Crypto insiders point to Bankman-Fried's downfall

Crypto insiders point to Bankman-Fried's downfall

The insiders, who have been trying to distance themselves from the FTX founder, are united in their zeal to see Mr. Bankman-Fried held to account.

The distancing is partly a matter of self-interest. Bankman-Fried's trial is seen as a referendum on the crypto sector, which has struggled for more than a decade to shake its association with lawlessness and fraud. And it may be convenient to point finger at the founder, even as some in the industry benefited from his rise. Mr. Bankman-Fried made venture capital investments in crypto companies through the boom times of 2020 and 2021, at inflated valuations. When the market crashed last year, he initially bailed out struggling peers. When Mr. Bankman-Fried charged up the valuations of other crypto companies, 'no one was like, at the heart of Mr. Bankman-Fried's case is whether he oversaw the misuse of FTX's customer deposits to fund a network of political donations, tech investments and real estate purchases. Prosecutors have charged him with seven counts of wire fraud and conspiracy for the sale of FTX's clients and investors, as well as groups that lent money to its sister firm, Alameda Research. Bankman-Fried, who has pleaded not guilty to a charge of perjury, could serve the equivalent of a life sentence in prison if convicted. The insolvency in November, which incinerated $US$8 billion in customer deposits and damaged the reputations of famous and powerful people who were wooed by Mr. Bankman-Fried, resulted in a domino effect of crypto failures from which the industry has not recovered. When the asset class started going mainstream, it also caused a regulatory crackdown and dispelled the public's faith in cryptocurrencies.

The value of venture capital in crypto startups has been consistently decreasing for five quarters in a row. In the three months ending in July, crypto companies raised $2.3 billion, down 7 percent from a year earlier, according to PitchBook, which tracks start-ups. The crypto community has been grappling with separating itself from FTX since its collapse, echoing previous high-profile tech scandals. Theranos founder Elizabeth Holmes, who was accused of lying about the company's technology and business performance, Silicon Valley investors brushed off her actions as not representative of the start-up industry. The crypto market has also been among the fiercest critics of Mr. Bankman-Fried. In November, Changpeng Zhao, the founder of Binance, caused a panic around FTX by stressing its stability. Then the media's social media influencers relentlessly cheered on, investigated and made memes about Mr. Bankman-Fried's comeuppance, with some calling him a fad. The cryptocurrency world's anger was acute because Bankman-Fried had positioned himself as an industry leader, particularly when it came to regulatory and policy issues, said Ari Redbord, a former federal prosecutor who now leads policy at TRM Labs, a crypto analytics company.

Mr. Wang said: 'I think China has done a good job,' he said. Some insiders believe that a shakeout was necessary. In 2021, the market had gotten too overcooked, fueling greed, hype and bad ideas, insiders said. But they rued how Mr. Bankman-Fried's actions destroyed confidence in the entire industry. The narrative linking FTX's fraud to the rest of the industry was deserved, said Yury Lifshits, the founder of the crypto company Superdao. But plenty of legitimate businesses aren't connected to the FTX situation at all, he said. In the end, a guilty verdict for Bankman-Fried would make it easy for crypto companies and executives to move on from the whole ugly spectacle.