The arrest of FTX co-founder Sam Bankman-Fried on a variety of fraud charges has been greeted in some quarters as a vindication for the cryptocurrency economy. After all, the allegations focused on generic financial crimes, and the government agencies involved didn’t use the occasion to zero in on hot-button debates about how crypto assets should be regulated.
That has led to some celebration. “They’re not really crypto crimes—and that’s a big relief for the broader crypto industry,” is the summary offered by The Information. But don’t get it twisted. Beyond the court room, it’s clear that Bankman-Fried’s alleged fraud could not have been accomplished without crypto technology and the hype around it.
Consider the alleged fraud: The best picture we have so far is that FTX, the cryptocurrency exchange, took money from customers in exchange for purchases of, or bets on, a variety of crypto assets, while Alameda Research, Bankman-Fried’s hedge fund, also made bets on the exchange. The money that customers sent to FTX wound up at Alameda and was used to pay for the hedge fund’s failed bets, as well as a variety of personal and philanthropic expenses by Bankman-Fried and his inner circle. When enough customers asked for their money back, FTX declared bankruptcy.
Crypto ingredient 1: The hype about the financial future you just can’t miss
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