A crypto titan dumped millions into the intervening period, then lost a fortune

The crisis has tarnished Bankman-Fried’s public image as a resource for politicians writing rules for crypto — a reputation built on his willingness to write multimillion-dollar checks to bolster Democrats.

A Democratic congressional staffer, who requested anonymity because they were not authorized to speak publicly, compared the collapse to seeing the man behind the curtain in “The Wizard of Oz,” with Bankman-Fried’s impressive performance for lawmakers and regulators equivalent to smoke and mirrors.

“There are people who are going to feel burned by this whole episode,” said Isaac Boltansky, director of policy research at global financial services firm BTIG. “This is a pretty big body blow to an industry that was just starting to find its feet.”

The meltdown — arguably the most devastating in crypto history — threatens to derail a broader industry lobbying campaign that had gained traction among Republicans and Democrats eager to draft new laws to accommodate digital asset startups. Bankman-Fried and his lobbyists, including former federal regulators, were at the center of the effort. It also wreaks financial havoc across the entire crypto 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 amazing turnaround from someone who was the darling of Washington political circles,” said Blockchain Association Executive Director Kristin Smith. “It was built on a house of cards.”

FTX’s financial crisis came to light earlier this week, after a series of events pointed to instability in the company.

On November 2, crypto media CoinDesk published a report indicating that Alameda Research – a trading firm also owned by Bankman-Fried – had shored up the balance of billions of dollars in a highly illiquid digital token issued by FTX. On Sunday, Binance – the world’s largest crypto exchange and a major FTX competitor – announced that it will dump their holdings in the token in light of the disclosure.

Customers ran to retrieve their money from FTX, prompting the company to halt withdrawals — a move that trapped hundreds of millions of dollars worth of crypto on the exchange.

Bankman-Fried negotiated an emergency sale of the company to Binance and announced it on Tuesday, but the deal fell apart on Wednesday afternoon.

“As a result of corporate due diligence, as well as recent news reports of misappropriated customer funds and alleged US agency investigations, we have decided not to pursue the potential acquisition of FTX.com,” Binance said in a Twitter post on Wednesday. . FTX declined to comment.

It all marked a complete reversal from the role Bankman-Fried played earlier this year, when his firms bailed out other ailing startups during another crypto crash.

Bankman-Fried’s efforts in recent months to portray FTX as the crypto world’s source of financial stability gave the 30-year-old an opportunity to make inroads with politicians, who dismissed the industry’s excesses as the company lobbied to shape a flurry of crypto. bills and regulations.

“Every day we don’t get anything done 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 cop on the beat. And also 95 percent of the industry is offshore because there are no clear car guards in the USA.”

Bankman-Fried’s Washington campaign was boosted by his emergence as a political mega-donor. He contributed more than $40 million to Democratic candidates and a network of super PACs promoting crypto and public health policies.

But even Bankman-Fried’s political ambitions proved volatile in recent weeks. He angered progressive Democrats in October when he walked back plans to spend $1 billion on races through 2024, saying in a POLITICO interview that his promise was a “stupid quote on my part” and that he didn’t believe more contributions would have an impact.

Bankman-Fried is now facing intense scrutiny from regulators and lawmakers after his firms sparked a market-wide crypto crash that is also being felt on Wall Street.

The digital asset market’s capitalization has shrunk by nearly 20 percent since Monday, with the combined value of the world’s main 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 Association for Digital Asset Markets, an industry standards group that has been closely aligned with FTX – said the broader crackdown could lead to congressional hearings on crypto’s potential risks to the financial system and to consumers.

“I don’t think there’s going to be as much of a seat at the table for the industry,” he said.

Securities and Exchange Commission Chairman Gary Gensler, who has warned that the unregulated digital asset industry is a threat to consumers, told a conference call Wednesday that “too many good people are getting hurt.” Gensler, who has been vilified by crypto advocates, may find himself vindicated in light of the FTX debacle.

“It’s a wild west with a lack of disclosure, a lot of influence and a lot of interconnection,” Gensler said. “It’s like Jenga blocks are built up, and as each block is pulled out, it tips over a little.”

Other industry figures – included Circle Chief Jeremy Allaire and Coinbase CEO Brian Armstrong — have sought to calm markets by issuing statements indicating they have limited exposure to Bahamas-based FTX and Alameda.

“We are incorporated in the US, and publicly traded in the US because we believe that transparency and trust are so important,” Armstrong said on Twitter on Tuesday.

Crypto critics urge lawmakers to tread lightly on industry power brokers.

“This is what happens when instead of pursuing robust public interest policy, you hitch the wagon to charismatic founder types who make a lot of promises they ultimately can’t keep,” said Mark Hays, senior policy analyst at Americans for Financial Reform. “Sam may be one of the biggest and clearest examples of that kind of hubristic figure, but there have been many before him and there will likely be many after him.”

Declan Harty and Josh Sisco contributed to this report.