The future of crypto hinges on a fight between the SEC and a former burger flipper

Binance may not be a household name, but in the world of cryptocurrencies it has a massive presence.

And now, the company founded by a former burger flipper turned billionaire is engaged in a massive legal battle against Wall Street's top cop — a fight whose outcome may well define the entire future of the crypto industry.

This summer, the Securities and Exchange Commission filed more than a dozen charges against Binance, which operates the world's largest cryptocurrency exchange, and its founder and chief executive, Changpeng Zhao.

They are accused of misleading investors and operating an unregistered — and therefore illegal — exchange. Better known by his initials, CZ, Binance's CEO is accused of orchestrating "an elaborate scheme to evade U.S. federal securities laws," according to the SEC.

The sweeping charges, which are being fiercely contested by Binance, are part of an aggressive crackdown of the crypto industry that kicked into high gear after FTX collapsed last year.

In recent months, the SEC has filed a barrage of lawsuits against several other companies, including Coinbase, which operates another popular cryptocurrency exchange.

With each of these actions, the agency is trying to bring crypto to heel. It's something Gary Gensler has called for since he became the chair of the SEC.

"Right now, we just don't have enough investor protection in crypto," he told the Aspen Security Forum in 2021. "Frankly, at this time, it's more like the Wild West."

Over the past few years, the SEC has grown alarmed at how quickly the crypto industry has developed. Today, there are thousands of digital currencies, and crypto companies are offering all kinds of services, including banking, while operating in a regulatory gray area.

The SEC under Gensler intends to change that. With enforcement actions against companies like Binance and Coinbase, it is arguing most cryptocurrencies are securities — like stocks, not commodities, and therefore, fall under the regulator's purview.

That assertion goes against the very essence of crypto. By design, it is supposed to operate outside the rules of traditional finance.

The outcome of the SEC's string of lawsuits against crypto companies could have enormous consequences for the industry. It would mean that virtual currencies and other digital assets could be regulated just like stocks.

And perhaps nothing illustrates those stakes better than the battle being waged against Binance.

A one-stop financial shop

Binance has more than 140 million users worldwide who use it to buy and sell cryptocurrencies, including bitcoin.

But it is not just a trading platform, like the Nasdaq.

"It's really hard to overstate how important Binance is to the crypto ecosystem," says Yesha Yadav, an expert on digital assets at Vanderbilt Law School.

Today, it has a research arm and a lending business. In some countries, Binance offers a crypto debit card. And it is also a marketplace for digital art and riskier assets, like crypto derivatives.

Think of Binance as a crypto Amazon: a one-stop shop for everything.

This isn't a business model that exists in traditional finance, where there are voluminous rules to protect investors from systemic risks and conflicts of interest.

The SEC alleges companies affiliated with Binance trade against Binance customers. And the firm also has its own, proprietary cryptocurrency, called the Binance Coin, or BNB.

"It is an organization that is presenting a massive headache for regulators," Yadav says.

Crypto's origins

Many experts see the legal showdown between the SEC and Binance as a long time coming. Gensler has said his goal is to bring the crypto industry out from the shadows.

A longtime regulator, he headed the Commodity Futures Trading Commission — which has also filed suit against Binance — during the Obama administration, and Gensler knows the crypto world well. He taught a course on digital assets, called "Blockchain and Money," at the Massachusetts Institute of Technology before he returned to government in 2021.

Under his leadership, the SEC is making the case it has the authority — thanks to decades-old securities laws — to oversee an industry that is still in its infancy. Satoshi Nakamoto's paper proposing the creation of bitcoin was published in 2008.

During Gensler's tenure, it has filed more than 100 crypto-related enforcement actions. And although Gensler is waging his fight on multiple fronts, he and the SEC face an uphill battle. Crypto companies intend to fight tooth and nail to avoid being regulated by the agency.

CZ, the crypto evangelist

Gensler's regulatory push is now pitting him against CZ, who founded Binance in 2017, in China. The company has moved several times since then — in 2021, China banned crypto mining and crypto trading. And today, Binance proudly says it has no official headquarters anywhere.

