Crypto titan dumped millions mid-stream, then lost a fortune

The crisis demolished Bankman-Fried’s public image as a go-to resource for policymakers writing rules for crypto – a reputation built on his willingness to write multimillion-dollar checks to boost the Democrats.

A Democratic congressional staffer who requested anonymity because he was not authorized to speak publicly compared the meltdown to seeing the man behind the curtain in ‘The Wizard of Oz,’ with the performance Bankman-Fried’s glare for legislators and regulators amounting to smoke and mirrors.

“There are people who are going to feel burned out by this whole episode,” said Isaac Boltansky, director of policy research at global financial services firm BTIG. « It’s a blow to an industry that was just starting to get its feet wet. »

The collapse — arguably the most devastating in crypto history — threatens to derail a broader industry lobbying campaign that had been gaining traction with 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 is also wreaking financial havoc on the crypto market, creating new headaches for competitors of FTX and other companies.

Crypto executives and lobbyists are already distancing themselves from Bankman-Fried.

« This is an absolutely stunning 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 was revealed earlier this week, after a series of events highlighted the company’s instability.

Crypto news outlet CoinDesk published a report on November 2 stating that Alameda Research – a trading company that is also owned by Bankman-Fried – had shored up its balance sheet with billions of dollars in a highly illiquid digital token that was issued by FTX. On Sunday, Binance – the world’s largest crypto exchange and a major competitor to FTX – announced that it empty its holdings in the token in the light of revelation.

Customers rushed to withdraw their funds 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 the company’s due diligence, as well as the latest news reports regarding mismanaged client funds and alleged investigations by U.S. agencies, we have decided not to pursue the potential acquisition of FTX.com, » Binance said in a Twitter post on Wednesday. . FTX declined to comment.

This all marked a complete reversal of the role Bankman-Fried played earlier this year, when his companies rescued other struggling startups in another crypto crash.

Bankman-Fried’s attempt in recent months to portray FTX as the crypto world’s source of financial stability has provided the 30-something with an opportunity to make inroads with policymakers, whom he has denounced for industry excesses. as the company lobbied to shape a flurry of crypto bills and regulations.

“Every day that we do nothing on the crypto policy side, simultaneously, customers are left unprotected,” Bankman-Fried said in an October interview. “There is no preemptive cop on the beat. And also 95% of the industry is offshore because there are no clear safeguards in the United States.

Bankman-Fried’s campaign in Washington has been bolstered by his emergence as a political mega-donor. It has paid over $40 million to Democratic candidates and a network of super PACs that have promoted crypto and public health policies.

But even Bankman-Fried’s political aspirations have proven wavering in recent weeks. He angered progressive Democrats in October when he backtracked on plans to spend $1 billion on races through 2024, saying in a POLITICO interview that his pledge was a ‘dumb quote from me’ and that he did not think additional contributions would have an impact. .

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

The market capitalization of digital assets has shrunk nearly 20% since Monday, with the combined value of the world’s top digital currencies falling to around $800 billion.

Bankman-Fried lost more than 90% of his $16 billion fortune in days, according to the Bloomberg Billionaires Index.

Robert Baldwin — head of policy at the Association for Digital Asset Markets, an industry standards group closely aligned with FTX — said the broader meltdown could lead to congressional hearings on the potential risks of the cryptography for the financial system and consumers.

« I don’t think there will be such a big place at the table for the industry, » he said.

Securities and Exchange Commission Chairman Gary Gensler, who has warned that the unregulated digital asset industry poses a threat to consumers, told a conference on Wednesday that « too many good people are wounded ». Gensler, who has been reviled 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 leverage and a lot of interdependence, » Gensler said. « It’s as if the blocks in Jenga are all built, and as each block is removed, it rocks a bit. »

Other industry figures – including Circle CEO, Jeremy Allaire and Brian Armstrong, CEO of Coinbase — sought to calm the markets by issuing statements indicating they had limited exposure to Bahamian-based FTX and Alameda.

« We are incorporated in the United States and publicly traded in the United States because we believe transparency and trust are so important, » Armstrong said on Twitter Tuesday.

Crypto critics are urging lawmakers to tread carefully with the industry’s power brokers.

« That’s what happens when instead of doing solid public policy, you hitch your wagon to charismatic founder types who make a lot of promises that they ultimately can’t keep, » Mark said. Hays, senior policy analyst at Americans for Financial Reform. « Sam is perhaps one of the most important and clearest examples of this kind of prideful figure, but there have been many before him and there will probably be many after him. »

Declan Harty and Josh Sisco contributed to this report.