Changpeng Zhao, chief executive officer of Binance Holdings Ltd., center, exits federal court in Seattle, Washington, US, on Tuesday, Nov. 21, 2023. Zhao pleaded guilty to anti-money laundering violations under a sweeping deal worked out with the Justice Department designed to keep the company operating. Photographer: Chloe Collyer/Bloomberg
© 2023 Bloomberg Finance LP
On his way to the heights of crypto, Changpeng Zhao postured as though he couldn’t be bothered with the concept of his wealth. “I don’t really know what my net worth is. I’m not too bothered about it,” he told Forbes in the summer of 2021.
On Tuesday, U.S. prosecutors painted a different portrait of Binance’s chief. Zhao, who goes by CZ, pled guilty to federal money laundering charges, admitting to skirting U.S. regulations and evading sanctions laws on his quest for crypto market dominance, which in turn bolstered his fortune.
“The purpose of the conspiracy was to allow Binance.com… to gain market share and profit as quickly as possible,” the U.S. complaint states. Zhao, in addition to stepping down as CEO, has agreed to pay $50 million in the Department of Justice case, while Binance is on the hook for $4.3 billion–one of the largest ever corporate penalties. Zhao also faces up to ten years in prison. (To resolve a separate case brought earlier this year by the Commodity Futures Trading Commission, Zhao must also pay a $150 million fine.)
Though Zhao is barred from involvement with Binance for three years, he gets to keep his majority stake in Binance, which means he may emerge from his plea deal as one of the richest convicted felons in the world–and still by far the wealthiest person in crypto.
Zhao’s estimated 90% stake in Binance, which accounts for the vast majority of his fortune, is now worth an estimated $15 billion, Forbes estimates. That’s up from $10.5 billion in April, when Forbes published the 2023 World’s Billionaires list. Binance has generated upward of $3 billion in revenue the last 12 months, Forbes estimates, based on an analysis of the exchange’s spot and derivatives trading volumes (as tracked by CoinGecko), while also accounting for Binance’s alleged spoof or wash trades, which create the appearance of more customer activity than actually exists. (Binance has denied this.)
A recovery in crypto markets has driven up Binance’s valuation. Bitcoin’s price, a barometer of the industry, has more than doubled this year to date to $36,500 as crypto markets rallied in the aftermath of FTX’s implosion. Shares of Coinbase, a Binance competitor, have more than tripled since early January. Collectively, the market value of major cryptocurrencies has grown by $600 billion this year.
Despite the tailwinds in crypto, Binance now faces its own unique reality, one in which an independent compliance monitor will supervise its activity for three years and report its findings to the U.S. government. Those constraints may hamper Binance’s revenues, threatening its position as the leading global crypto exchange.
“Their influence and market share is going to drop precipitously,” says Mike Alfred, a crypto investor and longtime critic of Zhao and Binance. “The world in which Binance was winning and gaining market share was a world in which anything could be done at any time if it suited CZ, [and] if there was a profit in it.”
Whether Binance is able to maintain its market share as a cryptocurrency exchange will determine the direction of Zhao’s fortune. Binance facilitated 32% of spot trades and 50% of derivatives trades in October, according to a report from CCData – though its share in spot markets has declined for eight consecutive months, per the report.
Alternatively, Tuesday’s plea deal could help Binance by removing the cloud that’s been hanging over its head, says Owen Lau, a crypto and financial exchange analyst at Oppenheimer & Co. “People concerned by the prosecutors have left [Binance] already. Today’s announcement gives them some comfort that they can come back,” Lau said on Tuesday. “To me, it could have some positive effect on Binance. The super downside – that Binance becomes a dead business – has not played out. They’re still operational.”
Richard Teng, Binance’s newly appointed CEO, insists the company is positioned for future growth. “The fundamentals of our business are VERY strong,” he said in a tweet.
Since the news of the plea deal came out, Binance has experienced a net outflow of about $956 million on Ethereum, though its total crypto holdings remain above $65 billion, according to tracking site Nansen. “At the time of writing, withdrawals are continuing, and we’re not seeing a mass exodus of funds,” Nansen tweeted this morning.
As part of the settlement with the DOJ, an independent compliance monitor will be surveying Binance. As a result, the exchange will bleed customers as it falls behind more agile competitors, predicts Alfred. “If you went down the list of things that need to be fixed at Binance, it’s literally thousands of bullet points long,” Alfred says. “Other ventures that are coming up that are more growth oriented will take share.”
Zhao, a programmer by training, founded Binance in 2017 with a $15 million crowdsale. From its early days, Binance was favored by crypto traders and developers for its speed of execution and new products. Zhao’s tolerance for risk and brash approach fueled the company’s growth, but also put Binance on the radar of financial cops and regulators. “Wherever I sit, is going to be the Binance office,” he infamously told Coindesk in 2020.
China, Singapore and Malta were all way stations for Zhao and a small group of loyal lieutenants, until regulatory pressures forced them to remain on the move. Binance attempted to set up a European homebase in London, only to be spurned by regulators and accused of fraud by partners. Zhao ultimately moved to the United Arab Emirates; he’s lived in Dubai since 2021.
The company’s growth fueled a lavish lifestyle for Zhao. Using offshore entities controlled by his longtime deputy Heina Chen, Zhao splashed out $55 million for a private jet, spent $11 million on a yacht, distributed $62.5 million to one of his personal bank accounts, and directed another $178 million to two Singapore companies controlled by Zhao and Chen, according to the Securities and Exchange Commission, which filed charges against Zhao and Binance in June. The SEC alleged that Binance sold unregistered securities to U.S. customers. (Zhao and Binance deny the allegations and continue to fight the SEC charges, which are separate from those settled this week.)
Forbes’ $15 billion net worth estimate for Zhao does not include a personal investment portfolio. But he could have one worth several billion dollars, depending on how much of Binance’s profits he squirreled away for himself over the years. He previously told Forbes that he owned about 1,400 Bitcoins – currently worth about $36 million.
Zhao could even stage a return to Binance’s leadership after the company’s three-year period of supervision by an independent compliance monitor, according to the plea agreement.
In the meantime, Zhao plans to “probably do some passive investing” in crypto, AI and biotech, he said in a tweet on Tuesday. Zhao previously told Forbes he intended to donate between 90% and 99% of his wealth to charitable causes. “Hopefully, sooner than later,” Zhao had said. There was no mention of charitable giving in his recent tweet.