Tech
The power vacuum at the top of the cryptocurrency industry
The price of Bitcoin is rearing up again. Major financial companies are showing renewed interest in digital currencies. And cryptocurrency fanatics are celebrating the end of a long period of low prices and business collapse.
But the sudden burst of optimism came at a turbulent time for the cryptocurrency industry.
The last time cryptocurrency prices skyrocketed, the industry’s most influential executives were Sam Bankman-Fried and Changpeng Zhao, rival billionaires whose online fighting could move markets. Now Mr Bankman-Fried, the founder of cryptocurrency exchange FTX, and Mr Zhao, who ran the world’s largest cryptocurrency firm, Binance, both face prison after parallel falls from power.
A federal jury condemned Mr. Bankman-Fried last month on fraud and conspiracy charges stemming from the collapse of FTX. Three weeks later, Mr. Zhao found guilty to a money laundering charge and agreed to relinquish control of Binance.
With the two men out of the picture, a crowded field of crypto entrepreneurs, Wall Street executives and government regulators are vying to control the industry’s next chapter. Their fight for influence could determine that if cryptocurrency survives in the United States, where a regulatory crackdown has made it increasingly difficult for the sector to function.
Some executives argued that the cryptocurrency world needed to eliminate figures like Zhao and Bankman-Fried, aggressive entrepreneurs who prioritized growth over compliance, to win over regulators and the public.
After Mr Zhao’s guilty plea, Brian Armstrong, chief executive of US cryptocurrency exchange Coinbase, hailed the case as a turning point for the industry.
“Now we have the opportunity to start a new chapter,” Mr. Armstrong said published on social media last month. “This industry should be built right here in America, in a compliant manner, under US law.”
But the cryptocurrency world continues to be full of companies that engage in risky business practices and don’t offer much transparency about their experimental products.
“There is no intrinsic value in any of this,” said Hilary Allen, a financial regulation expert at American University. “The only hope is to have more money in circulation and more people willing to buy it to create demand.”
Cryptocurrencies have always had their share of influential leaders. The vision behind Bitcoin, the original and most valuable digital currency, was first outlined by someone using the pseudonym Satoshi Nakamoto, whose mysterious identity has become his trademark.
As the world of cryptocurrencies has expanded, new centers of power and influence have emerged. Mr. Zhao founded Binance in 2017 and built it into the world’s largest marketplace for buying and selling experimental coins. The size and reach of the exchange has turned Mr. Zhao into a star on Twitter, now known as disinformation spread by enemies of cryptocurrencies.
Mr. Zhao’s main rival was Mr. Bankman-Fried, who appeared on billboards and magazine covers, cultivating a persona as the responsible adult which would help the nascent industry work with regulators.
Ultimately, both Mr. Zhao and Mr. Bankman-Fried fell from grace. Mr Bankman-Fried will be sentenced in March and faces the prospect of spending decades behind bars. Zhao is likely to receive a lighter sentence, with prosecutors expected to seek around 18 months.
“Having those characters no longer in the storyline is a really good thing,” said Jeremy Allaire, chief executive of cryptocurrency firm Circle. “I’m focused and focused on: How can we make this useful for the world?”
A new generation of executives is already emerging as the industry’s top cheerleaders. Paolo Ardoino, an outspoken cryptocurrency enthusiast with a large online following, recently took over as CEO of Bind, the company that oversees one of the most popular digital currencies. At Binance, Mr. Zhao was replaced by Richard Teng, a key executive at the exchange who had been groomed to take over from Mr. Zhao.
On paper, Mr. Teng is the opposite of Mr. Zhao. Binance’s founder was hostile to regulators, while Mr Teng is a veteran of the Monetary Authority of Singapore, the country’s central bank.
Binance’s future is uncertain. As part of a settlement last month, the company agreed pay fined several government agencies $4.5 billion and will have a U.S. monitor embedded in the business for the next three years.
“My general feeling is that there’s a real ‘wait and see,’” Allaire said. “I don’t think anyone knows the details of what this monitoring means.”
A Binance spokesperson did not respond to a request for comment.
Probably the biggest beneficiary of the current cryptocurrency reshuffle is Coinbase’s Mr. Armstrong, who declared this month that Bitcoin “could be the key to extending Western civilization.” Coinbase’s stock price has nearly tripled in the past six months, even after the Securities and Exchange Commission sued the company as part of the agency’s broad crackdown on the industry.
“Coinbase is now the last man standing,” said John Todaro, a Needham analyst who follows the cryptocurrency industry. “There is less competition out there.”
Coinbase has also positioned itself to profit from a potentially seismic development in the cryptocurrency world: the possible approval of an exchange-traded fund, or ETF, that tracks the price of Bitcoin.
In recent days, the price of Bitcoin has risen to more than $43,000, the highest level since a wave of bankruptcies sent the sector into crisis last year. Much of the enthusiasm is fueled by growing confidence that the SEC is ready to approve a Bitcoin ETF that would trade on traditional exchanges, potentially bringing new money into the sector.
Coinbase has agreed to hold the Bitcoin that would underpin an ETF offered by BlackRock, one of the world’s largest asset managers. BlackRock is the largest of major financial firms, including Fidelity, that have applied to offer the investment product.
Wall Street was once an enemy of the rebellious cryptocurrency industry, but after 18 months of failures and crashes, cryptocurrency advocates have hailed the collaboration between Coinbase and BlackRock as a potential salvation.
“Cryptocurrencies are not disrupting Wall Street; it’s merging with it,” said Ms. Allen, the American University professor. “It’s pretty obvious: They think they can make money here.”