Crypto may never recover after Sam Bankman-Fried’s downfall

Business

It took just four hours for a jury to find fallen “crypto king” Sam Bankman-Fried guilty of fraud.

The 31-year-old has been convicted of stealing billions of dollars from customers of FTX, which was the world’s second-largest crypto exchange before its dramatic collapse last year.

To this day, FTX users – at least 80,000 of them in the UK – remain out of pocket as the company’s new management scrambles to figure out where the money went.

FTX founder Sam Bankman-Fried is questioned by lawyer Mark Cohen (not pictured) as he testifies in his fraud trial over the collapse of the bankrupt cryptocurrency exchange, at federal court in New York City, U.S., October 27, 2023 in this courtroom sketch. REUTERS/Jane Rosenberg
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A court sketch of Sam Bankman-Fried

During the trial, three members of Bankman-Fried’s inner circle gave evidence – executives with a first-hand insight into how the doomed company was run.

Caroline Ellison, his on-off girlfriend and the CEO of sister trading firm Alameda Research, which contributed to FTX’s downfall, said it was a “relief” when the company went bust.

FTX co-founder Gary Wang said Alameda Research had been allowed to withdraw unlimited funds that belonged to the exchange’s customers without their knowledge – bankrolling risky bets and extravagant purchases.

And Nishad Singh, who was FTX’s head of engineering, revealed that Bankman-Fried had splashed out almost £1bn on celebrity endorsements, high-profile partnerships and lavish real estate – fuelling the illusion of success even further.

More on Ftx

This trio had all entered into plea deals before the trial began, but Bankman-Fried has no such luxury – and faces up to 115 years behind bars when he is sentenced in March.

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The rapper, gambling and the online world

The verdict marks a huge fall from grace for a young entrepreneur once regarded as the crypto industry’s white knight – a man who swept in and saved stricken firms teetering on bankruptcy.

And the ramifications of FTX’s dramatic implosion have been felt far beyond the crypto sector.

US President Joe Biden came under pressure to return millions of dollars donated by Bankman-Fried for his presidential campaign.

A coterie of top celebrities – including Larry David and Naomi Osaka – are facing lawsuits after endorsing FTX in high-profile adverts. Taylor Swift almost got caught up in the debacle, but thankfully for her, a $100m sponsorship deal was pulled at the last minute.

Bankman-Fried had also been advising politicians in Washington on how the crypto industry should be regulated, advocating for rules his own firm would have found impossible to follow.

And rather awkwardly, just months before FTX went bust, he rubbed shoulders with Tony Blair and Bill Clinton at an exclusive event in the Bahamas.

Blockworks opinion editor Molly Jane Zuckerman said: “With his conviction, Bankman-Fried and crypto will now unfortunately be synonymous for the rest of eternity.

“It’s inescapable – the young genius founder who promised to change the financial world, convicted on seven charges… one year to the day since the original news article that brought his empire down.”

For years, crypto has been regarded cynically by politicians, regulators and the public – disregarded as a form of Monopoly money because it is infamously volatile.

But digital assets had begun to gain steam because of how they slashed the cost of international transactions, and offered protection for consumers in nations suffering from hyperinflation.

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Who is Sam Bankman-Fried?

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What is the main aim of cryptocurrency?

Sam Bankman-Fried has done irrevocable damage to this industry – reinforcing the narrative of a Wild West where consumers have no protection.

It will take years for the crypto world to rehabilitate its image, if it ever does at all.

Why? Because the millions of people who were early adopters – true believers in what this new asset class could achieve – have been badly burned by FTX.

And if you can’t rely on the world’s second-largest crypto exchange, who can you trust?

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