SBF Case and the Future of Cryptocurrency

After a month-long trial, a New York City jury found former FTX CEO Sam Bankman-Fried guilty on seven criminal counts, including securities fraud.

The New York City crypto trials are over, and the crypto industry is eager to move on. But it won’t be easy.

Earlier this month, a New York City jury found notorious cryptocurrency mogul Sam Bankman-Freed guilty on seven criminal counts, including money laundering and securities fraud.

As the co-founder and former CEO of cryptocurrency exchange FTX, SBF continues to have a profound impact on the industry he helped create while awaiting a sentencing hearing scheduled for March. FTX filed for bankruptcy on November 11, 2022, exactly one year later.

SBF and FTX introduced Bitcoin, Ethereum, and other cryptocurrencies to millions of people around the world, and his company spent a lot of money on sponsorships, endorsement deals, and Super Bowl ads, making FTX a household name and promoting cryptocurrency more broadly.

Many cryptocurrency companies have taken action to show that they have nothing to do with FTX. For example, some exchanges have stopped supporting trading pairs or withdrawal services related to FTX. In addition, some companies have also announced that they will take stricter compliance measures to ensure that similar incidents do not happen again.

However, regulators and many retail investors remain skeptical, believing that the entire cryptocurrency industry is subject to potential risks and opacity, and that stricter regulation is needed to protect the interests of investors.

Crypto industry struggles to move forward

Despite this, supporters of the cryptocurrency industry remain optimistic. They believe that over time, people will gradually regain confidence in cryptocurrencies and see their potential and value. At the same time, they also call on governments and regulators to adopt a more open and friendly attitude towards the development of cryptocurrencies to promote the long-term stability and growth of the industry.

Before the verdict was read out, the industry was already moving on from SBF. Sam’s crime had nothing to do with the technology that underpins blockchain networks and digital assets. It was about scammers, not cryptocurrency.

Once the jury announced its verdict on Nov. 2, the industry began arguing that cryptocurrencies after SBF were safe and not tainted by “all this fraud and misappropriation.” There are signs that this strategy is working.

In the past few weeks, the price of Bitcoin has started to rise again. Even the virtual currency created from scratch by SBF, known as FTX Token or FTT, has grown. Bitcoin is currently trading around $36,000, about half of its all-time high but more than double its price at the beginning of the year. But other financial industry experts remain cautious about whether cryptocurrencies can recover.

While cryptocurrency proponents like to tout their industry as the future of finance, many are skeptical. By design, the crypto economy is supposed to be borderless, built outside the boundaries of traditional finance. According to Timothy Massad, former chairman of the U.S. Commodity Futures Trading Commission (CFTC), the collapse of FTX does take some of the pressure off the wild speculation that defined the crypto market during the company's heyday. But he's not entirely convinced by what he's seen so far.

“I think the use cases for a lot of the stuff that’s been developed in this space haven’t really been proven,” said Massad, who now directs the Digital Asset Policy Program at Harvard University. “I do think it’s an interesting technology that could have very useful applications, but there’s a lot of stuff that doesn’t actually have that much utility.”

Because their prices fluctuate so drastically, cryptocurrencies are not suitable as a medium of exchange, and the FTX fraud, which siphoned billions of dollars from customers without their knowledge, has only heightened concerns about the security of digital assets.

Although Bitcoin supporters claim that the cryptocurrency will serve as a hedge against high inflation, this is not true. When inflation rises, the value of Bitcoin falls.

Industry backers are highlighting the potential uses of blockchain technology, which underpins crypto transactions. They say blockchain, a decentralized public ledger that records transactions, has broader applications. In the future, companies say it will improve the way hospitals store and share medical records and the way insurers track claims.

Clearer and more specific cryptocurrency regulation is needed. Looking at the cryptocurrency landscape, we still see a lot of speculation, scams, and fraud, and new regulation could weed out some of the digital garbage.

During his tenure as SEC chairman, Chairman Gary Gensler cracked down on cryptocurrency companies.

Regulators remain deeply concerned about the risks posed by cryptocurrencies

One of the main difficulties for the crypto industry is that it is still very new — Bitcoin was launched in 2008 — and operates in a regulatory murky space. So far, the U.S. Congress has failed to pass any meaningful cryptocurrency legislation, and U.S. financial regulators have grown tired of waiting.

The move follows additional enforcement actions by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which have cracked down on other crypto exchanges such as Coinbase, Kraken and Binance in recent months.

The SEC accused Binance of operating an unlicensed exchange and said it sat atop a sprawling and shadowy web of corporate subsidiaries.

The SEC and CFTC are using their existing enforcement powers and decades-old laws to crack down on crypto companies. But with the 2024 elections approaching, crypto regulation may be unlikely to be one of Congress’ top priorities.

The United States Securities and Exchange Commission (SEC) has sued Binance and its co-founder and CEO Changpeng Zhao as part of a broader crackdown on the cryptocurrency industry.

Cryptocurrency is not going away

Despite tensions among regulators, lawmakers and the industry, there are signs that cryptocurrencies are continuing to gain momentum.

On Wall Street, major banks continue to take cryptocurrencies seriously. Although the cryptocurrency market is only a fraction of the size of the stock market or the commodities market, financial firms such as Citigroup and JPMorgan Chase have analysts and strategists focused on cryptocurrencies. And cryptocurrencies are becoming more accessible.

Earlier this year, Fidelity announced it would allow clients to add Bitcoin to their retirement portfolios. Following a recent court decision, asset managers are newly optimistic that the SEC will approve exchange-traded funds that track cryptocurrency prices. For retail investors who are interested in Bitcoin but don’t want to hold the asset itself, investing in regulated structured securities could be attractive.

Twelve companies, including BlackRock, Invesco and Fidelity, have submitted applications to the SEC to introduce cryptocurrency exchange-traded funds (ETFs). The regulator may decide at any time whether to approve these applications. Previous applications were rejected, with the SEC saying the market was too vulnerable to manipulation. And a year after FTX went bankrupt, it is about to recover in some way.

This week, The Wall Street Journal reported that three companies are vying to acquire the legacy of the defunct cryptocurrency exchange in hopes of restarting it.