The opening arguments in Sam Bankman-Fried’s trial highlight the issues that all of the crypto world will face going forward. Whose rules will crypto follow? What will be the consequences of not following the rules? Can crypto exist as a world apart from the rules that govern the traditional financial world? Opening arguments in the trial of FTX’s founder by the prosecutor were that he committed fraud, lied to his clients, and lied to the world. He broke the law. Defense lawyers said that he was just trying to run a business in a new niche during a very volatile time. So, gosh, he should be forgiven if you believe the defense. Or he should spend a lot of time in jail if you believe the prosecution. A trial like this and all of the regulatory activities going on are going to define the future of the crypto world.
How Did the FTX Mess Happen?
Crypto started as an idea. It would allow people to buy and sell using the Internet. It would provide a degree of anonymity as well. People could dispense with middle men like banks and money transfer companies. Along the way, Bitcoin and other crypto currencies grew impressively in value. This was a new and, perhaps, unexpected aspect of cryptocurrencies. As crypto grew, we saw the growth of decentralized finance, the invention of non-fungible tokens, blockchain gaming, and the potential for cryptocurrencies to become an integral part of the World Wide Web. The spectacular rise in value of Bitcoin and the rest attracted speculation and resulted in a lot of unexpected centralization. Here is where FTX and other crypto businesses became central features of the crypto world.
What Did Bankman-Fried Do Wrong?
It would appear that folks like Sam Bankman-Fried moved as fast as they could to make money in this rapidly expanding financial arena. The FTX empire did not collapse because of fraud. It collapsed because they and other crypto businesses assumed that crypto values would continue to grow virtually forever. When the United states started to see the worst inflation in four decades The US Federal Reserve started to raise interest rates. The stock market and the crypto markets panicked. Their worry was that The Fed would cause a severe recession. That has not happened. Nevertheless stocks and crypto tokens fell dramatically. FTX, its subsidiaries, and many other crypto businesses got caught on the wrong side of bets that crypto would keep going up.
Bankman-Fried did a couple of things that got him in trouble. He transferred assets within branches of his business to make it appear that he had more money than he had. And he lied about the solvency of his company as things were going downhill. He also used customer money for his own purposes. The first two things have to do with how crypto is going to have to play by the rules going forward. The last is simply theft and had nothing to do with running a legitimate business.
The Crypto Premise Is Still Valid
The original thinking behind cryptocurrencies is still valid. All of the hustle and manipulation by modern day robber barons never was. Crypto is a good way to transfer money. Decentralized finance using smart contracts is very promising. Parts of the NFT world feel a bit like pet rocks but other parts make good sense. What crypto businesses will need to do going forward is not lie to their clients, handle customer assets with care, and follow the same rules that other businesses have followed since the days when the government broke up the Standard Oil Trust (monopoly).
SlideShare Version – Whose Rules Will Crypto Follow?