The SEC says Binance sits atop an "opaque web of corporate entities," and that web, the regulator alleges, was spun by CZ, a crypto celebrity who grew up in Canada. He headlines business conferences all over the world, and seems happy to lock horns with skeptics on social media.

On X, the platform formerly known as Twitter, CZ frequently accuses journalists of spreading "FUD" — fear, uncertainty, and doubt — about crypto.

To true believers, CZ is a visionary and a crypto crusader, but to Gensler, he is a dangerous deceiver.

In an interview after the SEC filed its lawsuit, Gensler told Bloomberg TV there is a lot Binance's customers don't know about what CZ and his company do with their money behind the scenes.

"We know Mr. Zhao controls it all," he said. "We know that investors were misled about the risk controls, and that they concealed an awful lot from the investing public."

The SEC has also accused CZ and Binance of funneling their assets to other companies CZ controls, and of manipulating the broader crypto market.

From flipping burgers to starting Binance

Binance declined NPR's request for an interview with CZ, but in 2021, he sat down with Anthony Scaramucci, the hedge fund manager and former White House communications director, who asked CZ how he got his start.

CZ was born in China, and a few years later, his family immigrated to British Columbia in Canada.

"When I was 15, I was flipping burgers in a McDonald's," he recalled. "I also worked at a gas station after that."

It is the first chapter of a crypto rags-to-riches story — the kind of tale that convinced countless first-time investors that they too could become fabulously wealthy buying digital currency.

CZ went to college in Montreal, interned at a software company in Tokyo, and has been on the move ever since. He has lived in Asia, the Middle East, and Europe, and that has given him a unique perspective on global finance.

"I was living in different places, so I never really got married to one currency, one country, etc.," he told Scaramucci.

CZ's itinerancy helps explain what made cryptocurrencies so appealing to him. By design, the crypto economy is borderless — built to operate outside the boundaries of traditional finance.

A life-changing poker game

In 2013, CZ heard about crypto for the first time at a poker game in Shanghai. Bobby Lee, who was then the CEO of BTC China, one of the earliest cryptocurrency exchanges, advised CZ to put 10% of his money in bitcoin.

But CZ went all in. He sold everything — including his apartment, and he got a rude awakening a few months later, when the price of digital currency sank.

"My relatives were all like, 'What?!'" he recalled. "My mom wanted to spank me on the head, saying, like, 'You're stupid, kid.'"

But CZ held on, and as bitcoin's value and popularity started to surge, CZ saw an opportunity to build a new trading platform that would make it easier for people to get into crypto.

At a Forbes conference in Singapore, a few months after he started Binance, CZ stressed how much faith he had in crypto's staying power. He showed the audience a tattoo he'd gotten on his forearm of his company's logo.

"There are some people who are uncertain about the future of this industry," he said. "I'm very certain that we are here to stay."

Binance went onto become a crypto giant. In 2021, CZ said the platform saw $170 billion worth of transactions in a single day.

The company's rise has not come without controversies — many of them in fact. Binance has faced allegations it has facilitated money laundering, and the company has been accused of having ties to China, both of which Binance disputes. A Reuters investigation concluded that, between 2017 and 2021, "Binance processed transactions totaling at least $2.35 billion stemming from hacks, investment frauds and illegal drug sales."

Binance under pressure

But the SEC's lawsuit is Binance's biggest challenge yet. And today, its future is up in the air.

The SEC is asking a court to bar the company and CZ from doing business in the U.S., and its market share has shrunk dramatically since the agency filed its lawsuit.

Several European countries have told the company it's unwelcome there, and the Department of Justice is reportedly investigating CZ and Binance, which recently imposed a deep round of job cuts. On top of that, several executives recently left the firm.

Binance says it plans to fight the SEC charges, calling them "unjustified." Meanwhile, CZ continues to insist he is not totally against crypto regulation.

"I am not a complete libertarian," he told an audience in Singapore, in 2021. "I'm not an anarchist. I don't believe human civilization is advanced enough to live in a world with no rules."

But what rules?

That's what's at the heart of this fight.

For years, Binance and other crypto companies have been trying to shape a new regulatory framework — one that is favorable to them. They argue many existing rules don't apply.

This lawsuit will help determine if they're right.