hour span, Binance completed US$170 billion of transactions. On a really slow day, he said, it is about US$40 billion - and that is up from as little as US$10 billion two years before that.

In the crypto world, these are gargantuan numbers. Binance routinely facilitates as much trading as the next four largest exchanges combined.

When Bloomberg correspondent Erik Schatzker asked the billionaire about his wealth during the November interview in Singapore, Mr Zhao demurred. “I don’t care about wealth, money, rankings,” he said.

The slender crypto entrepreneur, donning rimless glasses and a slightly oversized striped tie, added that such matters are a distraction and that he is prepared to give away almost all of his fortune before he dies.

Mr Zhao's net worth may be higher than official estimates, as they do not take into account his personal crypto holdings. ST PHOTO: YONG LI XUAN

Whether Mr Zhao can hang on to what he has gained remains to be seen, and he has plenty of reason to be concerned about his firm’s unbridled growth.

In addition to the DOJ and IRS investigation, the Commodity Futures Trading Commission is probing possible market manipulation and insider trading within Binance, and whether it illegally allowed US clients to trade derivatives tied to cryptocurrencies, according to people familiar with the matter. The commission declined to comment.

Binance also has been the subject of consumer warnings in Britain, Japan and Germany, among other countries. On Dec 30, a Canadian securities regulator reprimanded the company for telling users of its trading platform that it was allowed to continue operations in the country when it still lacks a registration to do so.

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

Crypto fortunes, however, are volatile. Bitcoin has slumped more than 8 per cent this year to about US$42,400 and is well below early November’s highs of nearly US$69,000. Coinbase shares have tumbled about 35 per cent over the past two months.

Mr Zhao, a Canadian citizen, was born in China’s Jiangsu province. His father, a university professor, was exiled to the countryside during the Cultural Revolution and, when the son was 12, moved the family to Vancouver.

Exposed to technology at a young age, Mr Zhao later studied computer science and eventually landed finance jobs in Tokyo and New York, including a four-year stint at Bloomberg LP, the parent of Bloomberg News.

His road to crypto riches began in Shanghai in 2013 during a friendly poker game with Mr Bobby Lee, then chief executive of BTC China, and investor Ron Cao, who both encouraged him to put 10 per cent of his net worth into Bitcoin.

After spending some time studying it, he took the plunge and ended up selling his apartment for Bitcoin. In 2017, he founded Binance (a portmanteau of binary and finance) and it quickly blossomed into a crypto powerhouse. Mr Zhao even got the company’s logo tattooed on his arm.

Binance has become the top destination for trading “alternative coins” - cryptocurrencies that are less liquid than more established tokens such as Bitcoin and Ethereum and have become some of the most speculative corners of the market. The firm offers trading in more than 350 coins on its international exchange, more than double of what is offered by Coinbase, according to Coingecko.

Binance succeeded in creating “user stickiness”, in part by allowing clients to use Binance Coin to reduce trading fees, said Mr Tim Swanson, head of market intelligence at Clearmatics, a London-based blockchain firm.

“They don’t even have to be the first to list a coin any more for liquidity to aggregate there,” Mr Swanson said of Binance.

Mr Zhao’s firm is also the largest provider of derivatives trading by volume, letting users speculate on crypto with even more risk and potential reward.

Initially, Binance allowed clients to open accounts with nothing more than an e-mail address. It focused on crypto-to-crypto transactions, limiting its interactions with traditional banks and their regulators. In August, the company announced that all new users must verify their identity, and existing users who have not will be limited to withdrawals.

It has never had a formal headquarters. Binance was founded in China, banished to Japan and self-exiled to Malta, whose financial regulator later denied having oversight of the exchange. While the firm has a major presence in Singapore, it was dealt a setback last month when its local unit withdrew an application to run an exchange in the city-state.

Now Binance is trying to settle on a location, Mr Zhao said during the November interview, adding that an announcement about the headquarters would be coming “in a very short period”.

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