The crisis destroyed Bankman-Fried’s public image as a key resource for politicians writing regulations for cryptocurrency — a reputation built on his willingness to write multimillion-dollar checks to bolster Democrats.
A Democratic congressional staffer, who spoke on condition of anonymity because he was not authorized to speak publicly, compared the collapse to seeing the man behind the curtain in “The Wizard of Oz,” with Bankman-Fried’s dazzling performance all smoke and fumes for lawmakers and regulators. mirrors.
“There are people who are going to feel burned by this whole episode,” said Isaac Boltanski, director of policy research at global financial services firm BTIG. “It’s a pretty big body blow to an industry that’s starting to find its footing.”
The crash, perhaps the most devastating in cryptocurrency history, threatens to derail a broader industry lobbying campaign that has drawn interest between Republicans and Democrats, who are eager to craft new laws to accommodate digital asset startups. Bankman-Fried and her lobbyists, including former federal regulators, were at the center of the effort. It also creates financial turmoil in the cryptocurrency market, creating new headaches for FTX’s competitors and other firms.
Crypto executives and lobbyists are already distancing themselves from Bankman-Fried.
“This is an absolutely stunning turnaround by someone who is a favorite of Washington policy circles,” said Christine Smith, Executive Director of the Blockchain Association. “It’s built on a house of cards.”
FTX’s financial crisis came to light earlier this week after a series of incidents hinted at instability at the company.
On November 2, cryptocurrency media outlet CoinDesk published a report showing that Alameda Research, a trading firm owned by Bankman-Fried, backed its balance sheet with billions of dollars in highly illiquid digital tokens issued by FTX. Binance, the world’s largest cryptocurrency and main FTX competitor, announced on Sunday that pour your shares into the token in the light of revelation.
Customers raced to withdraw their funds from FTX, prompting the company to halt withdrawals — a move that trapped hundreds of millions of dollars worth of the cryptocurrency on the exchange.
Bankman-Fried negotiated an immediate sale of the company to Binance and announced it on Tuesday, but the deal fell through on Wednesday afternoon.
“As a result of corporate due diligence, as well as recent news regarding mismanaged client funds and alleged US agency investigations, we have decided not to proceed with the potential acquisition of FTX.com,” Binance wrote on Twitter on Wednesday. . FTX declined to comment.
This is a stark change from the role Bankman-Fried played earlier this year, when his firm bailed out other ailing startups during another cryptocurrency crash.
Bankman-Fried’s attempt in recent months to portray FTX as a source of financial stability for the cryptocurrency world has given the 30-year-old an opportunity to meet politicians and criticize the industry’s excesses as the company lobbies to create a cryptocurrency wave. bills and regulations.
“Every day that we do nothing on the crypto policy side, at the same time, customers are not protected,” Bankman-Fried said in an interview in October. “There is no preventive police in war. Also, 95 percent of the industry is offshore because there are no clear guardrails in the United States.”
Bankman-Fried’s Washington campaign was bolstered by his emergence as a political megadonor. He has contributed more than $40 million to Democratic candidates and a network of super PACs promoting cryptocurrency and public health policy.
But even Bankman-Fried’s political aspirations have been shaken in recent weeks. He angered progressive Democrats in October when he backtracked on plans to spend $1 billion on races by 2024, telling POLITICO in an interview that the promise was “a stupid quote on my part” and that he didn’t believe additional contributions would make an impact. .
Bankman-Fried is now facing intense scrutiny from regulators and lawmakers after his company sparked a market-wide cryptocurrency crash that was felt on Wall Street.
The market capitalization of the digital asset has fallen nearly 20 percent since Monday, with the total value of the world’s major digital currencies falling to around $800 billion.
Bankman-Fried lost more than 90 percent of his $16 billion fortune in a matter of days, according to the Bloomberg Billionaires Index.
Robert Baldwin — head of policy at the Digital Asset Markets Association, an industry standards group closely aligned with the FTX — said a broader meltdown could lead to congressional hearings on cryptocurrency’s potential risks to the financial system and consumers.
“I don’t think there’s going to be a big seat at the table for the industry,” he said.
Securities and Exchange Commission Chairman Gary Gensler, who has warned that an unregulated digital asset industry is a threat to consumers, told a conference call on Wednesday that “a lot of good people are being hurt.” Gensler, reviled by cryptocurrency advocates, may be vindicated in light of the FTX debacle.
“It’s a Wild West with a lot of ambiguity and a lot of leverage and interconnectedness,” Gensler said. “It’s like Jenga blocks are stacked, and as each block is removed, it collapses a little.”
“We are incorporated in the US and publicly listed in the US because we believe transparency and trust are so important,” Armstrong said on Twitter on Tuesday.
Crypto critics urge lawmakers to go easy on industry power brokers.
“Instead of implementing strong public interest policy, you hitch your wagon to charismatic establishment types who make too many promises that they ultimately can’t deliver,” says Mark Hayes, senior policy analyst for Financial Reform, according to the American. “Sam may be one of the biggest and most obvious examples of this kind of hubristic figure, but there have been many before him and many more after him.”
Declan Harty and Josh Sisco contributed to this report.