Sam Bankman-Fried was the face of crypto in DC. What would FTX’s acquisition mean for regulation?
As lawmakers in DC have debated legislation to regulate the crypto industry, they’ve turned to Sam Bankman-Fried, the 30-year-old founder of FTX known for an unruly mop of hair and a willingness to open his checkbook.
A stunning series of events saw Binance, FTX’s main competitor, announce on Tuesday that it would buy the Bahamas-based exchange after spurring a liquidity crisis. Bankman-Fried’s fall raises questions about his high-profile role in the industry — and how DC will approach regulation, including the Senate’s proposed Digital Goods Consumer Protection Act, which many feel is overdue.
“The whole thing was led by Sam and FTX and their credibility has just been shredded,” said Nic Carter, a general partner at crypto-focused Castle Island Ventures.
With the U.S. lacking crypto regulation and an ongoing turf war between various government regulatory agencies, major trade associations and companies—led by Bankman-Fried—have been pushing for new laws.
Bankman-Fried’s empire began unraveling last week when he hit out at allied rival Changpeng Zhao, founder of Binance, on Twitter, alluding to Zhao’s dubious legal status in the US and his inability to come to DC, where Bankman-Fried had established himself as the industry’s poster boy. (Bankman-Fried has since deleted the tweet).
Screenshot from Twitter
Kristin Smith, executive director of the trade group Blockchain Association, said Bankman-Fried was not crypto’s only voice in DC, pointing to her group and affiliated centers like the DeFi Education Fund and CoinCenter, but “he certainly had a lot of relationships. And that’s obvious a setback in terms of the industry’s reputation.”
While some hoped legislation like the DCCPA would pass during the lame-duck session after Tuesday’s midterms, Smith said that’s now unlikely, both because Bankman-Fried was a mover and politicians may be more reluctant as they wait for the fallout.
Patrick Creamer, a spokesman for the Senate Agriculture Committee, which introduced the DCCPA, said Fortune: “Discussions to address some remaining concerns with the legislation are ongoing. This development does not change that work on our part.”
Other lawmakers expressed concern over FTX, especially given insecurity over how the stock exchange handled customer deposits.
Patrick McHenry, the top Republican on the House Financial Services Committee and proponent of crypto legislation, released a statement on Tuesday calling for regulation. It read in part: “Recent events demonstrate the necessity of Congressional action.”
“Total farce‘
In an industry known for pseudonymous Twitter figures and elusive fugitives in unspecified countries, lawmakers approached Bankman-Fried because of his healthy demeanor and apparent willingness to speak candidly. It also didn’t hurt that he donated tens of millions of dollars to political action committees and campaigns.
Carter, the general partner at Castle Ventures, described Bankman-Fried’s politician-friendly facade as a “total farce,” especially given the revelations of potential impropriety between FTX and its associated proprietary trading firm, Alameda Research.
“Those of us in the crypto industry who have been around since before Sam understood that his whole shit was fabricated,” Carter said. “Now it’s obvious that FTX was a house of cards.”
He pointed out the hypocrisy of how Bankman-Fried took the throne as the industry’s top representative in DC, even though FTX is based in the Bahamas. “I wouldn’t be surprised if there’s a revisit to some of the comments he made in Congress in his testimony to see if that fits with subsequent disclosures” as Binance moves forward with the deal.
Bankman-Fried had already ruffled feathers in the crypto community, especially after a long Twitter rant thread on October 19 and laid out his thoughts on oversight, which critics said ran counter to the core principles of decentralization.
DeFi advocates argue that FTX’s collapse demonstrates the dangers of centralized companies like FTX and Binance, especially as Binance looks to consolidate power.
Carter described FTX’s apparent collapse as a “Mt. Gox-level event,” referring to the infamous centralized exchange that shut down after a 2014 hack of Bitcoin worth nearly $500 million at the time.
“I see it as a complete vindication of DeFi protocols and their transparency,” said Miller Whitehouse-Levine, policy director at the DeFi Education Fund, a DC-based research and advocacy group.
Arthur Breitman, the co-founder of Tezos, said Bankman-Fried’s policy proposals would have been harmful to the industry if enacted.
“They would have treated developers as financial intermediaries and subjected them to regulations that they cannot meaningfully comply with,” he said Fortune.
Industry experts said the new developments will give lawmakers even more food for thought, just as Congress moved closer to legislation.
Niki Christoff, a D.C.-based strategist who advises crypto companies, said Bankman-Fried’s public advocacy of regulation in recent weeks has already misread the circadian rhythms of D.C., forcing staff to heed Twitter spikes while Congress was in recess and approaching the exam.
“Continuing to raise awareness of an optional piece of legislation at recess wasn’t really reading the room,” she said.
The latest events only compounded the distractions, now that lawmakers may have to revise regulations over exchanges just as they dug into DeFi.
“It’s like getting more pie after winning a pie-eating contest,” Whitehouse-Levine said Fortune.
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