Could Binance-FTX Deal Send Crypto To Collapse? Here’s what you should know.

Second, is crypto’s regulatory future at risk? After all, FTX was one of only a handful of US crypto firms that had invested heavily in lobbying, and Mr. Bankman-Fried was seen as a “white knight” who had the best chance of persuading skeptical lawmakers of crypto’s value. Now it seems that those efforts have stalled at best – and that regulators who want to portray crypto as an out-of-control Wild West will have yet another example to point to. Katherine Wu, a crypto investor, tweeted Tuesday that it was a “truly sickening news day – can’t even begin to consider the potential damage our industry will have to face.”

Third, will FTX’s collapse set off a broader market failure, as the collapse of Lehman Brothers did in 2008?

The news has already rippled out into the rest of the crypto market. Bitcoin and Ether prices both fell on Tuesday, and the price of Solana (a cryptocurrency backed by FTX) fell about 20 percent. Shares in publicly traded crypto companies, such as Coinbase, also fell. FTX’s investors, which included Sequoia Capital, Lightspeed Venture Partners and SoftBank, will most likely lose most or all of their investments. (Binance didn’t disclose what it had agreed to pay for FTX, but given the firm’s troubles, it was likely next to nothing.) And given how intertwined FTX was with the rest of the cryptoeconomy, it will likely be a while before we know the full extent of the damage .

The hope, of course, is that unlike 2008, when Wall Street’s collapse turned into a global financial crisis that saw millions of Americans lose their jobs and homes, the fallout from FTX’s collapse will remain largely confined to the crypto industry. But it’s still too early to tell.

And finally, what will become of Mr. Bankman-Fried? Until this week, he was the undisputed king of crypto — and an increasingly powerful force in American politics, thanks to his large donations to Democratic candidates and causes. His fortune, estimated at more than $15 billion before the Binance sale, has supported philanthropies (he’s a major donor to the effective altruism movement), media organizations (he’s an investor in Semafor), and companies both inside and outside of crypto. (he is a major shareholder in Robinhood, the stock trading app).

Mr. Bankman-Fried’s days as a crypto mogul may be over. (On Tuesday, Bloomberg estimated that his net worth had fallen 94 percent.) But the bigger question for crypto investors is whether his empire was unusually shaky, or just the first to fall.