Crypto CEO faces criminal charges

Sam McVey, Editor-in-Chief

For years, Sam Bankman-Fried managed his cryptocurrency empire with minimal care and an undeniable degree of incompetence that culminated in what the U.S. attorney’s office for the Southern District of New York would later refer to as “one of the biggest financial frauds in American history.”

Bankman-Fried — the once widely respected CEO of cryptocurrency exchange FTX and its sister hedge fund, Alameda Research — had successfully convinced investors that cryptocurrency was the future. For many years, FTX reaped the benefits, amassing more than $30 billion in assets. His own personal fame and fortune experienced similar meteoric rises, and, for a while, it seemed that Sam Bankman-Fried was unstoppable.

Then, on the evening of November 8, 2022, everything changed. His $15 billion fortune had vanished overnight — literally.

FTX and Alameda Research were in freefall. Alameda had been quietly losing money on poor investments with no apparent hedge to offset its substantial losses, and Sam Bankman-Fried had, in an even quieter manner, supported the company with FTX funds that investors never granted him permission to transfer, the United States Justice Department alleges in criminal charges it formally filed against Bankman-Fried on December 13.

When his alleged actions became known to the public, the firms promptly collapsed, having run out of cash flow and investor confidence. And Bankman-Fried, who had most of his assets tied up in the companies, experienced an equally sudden financial demise.

The full list of charges against Bankman-Fried are extensive — he’s facing prosecution from the Justice Department, Securities and Exchange Commission, and Commodity Futures Trading Commission — and could serve up to 115 years in prison, a Bloomberg Analysis found.

Meanwhile, FTX and Alameda — now independent of the disgraced Bankman-Fried — have both filed for Chapter 11 bankruptcy and continue desperate efforts to recoup enough funds to repay defrauded investors.

The stunning downfall of Bankman-Fried’s cryptocurrency network sent shockwaves through the industry, which is now plagued with a permanent stain representing everything its skeptics have long characterized it as: confusing, shady, and volatile.

Now, the question remains: How will crypto recover?

The early returns are not exactly promising. Bitcoin, the most recognizable form of cryptocurrency, lost about 25 percent of its value in the aftermath of FTX’s collapse. Another popular cryptocurrency, Dogecoin, has lost nearly 40 percent of its value since November.

Across the industry, the trend is widespread and severe.

According to The Motley Fool, crypto executives were hopeful that 2023 would see greater investment from traditional institutions, like asset management giants Fidelity and Blackrock.

That could happen — in fact, it likely will. For crypto, however, the devil is in the details: How far will Wall Street powerbrokers be willing to go? Circumspect behavior could prove especially damaging to an industry that has been powered by trends and investments made on a relative whim.

The same principle applies to individual investors. For many, the thought of investing now seems absurd; after all, the industry’s biggest headline of the year featured a 30-year-old being escorted out of a penthouse in The Bahamas in handcuffs after mismanaging billions of dollars — the same billions he used to buy that penthouse.

The lines are blurred and the answers are unknown. But as the industry’s leaders go on the defensive, one truth prevails: the year ahead will be crucial for the future of cryptocurrency.