MARY LOUISE KELLY, HOST:
They were supposed to revolutionize the world of finance, but cryptocurrencies have gone through a rough patch lately. Now, a legal battle is underway that could determine crypto's future. It's a fight between a powerful financial regulator and someone who went from flipping hamburgers to starting and running the largest cryptocurrency exchange out there. NPR's David Gura has the story.
DAVID GURA, BYLINE: Binance may not be a household name. But in the world of crypto, it's huge. More than a hundred million people use it to buy and sell bitcoin and other cryptocurrencies. But Binance is not just a trading platform like the New York Stock Exchange, according to Yesha Yadav. She's an expert on digital assets at Vanderbilt Law School.
YESHA YADAV: It's really hard to overstate how important Binance is to the crypto ecosystem.
GURA: It's a multibillion-dollar company with a gargantuan footprint, Yadav says. Binance has a research arm and a lending business. In some countries, it offers a crypto debit card. And Binance is also a marketplace for even riskier investments and digital art. It's effectively a crypto Amazon, a one-stop-shop for everything. Well, that's a model that doesn't exist in traditional finance, and it's alarmed regulators, who argue crypto is like the Wild West. Companies operate in a regulatory gray area. They've gotten bigger. They do more. And that's led to scrutiny of businesses like Binance.
YADAV: It is an organization that is presenting a massive headache for regulators to understand how it works and the risks that it's creating.
GURA: Wall Street's top cop, the Securities and Exchange Commission, wants crypto companies to follow the rules every other financial firm has to. In a sweeping lawsuit, the SEC claims Binance is operating an illegal exchange in the U.S. And the agency says Binance sits atop a sprawling and shadowy web of corporate subsidiaries - a web that's been spun by Changpeng Zhao, better known by his initials, CZ. He's a crypto celebrity who's gotten top billing at business conferences all over the world, like one recently in Germany.
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UNIDENTIFIED PERSON: It's a great pleasure. And let's welcome CZ.
GURA: To other bitcoin true believers, CZ is a visionary. But that's not how SEC Chair Gary Gensler sees him. He told Bloomberg TV there's a lot Binance's customers don't know about what CZ and his company do with their money behind the scenes.
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GARY GENSLER: We know Mr. Zhao controls it all. We know that investors were misled about the risk controls and that they concealed an awful lot from the investing public.
GURA: The SEC has accused Binance and CZ of deceiving customers and of funneling their money into another firm CZ controls, drawing comparisons to what was going on at FTX before that crypto company collapsed spectacularly less than a year ago. Binance declined NPR's request to interview CZ, but, in 2021, he was asked how he got his start. CZ was born in China, but his family immigrated to Canada a few years later.
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CHANGPENG ZHAO: When I was 15, I was flipping burgers in McDonald's in Vancouver. I also worked at a gas station after that.
GURA: It's the beginning of a crypto rags-to-riches story. CZ went to college in Montreal, interned at a software company in Tokyo. And he's been on the move ever since, which has given him a unique perspective on global finance.
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ZHAO: I was living different places, so I never really got married to one currency, one country, etc.
GURA: And that explains what's made cryptocurrencies so appealing to him. By design, the crypto economy is borderless, built to operate outside the boundaries of traditional finance. CZ first learned about it at a poker game in Shanghai, where a businessman told him he should convert 10% of his money into bitcoin. But CZ decided to go all-in. He sold everything. And he got a rude awakening a few months later, when Bitcoin lost half its value.
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ZHAO: My relatives were all, like - well, my mom wanted to smack me on the head, saying, like, you stupid kid.
GURA: But CZ held on. Bitcoin rebounded. And as its value and its popularity surged, CZ saw an opportunity to build a new exchange that would make it easy for people to get into crypto. He founded Binance in 2017. And a few months later, at a conference in Singapore, he stressed how much faith he had in crypto's staying power. CZ showed off a tattoo he'd gotten of his company's logo on his forearm.
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ZHAO: There are some people who are uncertain about the future of this industry. I'm very certain we're here to stay.
GURA: But today, the future of Binance, at least in the U.S., and CZ's future in the industry are up in the air. Binance has faced allegations it's facilitated money laundering and it has business ties to China, which the company disputes. But the SEC's lawsuit is the biggest challenge so far. Binance and CZ deny the charges, and they say they intend to fight them. And CZ continues to insist he is not totally against crypto regulation. This is what he said at a conference in 2021.
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ZHAO: I am not a complete libertarian. I'm not a anarchist. I don't believe human civilization's advanced enough to live in a world without no - with no rules.
GURA: But what rules? That's at the heart of this. Binance and other crypto companies have been trying to shape a new regulatory framework - one that's favorable to them. They argue many existing rules don't apply. This lawsuit will help determine if they're right.
David Gura, NPR News, New York. Transcript provided by NPR, Copyright NPR.
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