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Sam Bankman-Fried worked for years to cultivate a reputation as crypto’s most recognizable face in Washington.
If he hadn’t succeeded yet in that endeavor, last week’s events certainly granted him that wish.
As the once-billionaire, once-adulated once-CEO of once-operating crypto exchange FTX saw his $32 billion empire collapse in stunning fashion, some of the nation’s chief lawmakers and regulators jumped on the news as an opportunity to paint crypto as lawless, “toxic,” and in desperate need of tighter regulation.
“There are dozens of pictures of [Bankman-Fried] with policymakers and regulators,” Miller Whitehouse-Levine, policy director of crypto lobbying group DeFi Education Fund told Decrypt. “And I'm sure that, for many policymakers, he was the one crypto CEO they had met and spent time with. Obviously, it's not a good look when that one person ends up being, you know, a pretty big disaster.”
FTX, domiciled in The Bahamas, was not the first crypto company to collapse this year—far from it. It was, however, the largest, and also, thanks to Bankman-Fried’s tireless D.C. lobbying efforts, the one most visibly associated with claims of trustworthiness and accountability in the eyes of many prominent political figures.
That makes the potential impact of FTX’s collapse on crypto regulation more singular and concerning than past crypto calamities, says Whitehouse-Levine.
Bankman-Fried not only spent a considerable amount of time lobbying key Washington decision makers and testifying before Congress while CEO of FTX, he also donated millions to political candidates—$40 million to congressional candidates for the 2022 midterms alone—and his fingerprints are all over key pending pieces of crypto legislation, like the still in-progress Digital Commodities Consumer Protection Act (DCCPA).
Long after Bankman-Fried’s woes fade away from the headlines, his legacy will cast a long shadow over crypto regulation, says Whitehouse-Levine.
“Without doubt, I think [FTX’s collapse] will have a profound influence on the course of policy over the next year or two,” said Whitehouse-Levine. “That's particularly true because of SBF’s outsized profile in Washington—not just from the political giving perspective, but also because he has personally spent a lot of time up here on legislation.”
Others see less brutal irony in the potential ramifications of Bankman-Fried’s penchant for putting himself at the center of discourse on crypto’s trustworthiness.
2) I'm really sorry, again, that we ended up here.
Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them.
Ultimately hopefully it can be better for customers.
— SBF (@SBF_FTX) November 11, 2022
“Because of the nature of what Sam did, and who he was—that sort of wunderkind, gracing magazine covers kind of guy—I think this is very much being perceived as the actions of an individual who had individual intentions and was operating as an individual, as opposed to the actions of an industry that was lining up behind a guy,” Sheila Warren, CEO of the Crypto Council for Innovation (CCI), another crypto lobbying group, told Decrypt. “I think people in Washington understand that.”
FTX US—which Bankman-Fried, up until last week, continued to maintain was a completely distinct American entity—resigned from the Council on Thursday, shortly before filing for bankruptcy right along with 134 other companies under the FTX umbrella.
Some politicians, however, have already wielded news of FTX’s demise as evidence of crypto’s broader flaws. Senator Elizabeth Warren (D-MA), said on Wednesday that the company’s collapse “shows how much of the industry appears to be smoke and mirrors.” On Thursday, SEC Chair Gary Gensler used a discussion regarding FTX’s “toxic” practices as an opportunity to label the broader crypto industry as “significantly non-compliant.”
Sheila Warren, the CEO of perhaps crypto’s most prominent lobbying group—its membership includes Coinbase, Block, Andreesen Horowitz, Paradigm, and Gemini—is optimistic that, despite warning signs, Washington will refrain from punishing other crypto companies or sectors for Bankman-Fried’s potential misdeeds.
“The fact that he was so present almost separates him from the industry, because he did operate independently,” said Warren. She added, however: “If this does end up spreading wider market contagion, maybe things shift.”
Since Thursday alone, crypto lender BlockFi—bailed out by FTX in June—halted all withdrawals, Crypto.com paused withdrawals of major stablecoins USDC and USDT on Solana, and numerous other major crypto exchanges, lenders, and investment firms including Gemini, Galaxy, Paradigm, MultiCoin Capital, and CoinShares have indicated they had exposure to FTX and its collapsed native token, FTT.