The crypto community is expected to respond to the news of Sam Bankman-Fried’s arrest by continuing to distance itself from the disgraced FTX founder.
Bankman-Fried, or SBF as he is also called, was arrested in the Bahamas on Monday after US prosecutors filed criminal charges against the cryptocurrency exchange entrepreneur.
“SBF’s arrest followed receipt of formal notification from the United States that it has filed criminal charges against SBF. and is likely to request his extradition,” the government of the Bahamas said in a statement, the New York Times reported.
Following the arrest, prosecutors for the Southern District of New York confirmed that the FTX founder had been charged and said an indictment would be unsealed on Tuesday.
The arrest of the FTX founder is the latest development in the dramatic self-immolation of the fintech firm that was valued at $32bn in January.
An expose on the crypto news website CoinDesk triggered the collapse of the company in November. The article was based on a balance sheet from Alameda Research, SBF’s crypto trading firm. The balance revealed that it was heavily dependent on FTX’s native token, FTT.
Investors responded by what was essentially “run on the bank” and emptied their accounts. Although some commentators have taken issue with that phrase, given its connotations with past run on banks where panicked people have responded to market swings by draining their accounts and not, as is the case with FTX, due to a fundamentally flawed business model.
On November 10, SBF said he’d be wounding down Alameda Research. On the same day, a regulator in the Bahamas, where the company is headquartered, froze FTX’s assets.
The next day, on November 11, FTX filed for bankruptcy protection in the US. At the same time, SBF stepped down as CEO.
Since then, he has been lobbying hard to tell his side of the story. He’s claimed to be regretting filing for bankruptcy. He told Vox in an interview that if he hadn’t filed for bankruptcy, “withdrawals would be opening up in a month with customers fully whole.”
SBF has also told the New York Times that he was “deeply sorry about what happened” and that he wasn’t aware of how bad things were, how commingled funds between FTX and Alameda Research had been, until the beginning of November.
FTX has been accused of using client money for all sorts of risky and allegedly fraudulent activities, according to court filings and legal experts. SBF has denied knowing about any frauds.
Market watchers have watched all this unfold while holding their breath, waiting on the US to get around to arresting him. With the arrest of the FTX founder, they can finally exhale.
“To the relief of many in our sector, that day has finally come,” Kevin Murcko, CEO and founder of cryptocurrency exchange Coinmetro, tells Verdict. “Sam Bankman-Fried is of course innocent until proven guilty but at least now the investigation can begin in earnest, and everyone affected can hope for more meaningful answers than those presented in recent weeks.”
Murcko added that he hopes that the FTX saga will show investors and regulators that “nobody in our industry should be beyond reproach simply because we dream of a decentralised future.”
Crypto community further distances itself from FTX following the arrest
Following the arrest of SBF, the crypto community is expected to respond by further distancing itself from the likes of FTX.
To some extent that was already the case. For instance, Crypto.com’s CEO Kris Marszalek has spent the past month trying to convince the market that his cryptocurrency is safe and in good hands.
In an effort to comfort investors, Marzalek has shared Crypto.com’s unaudited, partial proof of reserves. He has assured clients that their funds belong to them and are readily available, in contrast to FTX.
However, that hasn’t stopped reporters from digging into his past, including a string of collapsed ventures. Marzalek has taken to Twitter, saying that he is “proud of my battle scars”.
However, the market experts expect that more crypto stakeholders will attempt to distance themselves from FTX following the arrest of SBF.
“I am not sure Bankman-Fried’s arrest can make this any worse,” Dan Ashmore, crypto analyst at crypto publication CoinJournal, tells Verdict. “If anything, it could even be a positive, as if he is found guilty of criminal behaviour (which seems increasingly likely), the world of crypto could try to put it down to a bad actor losing the run of himself, rather than any terminal flaw in the ecosystem.”
Others predict that the continuing collapse of FTX will lead to further attention from regulators and lawmakers
Daniel Seely, financial services lawyer and crypto expert at law firm Freeths, tells Verdict: “In terms of what the news will mean for the industry in 2023, it will likely serve to harden the views of many investors, governments, and regulators who consider that cryptocurrency needs to step away from its origins as an unregulated means of exchange and should be brought into the remit of existing regulatory perimeters.”
Murcko shares that sentiment, saying: “A healthy market, much like a healthy body, must clean itself, and it now looks like the FTX saga is a prime example.
“Ending the year on the FTX fallout will have significant repercussions for crypto players in 2023 but these shockwaves must be constructive, rather than destructive. Next year, trust will be non-negotiable, and I hope that we can all refocus on the building blocks of the crypto dream: transparency, equality, and accessibility.”
GlobalData is the parent company of Verdict and its sister publications.