How is crypto doing in a post-Sam Bankman-Fried world?

By now you’ve heard that the trial of Sam Bankman-Fried is over. What was the verdict for the founder of the bankrupt cryptocurrency exchange FTX?

Guilty on all seven charges, including fraud, money laundering and campaign finance law violations. Bankman-Fried will be sentenced in the spring.

So how is the world of bitcoin and the blockchain faring now that it’s most famous ambassador will likely end up behind bars?

Marketplace’s Matt Levin spoke with Laura Shin, a journalist who covers crypto and host of the podcast “Unchained,” about how people in the cryptocurrency world have been reacting to the SBF trial and what crypto enthusiasts are choosing to focus on next. The following is an edited transcript of their conversation

Laura Shin: I think many of them think that it was the right verdict. Because the crypto community understands crypto so well, I think they were a lot earlier than mainstream media, they were a lot earlier than noncrypto people in understanding really what happened. For instance, even to this day, I will hear in media or for instance, the defense during the trial was saying things like FTX suffered a bank run. And crypto people know that a bank run should not be possible with a crypto exchange, that banks operate on fractional reserves, but crypto exchanges should not for numerous reasons, which I could go into, it might take a little while. But the point is simply that for a crypto exchange, as long as it’s operating aboveboard, every single customer, if they all went to withdraw all at once, they should all be able to get their assets back. And so the minute that we woke up on Tuesday morning, Nov. 8, 2022, and it was announced that Binance was going to buy FTX, everybody knew that FTX had done something — everybody in crypto, I should say — knew that FTX had done something wrong. And then what’s interesting is a lot of the outrage after was about how the mainstream media was covering it, where they seem to think he had made a mistake. And people in the crypto world from the get-go were like, “No, no, no, he did something wrong.” So point is that 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, which provide the seed money for a lot of these crypto startups, how are they feeling about the crypto space now?

Shin: Honestly, after the FTX collapse, things got pretty quiet, obviously. Also, this is sort of the tail end of a bear market in crypto. And so when that happens, there’s also a bit of a retrenchment. You know, honestly, they probably are in, like, a slightly better position than they were during the bull market when every VC is just in a FOMO situation. They’re all competing against each other. These startups or these different new blockchain projects, they have the upper hand. So I actually feel like maybe now when things are calmer, they can do more due diligence, there isn’t such a frenzy. They can take their time, there isn’t as much competition. But you’re right. It’s been slower for a while, but I think it’s actually finally starting to pick back up just a little bit.

Levin: In the wake of FTX, are U.S. regulators more focused on crypto than they were?

Shin: For sure. For sure. Shortly after FTX’s collapse, there was, in a way, almost an overreaction I think against crypto where people didn’t, you know, didn’t quite understand that this was fraud. You know, fraud could happen in any industry, it doesn’t matter what industry you’re doing it in. And so I think there was almost this reaction of, “Oh, Sam Bankman-Fried was bad, therefore, crypto is bad.” But I think people are now starting to realize it’s sort of the same thing as saying Bernie Madoff was bad, therefore, you should avoid the stock market or the stock market is bad. And so I have seen that actually, after that overreaction now, we’re kind of seeing a little bit of a dialing back. There was a moment in time when it looked almost like, you know, crypto was going to become quite politicized, where the Democrats were going to kind of largely be against it. Now we’re seeing it, you know, not be a uniform reaction amongst them. However, we are seeing a little bit of a generational divide amongst the Democrats where the younger Democratic politicians are more pro-crypto, and at least some of, not all, but some of the older ones are less so.

Levin: Interesting. And then just very quickly, for Republicans, how does that break down with their attitudes towards crypto post-FTX?

Shin: So I would say the Republicans more generally tend to be a little bit more knowledgeable. There are so many Democratic politicians that are extremely knowledgeable- like [U.S. Reps.] Ro Khanna [of California] and Ritchie Torres [of New York], I mean, I don’t want to discredit any of them at all. But it just seems probably because bitcoin started as, you know, being a little bit associated with this Libertarian movement. And bitcoin is the oldest and it was the original cryptocurrency. So I do think maybe just the sheer number of Republicans that are knowledgeable is greater, and so I think they did not necessarily go to that overreactive state right after FTX’s collapse.

Levin: What positive things are happening in the crypto space right now? There’s seems to be a high-profile IPO that may be in the near future.

Shin: Yeah, I guess it’s been floated that perhaps Circle, which runs a well-regulated stable coin called USDC — and a stable coin is a crypto whose value is pegged to the value of something else, in this case, the value of the U.S. dollar, as actually, frankly most stable coins are. They are one of those companies where the entrepreneur has had actually multiple successful ventures so far. He’s older, a little bit more seasoned. They’ve definitely gone the compliant route. They have very well-known, reputable partners. And so frankly, right now, especially for them, I’m sure it’s a great business with Treasury, you know, paying a lot, and they don’t have to pay interest out to their customers who are using USDC. And so if they’re backing their issuance of USDC with things like, you know, buying Treasurys and such, they’re just making that interest themselves. And so I think for them, it’s quite a healthy business. And I would imagine that it’s the type of company that is ripe for, you know, having an IPO.

Levin: What has the crypto industry learned in the aftermath of FTX?

Shin: One of the lessons that I think the crypto community really took away 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 around building, you know, what they say are decentralized applications, meaning there isn’t a single point of failure, there isn’t one entity that’s in control of whatever this new product or service that would be offered on the internet. And what he was building was something where it was kind of what they see as the old model, where there was a company and it was in charge. And, you know, one of the things actually that precipitated his downfall, which the mainstream might not know about, is that in the month before of FTX’s collapse, Sam had been championing a bill in Congress, and it actually looked like it was going to become law. And the crypto community ended up turning against him when they realized that the way the bill was structured, it would benefit centralized players and crypto over decentralized players. And so frankly, just the whole community kind of turned against him. And so after it collapsed, I noticed I would talk to entrepreneurs, they would talk about how they’re doubling down and decentralization. I personally think that that’s where the industry is going to put its focus.

More on this

You can read more of Laura Shin’s coverage of the SBF trial — and she’s got a lot of it — here.

If you’re still kinda confused about how and why crypto exists, I highly recommend Bloomberg Businessweek’s “The Crypto Story,” a fantastic long read by financial journalist Matt Levine (no relation).

And if you want a taste of the weirdness that ensues when tens of thousands of bitcoin true believers come together in the same place, you can check out my reporting from Bitcoin 2023, North America’s largest bitcoin convention, which took place in Miami earlier this year.