Bankman-Fried’s $14.6 Billion Wipeout Will Impact Crypto Regulation

What a difference a day makes, especially in the crypto space. FTX CEO Sam Bankman-Fried, the curly-haired crypto billionaire who was making a heavy play in politics still has his hair, but not his billions. Overnight SBF saw 94% of his wealth – some $14.6 billion – vanish. SBF has filed for bankruptcy and personally owes lenders $650 million.

This will have an impact on the fate of crypto legislation. As we wrote just yesterday, SBF has been putting his considerable support behind a bill in the Senate that would increase the Commodity Futures Trading Commission’s authority in the crypto space. Opinions in the crypto space are sharply divided, with DeFi advocates opposing the measure because it offers little support for that cohort.

Regardless of what side you support, Blockworks believes it is certain this will impact Senate measure, both for lack of his advocacy and because many now distrust SBF. Worse, the shady circumstances of the SBF’s loss will draw more regulatory scrutiny to the space.

In a major setback for its regulatory future, the crypto industry has lost what likely was its biggest and most-connected cheerleader in Washington. 

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Distrust in the 30-year-old billionaire ballooned.

“You don’t go from being worth $32 billion one day to being acquired by your biggest competitor the next without having done something wrong,” said Nic Carter, partner at Castle Island Ventures, during a Blockworks Twitter Spaces on Tuesday.

If FTX user funds were being used to finance Alameda Research, Bankman-Fried’s trading firm, there could be legal consequences. The Binance acquisition — which is pending due diligence and finalizing terms — does not apply to Alameda, nor to FTX’s US arm, FTX.US. 

“There’s a good chance SBF does a little time [in jail],” Martin Shkreli, former hedge fund manager and convicted felon, said during an Up Only podcast livestream Tuesday. 

Even without Bankman-Fried, the industry is still well-positioned in DC, according to Kristin Smith, executive director of the lobbyist firm the Blockchain Association. 

“There are a lot of us who are going to continue doing the work that we have been doing…the industry is well-positioned to continue to have a voice in Washington and to be a productive partner in figuring out the right path forward,” Smith tweeted.

Regardless, the crash of yet another high-profile and generally well-respected name in the space is not going to set regulators’ minds at ease. Daryl Kelly, founder of NTF platform LTD.INC, told Blockworks.

“Clearly there were concerns about FTX and its viability, but this just shows that even a seemingly dominant exchange run by someone who had been considered an industry giant just a week ago… is not immune to the vagaries of what is most certainly the most volatile market in the world,” Kelly said.

“How this will play out is anyone’s guess, but I imagine regulators are looking at this situation with a lot more scrutiny,” he said.

There could still be a silver lining to the situation, though, Ryan Rasmussen, DeFi research analyst at Bitwise Asset Management, said. 

“One exciting development is the shifting tides on how centralized exchanges and lenders view transparency — Binance announced plans to publish proof-of-reserves, and Kraken already does — putting their cards on the table might have a competitive advantage,” Rasmussen said. 

“If FTX had proof of reserves, any fears of insolvency sparked by Binance could have quickly been stomped out. Instead, Binance ate their lunch.”