The rise and fall of the FTX crypto mogul – DW – 03/28/2024 | EUROtoday

Once the poster youngster for accountability within the cryptocurrency sector, Sam Bankman-Fried was sentenced to 25 years in jail on Thursday (March 28, 2024) following his conviction in November in what prosecutors known as one of many greatest monetary fraud instances in historical past.

US prosecutors had been looking for a jail time period of between 40 to 50 years, after a jury discovered him responsible on seven fraud and conspiracy counts contributing to the downfall of his FTX firm — as soon as a number one crypto trade.

Sam Bankman-Fried, identified within the crypto neighborhood as “S.B.F.,” based the collapsed FTX trade in 2019, after launching the crypto hedge fund Alameda Research in 2017. Prior to his involvement within the cryptocurrency sector, he labored as a dealer on Wall Street. At his peak, Bankman-Fried held a fortune of $26 billion (€24 billion).

Bitcoin and digital property noticed a meteoric rise in 2020 and 2021. During that point, Bankman-Fried — who is understood for his curly hair and matted look — turned an emblem of accountability within the cryptocurrency sector. This popularity performed a key function within the success and survival of FTX when market situations ultimately took a downturn.

Under Bankman-Fried, outstanding branding efforts, endorsements by celebrities and beneficiant acts of philanthropy helped FTX, and cryptocurrencies basically, acquire a picture of reputability with a lot of the general public previous to the collapse of his trade in 2022.

The fallen ‘benefactor’

The 32-year-old American was going through seven counts of fraud and conspiracy, together with accusations that he embezzled cash from FTX depositors.

During the trial, prosecutors claimed actions taken by Bankman-Fried and his shut colleagues endangered the supply of the funds to its customers, resulting in the collapse of FTX as cryptocurrency costs declined.

When a yearslong rally within the cryptocurrency market got here to an finish in 2022, Bankman-Fried claimed that his enterprise was nonetheless wholesome. In actuality, his enterprise had additionally been hit exhausting by the autumn within the cryptocurrency market.

In an effort to assist the struggling trade, Alameda borrowed cash to put money into failing digital-asset corporations earlier than reportedly skimming from FTX prospects’ deposits to satisfy its personal rapid monetary obligations.

Bankman-Fried was additionally accused of directing former FTX expertise chief Gary Wang to make adjustments to the trade’s laptop code to permit Alameda to borrow limitless sums of cash, a privilege not granted to different customers on the trade. This allowed Alameda to borrow important funds from FTX.

Prosecutors argue Bankman-Fried used FTX deposits to plug losses at Alameda, interact in private real-estate transactions and contribute to political campaigns.

What triggered the FTX collapse?

Starting in 2021, rising regulatory scrutiny and rising rates of interest pushed many merchants away from riskier property like cryptocurrencies and towards extra conventional investments.

In November 2022, the cryptocurrency information web site CoinDesk printed an exposé stating that Alameda had substantial publicity to FTT — a crypto token issued by FTX itself. This revelation led to an additional lack of buyer confidence, inflicting a major outflow of funds from the trade from which FTX couldn’t recuperate.

That overwhelming majority of Bankman-Fried’s wealth evaporated virtually in a single day. He was arrested within the Bahamas in December 2022 and was extradited to the United States.

What occurred within the trial?

Bankman-Fried acknowledged insufficient threat administration, however denied stealing funds. His protection argued that Bankman-Fried believed his therapy of buyer funds was according to FTX’s phrases of service and the regulation, emphasizing a “good faith” perception.

The prosecution known as former members of Bankman-Fried’s inside circle who’ve pleaded responsible and agreed to cooperate. Bankman-Fried’s protection aimed to show that the FTX collapse resulted from enterprise errors relatively than a deliberate fraud scheme.

Overseeing the case was US District Judge Lewis A. Kaplan, who had beforehand dealt with defamation lawsuits in opposition to former US President Donald Trump and a sexual abuse lawsuit in opposition to Britain’s Prince Andrew.

What does this all imply for the cryptocurrency market?

Initially, the trial surrounding Bankman-Fried and the collapse of FTX contributed to current uncertainties within the trade.

“The fall of FTX could be the moment that really kicks off the broader decline — maybe even demise — of cryptocurrency,” James Royal, principal reporter at Bankrate, informed CNBC on the time of the collapse.

Crypto doomsayers, nonetheless, have since been confirmed improper, with the worth of outstanding cryptocurrency Bitcoin having surged by over 300% in current months, in contrast with November 2022, when it dipped beneath $20,000.

The unit hit a contemporary file above $71,000 on March 11 as demand for the cryptocurrency picks up amid optimism that the US Federal Reserve will minimize rates of interest this yr.

The cryptocurrency market captialization additionally hit a file excessive of almost $1.35 trillion. The mixed worth of the full crypto market at present stands at round $2.5 trillion — its highest stage because the time when Bankman-Fried’s FTX trade was nonetheless in enterprise.

Editor’s word: The article was up to date on March 28 to mirror the sentencing of Sam Bankman-Fried in New York.

Edited by: Uwe Hessler