The crypto exchange boss who stood up to Elon Musk

Zhao Changpeng, founder and chief executive officer of Binance, admits he saw red when he read the word "shady". Photo / Getty Images

Bitcoin exchange Binance is reviving efforts to launch in the UK months after a ban from the City watchdog stunted its plans.

Changpeng Zhao, Binance's chief executive, told The Sunday Telegraph that the company would apply for a Financial Conduct Authority (FCA) licence, having hired an army of compliance officers and former employees of the City watchdog.

Mr Zhao said relations with the regulator had improved since Binance was unceremoniously censured this summer by the FCA. The regulator had intervened to say that the company was not authorised to operate in the UK and that it had failed to answer basic questions about its structure.

"We're fully re-engaged there," he said. "We're making a number of very substantial changes in organisational structures, product offerings, our internal processes, and the way we work with regulators.

"We want to continue to establish a presence in the UK and serve UK users in a fully licensed and fully compliant manner."

He said Binance hoped to become a registered crypto-asset firm, which requires abiding by money laundering and terrorist financing controls, in six to 18 months. He said one option would be to set up a separate company, similar to a US exchange it created in 2019.

The company, registered in the Cayman Islands, is the world's biggest cryptocurrency exchange but has exchanged blows with regulators in many countries, partly due to an opaque corporate structure.

In June, the FCA issued a consumer alert against Binance's British entity, telling customers that it was "not permitted to undertake any regulated activity in the UK" and ordering it to halt financial promotions and advertising.

It later said that it was "not capable" of overseeing the company because it had not answered queries about its headquarters.

Zhao has since pledged to overhaul Binance and work with regulators. He said the company had established an office in Britain, with a "number of ex-regulatory staff from the UK" and a "couple of hundred compliance people" since the FCA notice in June.

"Our team has definitely had very positive interactions with the FCA since then, we requested in-person meetings as soon as we saw that notice. So that communication is definitely happening."

Binance withdrew its FCA application shortly before the watchdog's intervention in June, although it continues to offer cryptocurrency trading in Britain through its global business. Zhao said he hoped to be able to offer more complicated financial products such as futures and derivatives in Britain if regulators allowed.

Standing up to Elon Musk and his 65m Twitter followers is either brave or foolish, depending on who you ask. But Changpeng Zhao felt he was left with no choice.

The Tesla billionaire recently tweeted at Zhao, the founder of the world's biggest cryptocurrency exchange Binance, when customers complained about being briefly unable to withdraw Dogecoin, Musk's favourite asset. "Sounds shady," Musk wrote.

Those two words had the typically composed Zhao, a 44-year-old bespectacled Chinese-Canadian, seeing red. "I'm usually very stable, but at the time I have to admit I was a little bit emotionally charged.

"When a guy like Elon Musk, with that kind of influence, says that, then it is my job to clarify it and to defend ourselves."

Zhao, known to colleagues and fans as "CZ", retaliated provocatively, tweeting back about Tesla being forced into an embarrassing recent safety recall affecting thousands of cars. "When I saw the word shady, I overreacted," he says.

Elon, we are pretty certain it is an issue with the latest #doge wallet. We are in communications with the devs. Apologies for any inconvenience that may have caused you.

What happened here? 👀https://t.co/g2J50zqbEu

— CZ 🔶 BNB (@cz_binance) November 23, 2021

It is hardly surprising that Zhao might push back at any suggestion of impropriety. For the last few months, Binance has been fighting an uphill battle to prove to governments and regulators that it has cleaned up its act.

In June, the Financial Conduct Authority (FCA) intervened to say that Binance's UK entity was not licensed to offer regulated services, ordering it to remove advertising and financial promotions.

In the US, the company is reportedly under investigation by money laundering and tax authorities. And researchers have traced hundreds of millions of dollars of suspected illicit transactions that went through Binance.

At the same time, the company has enjoyed wild success in four short years as millions use it to invest in Bitcoin and other cryptocurrencies, the combined value of which has grown from US$564b a year ago to US$2.6 trillion (£2 trillion) today.

Privately held Binance processes around US$76b a day and insiders have reportedly pegged its value at US$300b, more than the FTSE 100's five banks combined. That has made it a natural target for crypto-wary regulators.

Elon Musk isn't one to shy away from confrontation. Photo / AP

The position has not been helped by Zhao having described the company as having no fixed headquarters – its legal entity has been in the Cayman Islands – and his own status as something of a nomad.

