The trial of FTX founder Sam Bankman-Fried, now coming to the end of its first week, is far bigger than just crypto. Reporters from the largest media outlets (including WIRED) have flocked to New York to cover it, TV stations are airing feature-length documentaries on the fall of the crypto exchange, and X (formerly Twitter) is ablaze with armchair analysis. But members of the crypto industry are tired of the circus before it has really even begun.
“I’m not the only one that thinks this is all just one very big distraction,” says crypto analyst Noelle Acheson, formerly of crypto brokerage Genesis. The sooner the industry is able to move beyond the “galactic embarrassment of FTX,” she says, the better. “It’s about starting again once [the trial] is done.”
When FTX went down last November, unable to meet a surge in withdrawals, it sent the industry into turmoil. Not only had billions of dollars’ worth of customer funds gone missing, but the collapse caused markets to nosedive and led to the failure of other crypto firms, a regulatory crackdown in the US, and, in a roundabout way, the fall of two crypto-friendly banks.
But the criminal trial is a sideshow to all of this, says Acheson, whose outcome will have little real impact on the prospects or trajectory of the crypto businesses that survived the shock. “It’s the stuff of a very juicy story, that’s why it has held everyone’s attention for so long … It’s the gossip we all pretend not to be interested in,” she says. “But closure will allow the industry to move on.”
At this, the first of two trials, Bankman-Fried is facing seven counts of fraud. He is accused by the US Department of Justice of misappropriating billions of dollars’ worth of customer deposits—which was allegedly used to bankroll a lavish lifestyle and buy political influence—and lying about the way his business operated.
The frustration, in crypto circles, is with the idea that the industry is on trial too—that Bankman-Fried’s alleged fraud is emblematic of the hubris and backroom maneuvering essential to crypto. They say this a case of straightforward fraud of the Bernie Madoff variety, not a reflection of issues specific to crypto businesses or technologies.
“The idea that crypto is on trial, I find ludicrous. An individual is on trial,” says Sheila Warren, CEO of the Crypto Council for Innovation, a body advocating for regulation of the crypto industry. “There is an extrapolation happening here and I don’t think it’s appropriate. The vast majority of this was good, old-fashioned, old-timey fraud.”
Bankman-Fried has denied fraud, and pleaded not guilty to the charges he faces.
The focal point of the trial, says Warren, should instead be the harm done to customers of FTX. The group will have a voice in the courtroom: The prosecution opened its case with the testimony of an ex-FTX customer who lost $100,000 to the exchange. But the emphasis of the “media frenzy” on the character of Bankman-Fried, the salacious details of his relationships with peers, and on crypto-bashing, says Warren, detracts from that central concern. “I wish [what’s going on in bankruptcy court] were the priority over ‘bad guy allegedly does bad things,’” she says. “The cult of celebrity around this is part of the problem.”
The end of the trial of Bankman-Fried, expected to conclude by mid-November, may draw a line under the latest chapter in the crypto drama. But whether the industry will learn the necessary lessons from the fall of FTX and its once-celebrated founder is a separate question.
Acheson is hopeful, but not convinced. She says crypto is uniquely vulnerable to the hero worship that helped to valorize and legitimize Bankman-Fried. The very-online nature of crypto discourse, she says, creates fertile ground for charismatic grifters able to amass a following. “Hopefully we’ll be ready, more vigilant, and less trusting,” says Acheson.
The industry, says Warren, will only remain primed against the risky financial engineering that led to the collapse of FTX and its peers for so long. “I think it’s time-bounded,” she says. “Until you have a regulatory scheme that encodes [a clear set of rules for crypto businesses], you’ll have a new generation of people” that try to push the boundaries in dangerous ways. “One of the roles of a regulator is to contain some of that impulse and say, ‘There are consequences.’”
The period of trauma can have a cleansing effect, driving out bad actors and reining in excess. But should crypto fever return, says Warren, the concern is that “a bunch of these yahoos, with their pump-and-dump nonsense, will come right back.”
