If there is one aspect that would best define financial technology, and most especially the cryptocurrency space, it is how rapid companies grow and massive wealth be created — only to then fall apart at a similar record speed.
Arguably, no person or situation embodies this common occurrence more than the meteoric rise and fall of crypto exchange FTX and its CEO and founder, Sam Bankman-Fried.
He formed his crypto hedge fund Alameda Research in November 2017 and, less than two years later in May 2019, established FTX. By the start of 2022, it had grown into a multibillion-dollar operation, effectively catapulting Bankman-Fried to the highest of higher ups among both crypto executives and political donors.
Then, just a few months later, crypto outlet Coindesk published a leaked company balance sheet that exposed FTX’s shaky financial foundation .This resulted in rival exchange Binance announcing it would sell its hoard of FTT, the token associated with the FTX crypto exchange. This brought about what can be best described as a bank run but for crypto, with customers hastily withdrawing their funds, only to have FTX turn out to not have the funds to pay those customers back.
Ravaged by the outflows, the US$32 billion crypto empire collapsed, becoming non-existent along with Bankman-Fried’s purported US$12 billion net worth and his reputation as a quirky crypto wonderkid.
The descent of FTX and its sister company, Alameda Research, into bankruptcy in a mere two weeks triggered a range of civil and criminal investigations, with Bankman-Fried being initially charged with as many as seven felonies by the U.S. Department of Justice.
On November 2nd, exactly one year after the Bankman-Fried’s empire began to crumble, a New York City jury found him guilty on all seven counts he was charged with. This includes defrauding customers and investors of FTX. The jurors determined he was part of a conspiracy to extract more than US$8 billion from FTX customers and funnel it to Alameda Research, which then went on to spend it on Bahamian real estate, startup investments and political donations.
The U.S. government’s case versus Bankman-Fried was centered on testimonies from Bankman-Fried’s inner circle: his former closest collaborators who all took the stand to allege that he directed them to commit fraud in order to steal billions from customers.
While Bankman-Fried had pleaded not guilty and later testified of his innocence since being charged with his felonies, the jury was unconvinced and took less than five hours to find him guilty on all counts. Bankman-Fried now presently faces up to 120 years in prison and will be sentenced by Judge Lewis Kaplan at a later date.
The Effects on the Cryptocurrency Space
Not surprisingly, the spectacular FTX had significant repercussions in the banking industry as banks like Silvergate Capital, Farmington State Bank and all others that worked with the now-bankrupt company were brought down with it.
Also not surprising has been how the Bankman-Fried trial has left consumers leery of crypto. According to data collected by CivicScience, around 33% of respondents who have previously invested in crypto, along with a quarter of potential investors, have expressed diminished enthusiasm for future investments following the trial.
Additionally, the FTX scandal has further cemented the convictions of 74% of those who had previously shown no interest in digital currencies, and they now are expectedly even less likely to consider investing due to the trial and similar cases. But perhaps the most alarming finding by CivicScience had been how 62% say they feel ‘less likely’ to invest in crypto in the trial and similar cases – compared to just 5% who say they’re ‘more’ likely to invest.
It may be hard to believe for some, but there is also a silver lining that has stemmed mostly from the quick conclusion of the trial.
For one, many experts have observed that while the felonies committed by Bankman-Fried were within the crypto space, it ultimately still boils down to him having committed fraud which is also easily applicable to almost any other industry.
With that said, many view the trial as something that shouldn’t dampen the view on cryptocurrency in general. Granted, crypto as a whole is still in development and continues to have its fair share of challenges. However, some insist that the trial and resulting prosecution of Bankman-Fried shows that fraudsters within the space cannot get away scot free and that crypto as a whole can be duly regulated.
Crypto On The Comeback
Despite the bad press and negative effects that the Bankman-Fried case has brought to crypto, currencies have for the most part been actually on the mend in the last couple of months. Following an overall crash that was worth an estimated US$ 3 trillion in losses, Bitcoin and other tokens have recovered, while major companies and funds continue to plow capital into cryptocurrencies.
Spearheaded by a recent rally of as much as 60% in Bitcoin, the token market is back to where it was before FTX collapsed in November of last year, and is now worth an estimated $1.1 trillion.
Shares of Coinbase are ahead 70% as of late, while “miners” of Bitcoin like Marathon Digital Holdings (MARA) have surged more than 150%. The Global X Blockchain exchange-traded fund (BKCH), a basket of crypto-related stocks, is also up 90%.
While short-live, Dogecoin (DOGE), the cryptocurrency that initially came to be as a joke, also saw a 30% increase in value after X-owner Elon Musk swapped the former-Twitter’s bird icon with the Dogecoin’s Shiba Inu logo.
There Will Always Be Interest In Crypto, and More Responsible Banks are Ready to Make it Accessible
While the volatility of crypto remains, the significant potential it continues to offer in terms of usage and as a means to grow wealth will also seemingly continue to intrigue an increasingly digitally savvy market.
With that said, both traditional banks and new fintechs can be expected to continue exploring ways to eventually have crypto in its offerings to help diversify its market.
One example of a company doing so is global digital banking company, Black Banx.
Seemingly ahead of the game, the Toronto-based firm began offering crypto currency as a deposit method for its customers in 2016. Just two years later, it launched a fully fledged crypto currency trading with BTC and ETH as crypto currency.
While Black Banx already offers private and business accounts in 28 FIAT currencies, it saw fit to also give customers the means to trade and transact in crypto currency. The company openly states that its mission has always been to provide banking access without restrictions based on nationality, country of residence, religion, and amount of funds held or transferred.
With the addition of crypto, that apparently also includes without restrictions to customers’ preferred medium or currency.
Surely, while the remaining months of 2023 and the sentencing of Bankman-Fried next year will likely play into what happens next for crypto banking in the foreseeable future, like other rapidly evolving aspects of technology, crypto continues to hold a great deal of potential. Those interested in the medium, and the banking market in general, will hope that its use, regulation, and continued development will be in more responsible hands.