While a PR offensive isn’t necessary, adult-supervision is absolutely required.
In recent years, crypto ceased being a fringe financial tool and nudged its way closer to the mainstream thanks to a slew of celebrity endorsements, Super Bowl ad blitzes, and the 2021 IPO of Coinbase, the largest exchange operating in the U.S. The mayors of Miami and New York City began converting their salaries to Bitcoin, in a bid to align their cities with the future of finance.
The trial of Sam Bankman-Fried, founder and CEO of the defunct exchange FTX, threatens to unravel much of that newfound legitimacy. If convicted of enough government charges relating to fraud and conspiracy, the 31-year-old — once an emblem of crypto’s promise who spent millions donating to both major political parties — will spend the rest of his life in prison.
Even before Bankman-Fried — or SBF, as he is commonly known — the sector suffered from a stigma in the eyes of the public, following years of market volatility, security breaches, and instances of criminal activity that have left some retail investors destitute. Among Americans who had heard of crypto and its investment strategies last April — seven months before the implosion of FTX — 75 percent weren’t convinced it’s a safe and reliable bet, a Pew survey found.
So even without SBF as crypto’s pantomime villain, the industry needed to rehab its image. The good news for those fending off naysayers now? Blockchain technology — that is, peer-to-peer networks that enable users to trade crypto without financial institutions — continues to hold promise, according to executives in crypto. “This is a technology that is going to change aspects of the world as we know it, whether that’s banking, whether that’s entertainment, whether that’s international trade,” says Sarah Kirshbaum Levy, CEO of the financial advisory Betterment.
What’s more, those in the industry can point to SBF’s alleged crimes to distance themselves.”I think of the FTX fiasco as criminal activity,” adds Kirshbaum Levy, who entered the crypto universe in February 2022, when Betterment acquired Makara, an aggregator of crypto investment portfolios. “Sure, [SBF] was a big player, but he was just a criminal,” who isn’t representative of the whole landscape, she tells Inc.
Still, convincing a skeptical public that crypto isn’t inherently plagued by fraudsters will be difficult. Imposing regulation will be paramount, Helio Fred Garcia, a professor of crisis PR at NYU and Columbia, explains. And the SBFs of the world will need to be properly censured. Indeed, says Garcia, the broader public won’t come around “until first there’s a shakeout. And second, there’s the imposition of adult supervision.”
Absent these factors, executives in crypto say to square in on the industry’s strongest asset. As is true of Kirshbaum Levy, Matt Schultz — executive chairman at the Bitcoin mining operation CleanSpark — has complete faith in the blockchain. The peer-to-peer networks, which proponents often describe as unimpeachable in their ability to log transactions accurately, played a pivotal role in catching SBF’s alleged fraud, he says. “It wasn’t regulators that identified the discrepancies with what FTX was reporting and purportedly doing. It was the inaccuracies on the Bitcoin blockchain. It was actually the Bitcoin network that identified the discrepancy that led to the investigation.”
The crypto-focused news outlet Coindesk first reported on a leaked internal document that showed how SBF’s hedge fund, Alameda Research, was propped up by the FTT crypto token issued by FTX.
Of course, blockchains have issues. Criticism of their potential has been leveled by technology researchers and security experts. Many of them argue that despite its purported certainty and permanence — if something is logged on the blockchain, it stays there forever — it’s still susceptible to myriad novel threats. Hacks in which attackers purloin billions have been common. Last year, nearly $4 billion was stolen from crypto investors, according to a report from Chainalysis, a blockchain analysis firm. Specifically concerning blockchain-powered crypto exchanges, the World Economic Forum claims that “protection against these attacks is challenging mainly due to blockchain’s decentralization and openness.” The anonymity afforded by Blockchains has also been abused in instances of money laundering.
The antidote — for all fraud and security threats alike — is regulation, suggests Shultz. “What really is going to stabilize [the industry] is appropriate regulation and legislation to form guardrails that say, ‘Hey, these are the rules,’ ” he adds.
SBF was a poster child for regulation, ingratiating himself with lawmakers through campaign donations. As recently as one month before FTX’s alleged misdeeds were revealed, he wrote of “standards to help inform and protect customers,” on the website X, formerly Twitter.
Before SBF’s trial began, the IRS and Treasury Department proposed regulations that would require crypto exchanges to report transactions involving digital assets to the government. The proposed rule centers on tax compliance, and would require exchanges like FTX to report gross proceeds to the government via a new Form 1099-DA, and provide payee statements to customers starting January 1, 2025. “We need to make sure digital assets are not used to hide taxable income, and the proposed regulations are designed to provide a clearer line of sight into activities by high-income people as well as others using them,” the IRS said in a statement.
Crypto advocates and lawmakers have pushed back, arguing the proposed rules would stifle innovation. A public hearing on the proposed rules will take place on November 7, the agency says.
As for the plan to hold SBF accountable for alleged misdeeds. That’s in progress. This week, former FTX executive Nishad Singh said in testimony that the company funneled customer deposits into luxury real estate and celebrity endorsement deals. Again, this is evidence of a crime–but, according to proponents, crypto isn’t the culprit.
