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Sam Bankman-Fried (SBF) took pains to project himself as a nerdy albeit affable person. However, behind this harmless façade lurked a modern-day Machiavelli, replete with an insatiable appetite for unscrupulousness. His fraud has not only decimated thousands of FTX exchange customers but also unleashed a number of second-order effects on Bitcoin and the rest of the crypto sphere, including the disorderly unwinding of leverage and systemic fragility, depressed prices, and a gung-ho SEC.
Over the weekend, news emerged that FTX's former CEO, Sam Bankman-Fried, has been relegated to a flip phone devoid of internet connectivity. Under the terms of his $250 million bail, SBF remains confined to his parents' house in California with an ankle-based location monitoring device. Sam Bankman-Fried is also restricted from contacting employees at FTX and Alameda Research, his personal hedge fund that had maintained a secretive symbiotic relationship with the now-defunct crypto exchange. While a formal trial is expected to commence in October 2023, SBF's legal team has recently sought additional time for trial prep, leading to speculation that SBF's deserved comeuppance in the court might get delayed.
SBF might need more time to prepare a defense for his criminal trial in October, his lawyers have argued in a letter to the judge overseeing the case. https://t.co/Qc1R5Ux4i5
— Cointelegraph (@Cointelegraph) March 9, 2023
Sam Bankman-Fried's legacy will long continue to haunt holders of Bitcoin and other cryptocurrencies. In the immediate aftermath of FTX's collapse, investor focus remained on complicated tentacles of leverage that permeated almost every crevice of the nascent sector.
BlockFi, which had secured a financial lifeline from FTX in the aftermath of Terra's collapse in the summer of 2022, became one of the first crypto entities to go under when FTX failed. Then, Genesis Global Capital, which had offered Alameda Research hefty loans, declared insolvency, trapping 340,000 users of the Gemini Earn program – where users could lend their crypto holdings to Genesis in order to earn interest.
Now, however, Sam Bankman-Fried's legacy is manifesting in the newfound gung-ho attitude of the SEC toward the crypto sector in general. In fact, the SEC is now increasingly appearing as the biggest nemesis of Bitcoin and other cryptocurrencies. As we noted in a post last week, the apex financial regulator recently forced Kraken exchange to shutter its crypto staking program by alleging that the firm was dealing with "unregistered securities." Moreover, the SEC has also gone after the Binance USD (BUSD), a stablecoin that is issued by Paxos under a license arrangement with Binance.
In fact, the SEC Chair, Gary Gensler, has gone on record to state that "everything else other than Bitcoin" was a security. The SEC seems bent on granting itself unchecked powers to regulate the crypto sector in the US, stifling the sector's innovation and flow of capital in the process. After all, with the financial regulator using "oversight via litigation" as a policy tool, who would want to invest capital in America's crypto ecosystem?
POWELL: “We don’t want regulation to stifle innovation .. But, like everyone else, we’re watching what’s been happening in the #crypto space and what we see is quite a lot of turmoil, we see fraud, we see a lack of transparency, we see run risk.”
https://t.co/vHvelk2Sti— Carl Quintanilla (@carlquintanilla) March 7, 2023
For now, the courts in the US appear to be the only effective bulwark against the SEC's overreach. Earlier this week, Binance US won court approval to acquire Voyager Digital's assets against objections from the SEC over the funding of the deal and "possible" violation of the securities law. The presiding judge, however, termed those objections "vague."
In another courtroom battle, the SEC also appears to be ruing its gung-ho stance on the crypto sector. We've flagged the troubling discount at which the Grayscale Bitcoin Trust (GBTC) continues to trade relative to the spot price of Bitcoin. For those who might be unaware, GBTC shares can only be created and not redeemed. This means that investors can only unload their shares in the open market, resulting in an increasing discount in the current environment where there is no viable way to rebalance the Grayscale Trust. It is for this reason that the Digital Currency Group (DCG) – GBTC's parent company – has been trying to convert the trust into a spot Bitcoin ETF.
Earlier this week, GBTC's lawyer Don Verrilli termed the SEC's objections to a spot Bitcoin ETF "arbitrary." Bear in mind that the SEC has already concluded in the Tookrium order that spot prices lead those of the futures contracts and that any fraud or manipulation in the spot market could be rectified in the futures market owing to its "regulated" status. During the court proceedings, Judge Neomi Rao asked the SEC why the same logic could not be applied to a spot Bitcoin ETF given the proliferation of futures-based ones.
Despite these positive developments, the SEC's aggressive stance on Bitcoin, Ethereum, and other crypto-based solutions appears sticky in the aftermath of Sam Bankman-Fried's blatant fraud.
Hong Kong is planning to let funds and ultra-high-net-worth investors trade large-cap digital assets like BTC & ETH. This is a big shift from just a few months ago, and it could be a precursor to allowing broader retail access to crypto.
— Coinbase Institutional 🛡️ (@CoinbaseInsto) March 8, 2023
Interestingly, this aggressiveness is now driving innovation away from America and back toward Asia, at least vis-à-vis Bitcoin and other cryptocurrencies.
Both crypto and stocks slump today following Powell's comment that rates would likely be higher.
Coupled with the panic selloff caused by U.S. gov's 9K $BTC transfer to @Coinbase, the market has been sailing into the 🔴 zone.#CryptoNews in @COIN360com Daily Digest: pic.twitter.com/cDsjpZIxgS
— COIN360 (@COIN360com) March 8, 2023
How do you think Sam Bankman-Fried's legacy will play out in the years to come? Let us know your thoughts in the comments section below.
