Tech
How are cryptocurrencies faring in the post-Sam Bankman-Fried world?
By now you’ve heard that the Sam Bankman-Fried trial is over. What was the verdict for the founder of bankrupt cryptocurrency exchange FTX?
Guilty on all seven charges, including violations of fraud, money laundering and campaign finance laws. Bankman-Fried will be sentenced in the spring.
So how is the world of bitcoin and blockchain faring now that its most famous ambassador will likely end up behind bars?
He spoke with Marketplace’s Matt Levin Laura Shin, cryptocurrency journalist and host of the “Unchained” podcast, about how people in the cryptocurrency world reacted to the SBF process and what cryptocurrency enthusiasts choose to focus on next. The following is an edited transcript of their conversation
Laura Shin: I think a lot of them think it was the right verdict. Because the crypto community understands cryptography so well, I think they were way ahead of mainstream media, they were way ahead of non-crypto people in actually understanding what happened. For example, to this day, I’ve heard from the media or, for example, that the defense during the trial was saying things like FTX suffered a bank run. And cryptocurrency lovers know that a bank run shouldn’t be possible with a cryptocurrency exchange, that banks operate on fractional reserves, but cryptocurrency exchanges shouldn’t for numerous reasons, which I could go into, it might take a bit of time. But the point is simply that for a cryptocurrency exchange, as long as it works properly, every single customer, if they all went to withdraw everything at once, they should all be able to get their assets back. And so, the moment we woke up on Tuesday morning, November 8, 2022, and it was announced that Binance was going to buy FTX, everyone knew that FTX had done something – everyone in the cryptocurrency world, I should say – knew that FTX had done something wrong. And then what’s interesting is that a lot of the subsequent outrage was about the way the mainstream media was covering him, where they seemed to think he’d made a mistake. And people in the cryptocurrency world from the beginning were saying, “No, no, no, he did something wrong.” So the point is, I think for them this was just a verdict that was a long time coming.
Matt Levin: I’m really curious how venture capital firms, who provide seed capital to many of these crypto startups, feel about the crypto space now?
Shin: Honestly, after the collapse of FTX, things got pretty quiet, obviously. Furthermore, this is a kind of tail end of a bear market in the cryptocurrency industry. And so when that happens, there’s also a little bit of scaling. You know, honestly, I’m probably in a little bit better position than during the bull market, when every VC is just in a FOMO situation. They are all competing with each other. These startups or these different new blockchain projects have the upper hand. So I actually feel like maybe now that things are calmer, they can do more due diligence, there’s not as much frenzy. They can take their time, there’s not much competition. But you’re right. It’s been slower for a while, but I think it’s actually finally starting to pick up a little bit.
Levin: In the wake of FTX, are US regulators more focused on cryptocurrencies than before?
Shin: For sure. For sure. Shortly after the FTX crash, I think there was, in a way, almost an overreaction against cryptocurrencies, as people didn’t fully understand that it was a fraud. You know, fraud can happen in any industry, no matter what industry you operate in. And so I think there was almost this reaction of, “Oh, Sam Bankman-Fried was bad, so cryptocurrencies are bad.” .” But I think people are starting to understand that it’s pretty much the same thing as saying Bernie Madoff has been negative, so you should avoid the stock market or the stock market is negative. And so I saw that actually, after that overreaction now, we’re seeing a little bit of a step back. There was a point where it almost seemed like cryptocurrencies were going to become quite politicized, where Democrats were largely going to be against it. Now we see that there is no uniform reaction between them. However, we are seeing a slight generation gap among Democrats, where younger Democratic politicians are more pro-cryptocurrency, and at least some, not all, but some of the older ones are less so.
Levin: Interesting. And then, very quickly, for Republicans, how does this play out with their attitude towards cryptocurrencies post-FTX?
Shin: So I would say that Republicans more generally tend to be a little more informed. There are so many Democratic politicians who are extremely knowledgeable [U.S. Reps.] Ro Khanna [of California] and Richie Torres [of New York], I mean, I don’t want to discredit any of them at all. But it seems likely because bitcoin started out somewhat associated with this libertarian movement. And bitcoin is the oldest and was the original cryptocurrency. So I think maybe just the sheer number of informed Republicans is greater, and so I think they didn’t necessarily get to that state of hyperreactivity right after the FTX collapse.
Levin: What good things are happening in the crypto space right now? It looks like there is a high profile IPO that could happen in the near future.
Shin: Yes, I guess maybe Circle launched, which runs a well-regulated stablecoin called USDC – and a stablecoin is a cryptocurrency whose value is pegged to the value of something else, in this case, the value of the US dollar, like in fact, frankly, most stablecoins are. They are one of those companies where the entrepreneur has had multiple successful ventures so far. He’s older, a little more experienced. They have definitely followed the path of compliance. They have very well-known and respectable partners. And so, frankly, right now, especially for them, I’m sure it’s a great deal The Treasury, you know, pays a lotand do not have to pay interest to customers using USDC. And so, if they’re backing their USDC issuance with things like, you know, buying Treasuries and the like, they’re just making this interest themselves. And so I think it’s a pretty healthy business for them. And I guess it’s the kind of company that’s ripe for, you know, having an IPO.
Levin: What has the cryptocurrency industry learned since FTX?
Shin: One of the lessons that I think the crypto community has really learned from the whole debacle with FTX and Sam Bankman-Fried is that Sam’s empire was a centralized empire. And what I mean by that is the crypto community is really focused on creating, you know, what they say are decentralized applications, meaning there’s no single point of failure, there’s no one entity that has checking out whatever this new product or service would be offered on the Internet. And what he was building was something where it was pretty much what they see as the old model, where there was a company and it was responsible. And, you know, one of the things that actually hastened his downfall, that the mainstream may not be aware of, is that in the month before FTX collapsed, Sam had supported a bill in Congress, and it actually looked like that it was going well. become law. And the crypto community ended up turning against him when they realized that the way the law was structured would favor centralized players and cryptocurrencies over decentralized players. And so, frankly, the whole community turned against him. And so after the crash, I noticed that I would talk to entrepreneurs, they would talk about how they were doubling down and decentralizing. Personally I think this is where the industry will focus its attention.
You can read more of Laura Shin’s coverage of the SBF trial – and she has a lot of it – Here.
If you’re still a little confused about how and why cryptocurrencies exist, I highly recommend Bloomberg Businessweek “The history of cryptocurrencies,” a great long read by financial journalist Matt Levine (no relation).
And if you want a taste of the weirdness that comes when tens of thousands of bitcoin true believers gather in the same place, you can check it out my report from Bitcoin 2023, The largest bitcoin convention in North America, which took place in Miami earlier this year.