Second, is crypto’s regulatory future in jeopardy? After all, FTX was one of only a handful of US crypto firms that invested heavily in lobbying, and Mr. Bankman-Fried was seen as a “white knight” who had the best chance of persuading skeptical lawmakers of crypto’s value. Now it appears that those efforts have stalled at best — and that regulators who want to portray crypto as an out-of-control Wild West will have one more example to point to. Katherine Wu, a crypto investor, tweeted on Tuesday that it was a “truly sick news day – can’t even begin to fathom the potential damage our industry will have to face.”
Third, will FTX’s collapse trigger a broader market failure, as the collapse of Lehman Brothers did in 2008?
Already, the news has spilled over to the rest of the crypto market. Bitcoin and Ether prices both fell on Tuesday, and the price of Solana (a cryptocurrency backed by FTX) fell around 20 percent. Shares in publicly traded crypto companies, such as Coinbase, also fell. FTX’s investors, which included Sequoia Capital, Lightspeed Venture Partners and SoftBank, will most likely lose most or all of their investments. And given how intertwined FTX has been with the rest of the crypto-economy, it may be a while before we know the full extent of the damage.
The hope, of course, is that unlike 2008, when Wall Street’s crash became a global financial crisis that led to millions of Americans losing their jobs and homes, the effects of FTX’s collapse will be mainly limited to the crypto industry stay. But it is still too early to tell.
And finally, what will become of Mr. Bankman-Fried? Until this week, he was the undisputed king of crypto — and an increasingly powerful force in American politics, thanks to his large donations to Democratic candidates and causes. Estimated at more than $15 billion before the Binance sale, his fortune has supported philanthropies (he is a major donor to the effective altruism movement), media organizations (he is an investor in Semafor), and companies both domestically and internationally. outside of crypto (he is a major shareholder in Robinhood, the stock trading app).
Mr. Bankman-Fried’s days as a crypto-tycoon may be over. (On Tuesday, Bloomberg estimated that his net worth had fallen by 94 percent and that he was no longer a billionaire.) But the bigger question, for crypto investors, is whether his empire was unusually shaky, or just the first was what fell. .