Having been grounded in Singapore during the pandemic, he now hops between countries, although a planned visit from his current base in Portugal to Britain has been cut short by Omicron-related travel restrictions.

Zhao insists, however, that Binance is changing. "When [regulators] asked us a very simple question: 'Where's your headquarters?' and our response was that we have no headquarters, that we're a decentralised organisation, they didn't know how to work with us.

"We understand that now. So now we're in the process of setting up real offices, legal entities, a proper board, proper governance structures in most places, including the UK."

In May Binance withdrew its FCA application amid tense negotiations with the watchdog, which later said that the company was effectively unable to be regulated.

But Zhao says it has since hired hundreds of compliance staff in Britain, including former FCA staffers, and is planning to reapply. He says recent discussions with regulators have been positive.

"I think we're now seeing multiple governments that are very favourable towards crypto. I think people now realise this is the future of money. They want to attract crypto businesses, they want to attract the future.

"I'm now meeting heads of state, senior government officials, and also bankers where the chairman, the president, the chief executive, they all use Binance. The meetings these days are very different from the meetings we had three or four years ago."

Zhao adds that Binance has decided on a new location for a global headquarters that it plans to announce soon.

Crypto 'can advance society'
This conversion has taken a while. Although Zhao was born in China, his family moved to Canada when he was 12 after his father, a university professor, was exiled, and he says today he feels more Canadian than Chinese.

In both countries the family was constantly on the move. "I never really stayed in one city for more than four years, that exposure influenced my personality," he says.

Zhao learnt computer programming at an early age and studied computer science at Montreal's McGill University before jobs at Bloomberg and the Tokyo Stock Exchange.

He first heard about Bitcoin in 2013 when playing poker in Shanghai, and was so infatuated with the idea that he sold his apartment to invest in the cryptocurrency.

Binance was set up in 2017 in Shanghai, before a Chinese crackdown on the sector forced it to leave.

Zhao's financial bet on Bitcoin alone would have been enough to retire on, and today his significant stake in Binance would put him among the world's richest men, although he says he has no idea where he stands in the global rich list.

"I really don't care about it. I don't know how much Elon Musk is worth, I heard he's one of the richest guys. I heard Warren Buffett, Bill Gates and Jeff Bezos are up there, I don't know how much they're worth. I don't track their movements. I don't track my own."

Zhao says he rarely indulges in his wealth, and recently cut his own hair to save time, which matters more than money. "Everybody gets 24 hours, you can't multiply that."

He insists cryptocurrency is not about getting rich. "I think this is a useful thing to contribute to human society. Whenever our tools, our technology is improved, our civilisation advances with it.

"Money is still very clunky today. We can maintain the same degree of safety, the same degree of compliance, but at the same time making it much faster, much easier, much cheaper to transact."

Not everyone agrees. Sceptics have decried cryptocurrencies as a lawless Wild West that enables money laundering, blackmail and online black markets, championed by those with little regard for the law.

Zhao says he, at least, is not one of them. "I'm not a libertarian. I'm not an anarchist. I believe that we live in a world that needs some rules. We don't want to disrupt anything."

Nor does he predict cryptocurrencies toppling the world's "fiat" currencies any time soon, despite El Salvador recently adopting it as official currency.

"I think that's at least 30 to 50 years away. No one really uses Bitcoin for everyday payments. If you buy coffee or pay for lunch, people don't use Bitcoin. The price is volatile, it's a new technology that's relatively cumbersome to use. In the longer term, maybe we'll see."

And what about Musk, whose tweets have sent the prices of both Bitcoin and Dogecoin whipsawing depending on his mood? "He's a genius. He is still my idol. But in terms of voicing his opinions, I don't think he tweets that carefully.

"Overall, he's definitely good for crypto. [But] as much as I admire him, I do not agree with the way he tweets. We have got to be a little bit more sensitive to the market impact of our tweets, and he has way more impact than anybody else on Earth."

Zhao does not plan to run Binance forever, and says he could step down within two years.

"I've been CEO for four and a half years and I think I should step down somewhere between five and 10 years. I don't think anyone should be CEO for more than 10. So most likely I'll be on the job for at least a couple more years."

No prizes for guessing what Zhao might want in a successor: "Ideally, if we can find a person that has a strong regulatory experience that can lead the business I'd be very happy. But it's not easy."

Making Binance the world's biggest cryptocurrency company might have been the simple part. Taking it mainstream will be harder.

- Telegraph Media Group