Before last week, FTX cofounder and political megadonor Sam Bankman-Fried had some lawmakers and regulators convinced that he was one of the few adults in the room in the wild crypto industry. Now, they can’t run fast enough away from him.
His fall from grace, with his digital-asset empire filing for bankruptcy and under investigation by US regulators, is calling into question the future of legislation he championed as a way to bring more regulatory clarity to the crypto world. It leaves a power vacuum for the industry as officials consider new laws and rules, including several that Bankman-Fried was helping to shape.
The 30-year-old entrepreneur presented himself as one of the good guys in crypto. The fact that there were so many problems with his company has raised concerns among policy makers about the legitimacy of the entire industry, according to three people familiar with internal discussions who did not want to be identified.
FTX’s disintegration is “devastating” for the rest of the crypto industry, said Matthew Homer, a venture capitalist and former head of the New York Department of Financial Services’ innovation division. “If we thought we were in a crypto winter, it now looks like we’re in a nuclear winter,” he said.
Spending Machine
The blowup has led to finger-pointing and tough questions about why Washington hadn’t put in place rules to prevent exactly the type of situation unfolding at FTX. President Joe Biden signed an executive order earlier this year demanding that agencies focus on the issue in a more coordinated way, but their efforts have produced few tangible results so far.
Bankman-Fried amassed tremendous political clout in a short period of time, becoming a regular presence at congressional hearings, holding frequent meetings with regulators and pouring tens of millions of dollars into political campaigns.
He emerged as the sixth-largest player in US political spending in the two years leading up to the Nov. 8 midterm elections, donating a total of $39.4 million , almost all of it to Democrats, Federal Election Commission records show. One of his top lieutenants, Ryan Salame, gave $23.6 million -- mostly to Republicans.
Together, they represented about three-quarters of the $84.1 million in crypto campaign spending during the election cycle through the third quarter.
A representative for FTX didn’t immediately respond to a request for comment.
The executives’ influence has all but evaporated following FTX’s collapse, which left the company facing billions of dollars in losses and caused ripple effects across the crypto ecosystem. The extent to which those losses will harm investors is still largely unknown.
“It is really concerning to see that retail investors are really getting hurt by these losses, and it is also the case that despite a lot of hype -- you heard a lot about how decentralized these markets are and how innovative and different -- it turns out they’re highly concentrated, highly interconnected, and you’re just seeing a domino effect,” Federal Reserve Vice Chair Lael Brainard said at an event Monday at Bloomberg’s Washington office.
Lawmakers like Senators Debbie Stabenow and John Boozman -- the top Democrat and Republican on the Senate Agriculture Committee -- said the recent events underscore the urgent need for new laws to regulate the crypto industry. In statements last week, they both reinforced their commitments to advancing a bill they have cosponsored to give the Commodity Futures Trading Commission more power to oversee the asset class.