Sam Bankman-Fried is facing a very lengthy jail sentence for defrauding customers, but there is still a debate in the US whether that strengthens or weakens the case for regulating crypto.
When Sam Bankman-Fried’s FTX empire imploded a year ago it seemed likely to mark the death knell for the cryptocurrency sector. Since then, however, crypto’s flagship, Bitcoin, has more than doubled in value.
Investors on the FTX exchange lost more than $US8 billion because Bankman-Fried used a secret backdoor coded into FTX’s software to “borrow” FTX customers’ funds to cover losses within Alameda, as well as to fund a lavish lifestyle and more than $US100 million of campaign fund donations to politicians.
Bankman-Fried and FTX came undone when someone leaked a balance sheet to the crypto news site, Coin Desk, which revealed how exposed Alameda was to FTX.As FTX and Alameda tumbled into insolvency, it became apparent that Alameda had siphoned billions of dollars from FTX’s customers’ funds to essentially gamble on crypto assets to try to fill in a yawning hole in Alameda’s balance sheet.
When FTX and Alameda collapsed and the extent of the multi-billion fraud became clear, the obvious conclusion was that it would, finally, lead to a wave of legislation that would see the crypto sector regulated similarly to conventional financial institutions, as the US Securities and Exchange Commission has long-advocated.
In the US, nothing has been settled. There is still a debate about who should regulate crypto – if crypto is to be regulated – with the Securities and Exchange Commission vying with the Commodity Futures Trading Commission for the role.
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