Crypto Golden Boy” Sentenced to 25 Years – Will the Cryptocurrency Industry Improve?

Last Updated: 29,Mar 2024

Although Sam Bankman-Fried (SBF) has been sentenced to 25 years in prison, the crypto industry—unregulated, rife with fraud, and driven by a gambling mentality—will likely continue producing scams. Experts point out that despite repeated scandals, crypto remains largely unregulated. Why are lawmakers still powerless?

Bitcoin prices remain near all-time highs. So-called “meme coins”—tokens that don’t even pretend to have real businesses behind them—are also thriving.

Today, most crypto trading still happens on exchanges in lightly regulated jurisdictions. Crypto advocates even argue that the convictions of Bankman-Fried and former Binance chief Changpeng Zhao have “fixed” many problems. “Don’t worry, it’s safe to buy crypto again—we can start fresh,” said Coinbase CEO Brian Armstrong.

Yet the SBF investigation revealed that his empire had relied on deception of customers, investors, and banks from the very beginning. “His genius, if you can call it that, was realizing that the frenzy around crypto allowed him to ignore rules entirely and get away with it,” wrote Bloomberg.

Fraud Without Oversight

During the trial, before FTX co-CEO Caroline Ellison testified, the official story of FTX’s founding had gone largely unquestioned.

Bankman-Fried often claimed he founded FTX in 2019 after his earlier firm, Alameda Research (founded 2017), had done heavy crypto trading, and he saw an opportunity to build a better exchange.

He pitched FTX to customers as a safe place to buy, sell, and store crypto. In reality, Ellison confirmed that FTX was created mainly to fund Alameda’s risky bets.

Employee testimony and internal code presented at trial revealed glaring flaws. For example, FTX’s so-called “insurance fund” balance, displayed to reassure customers, was actually generated by a random number generator.

Just months after launch, FTX created a backdoor for Alameda, allowing it to borrow nearly unlimited funds from FTX customers and even channel client money directly into Alameda.

Gary Wang, FTX co-founder, testified that in 2021 the firm lost about $1 billion in one incident—enough to wipe out all revenue FTX had earned since inception. SBF instructed staff to record the loss under Alameda instead.

The later collapse is well known, but if not for SBF’s reckless greed—lavish spending and ever-riskier bets—the fraud might have remained hidden in the swamp of an unregulated industry.

All evidence shows that FTX was never a good company run by bad people—it was deeply flawed from day one. And such flaws remain endemic to the wider crypto market.

Lobbying Millions, but Still No Real Regulation

Crypto backers continue pouring money into lobbying efforts, seeking to soften regulations while marketing their products to new investors.

According to nonprofit OpenSecrets, crypto lobbyists spent just $1.5 million in the 2020 election cycle, but by the 2022 midterms that amount had jumped to $27 million, with FTX as the largest donor.

This trend hasn’t slowed since FTX’s collapse. On the contrary, OpenSecrets reported lobbying donations in 2023 exceeded the previous year.

This week, nonprofit Better Markets president and crypto critic Dennis Kelleher noted that a crypto-funded PAC, Fairshake, raised nearly $80 million in the last three months of 2023—used to attack crypto-skeptical politicians like U.S. Senators Elizabeth Warren and Sherrod Brown.

“The campaign even helped oust one crypto opponent, Katie Porter, who lost her California primary,” Financial Times reported.

Despite industry rhetoric about “wanting regulation,” heavy lobbying makes serious legislation unlikely. Industry leaders argue that lighter oversight enables “innovation.”

But The Guardian commented: “So far, aside from inventing new and creative ways to steal people’s money, the industry has produced little real innovation.”

History Likely to Repeat

Bankman-Fried may spend decades in prison for fraud. Yet because the industry itself hasn’t changed—and regulators have not addressed 15 years of abuse and greed—“we are destined to see history repeat,” The Guardian concluded.

Financial regulators and law enforcement have consistently failed to protect investors from predatory crypto schemes, stepping in only after collapses to clean up the mess.

Unfortunately, even with SBF behind bars, the same conditions remain: a vast, speculative, barely regulated industry, filled with fraud, manipulation, and a public eager to gamble.

(Sources: FT, WSJ, Bloomberg, The Guardian)