Sam Bankman-Fried is guilty, and the industry he helped build wants to move on

The highest profile cryptocurrency test It's over and the crypto industry is eager to move on. But that will not be easy.

Earlier this month, a New York City jury found disgraced cryptocurrency magnate Sam Bankman-Fried guilty of seven criminal counts, including money laundering and securities fraud.

As the co-founder and former CEO of cryptocurrency exchange FTX awaits a sentencing hearing scheduled for March, Bankman-Fried still casts a long shadow over the industry he helped create. FTX filed for bankruptcy exactly one year ago, on November 11, 2022.

Bankman-Fried and FTX introduced Bitcoin, Ethereum and other cryptocurrencies to millions of people around the world, and their company spent a lot of money (on endorsements, sponsorship deals and a Super Bowl ad) to make FTX a household name and promote cryptocurrencies more broadly.

Today the industry wants to revive interest in cryptocurrencies. But regulators and many retail investors remain deeply skeptical.

“It is very difficult for the industry to completely decouple from FTX,” says Yesha Yadav, a digital asset expert at Vanderbilt Law School. "I think the FTX debacle contaminated and diminished the cryptocurrency industry."

The implosion of FTX and the subsequent collapse of Bankman-Fried deepened a market slowdown known as "crypto winter." A year later, they are still having a chilling effect, but there is optimism among companies and cryptocurrency boosters that a thaw could soon occur.

Here's where things stand in crypto on the anniversary of the FTX collapse.

Crypto Players Try to Move On

Despite skepticism in much of the financial sector, the crypto industry is trying to insulate itself from the Bankman-Fried issues.

Key players acknowledge the seriousness of the fraud he committed and the charges against him, but argue that they were the actions of an individual bad actor.

“The industry abandoned the SBF long before the verdict was read,” says Kristin Smith, executive director of a cryptocurrency trade group called the Blockchain Association. "Sam's crimes had nothing to do with the technology that underpins blockchain networks and digital assets. This is a criminal, not crypto."

Yadav says that as soon as the jury announced its verdict on November 2, the industry began arguing that post-SBF cryptocurrencies are safe, that they are not "tainted by all this type of fraud and misappropriation."

"I think there are a lot of people who are really happy and delighted that he was convicted," Yadav says, adding that the verdict is a way to "show clients that the bad actors have been eliminated."

There are signs that the strategy is working.

In recent weeks, the price of Bitcoin has started to rise again. Even a virtual currency created by Bankman-Fried, called FTX Token or FTT, has gained traction.

Bitcoin is now trading around $36,000, which is about half of its all-time high, but more than double what it was at the start of the year.

But other financial industry experts fear that cryptocurrencies could make a comeback.

Although cryptocurrency advocates like to tout their industry as the future of finance, many are doubtful. By design, the crypto economy is supposed to be borderless and designed to operate outside the boundaries of traditional finance.

According to Timothy Massad, former chairman of the Commodity Futures Trading Commission (CFTC), the collapse of FTX diminished some of the wild speculative bets that characterized the cryptocurrency market during the company's heyday.

But what he has seen so far does not convince him at all.

“I don't think the use case has really been demonstrated for much of what has been developed in this sector,” says Massad, who now directs the Digital Asset Policy Project at Harvard University. "I think it's an interesting technology that can have very useful applications, but there are a lot of things that really aren't that useful."

Because their prices are so volatile, cryptocurrencies are not useful as a medium of exchange and the fraud at FTX only increased fears about the security of digital assets. The company funneled billions of dollars from clients without their knowledge.

And despite what Bitcoin boosters claimed, that the cryptocurrency would be a hedge against high inflation, that has not proven to be the case. When the inflation rate increased, the value of Bitcoin plummeted.

Industry supporters are capitalizing on the potential uses of blockchain technology that underpins cryptocurrency trading. They say blockchain, a decentralized public ledger that records transactions, has broader applications. In the future, the companies say, it will improve how hospitals store and share medical records and how insurers track claims.

Massad says there is a need for clearer and more specific regulations for cryptocurrencies. As he surveys the crypto landscape, he still sees a lot of speculative activity, scams and fraud, and believes new regulations could eliminate some of that digital garbage.

Regulators remain deeply concerned

One of the main difficulties of the crypto industry is that it is still very new (Bitcoin was introduced in 2008) and operates in a regulatory gray area.

Congress has so far failed to pass any meaningful cryptocurrency legislation, and American financial regulators have grown tired of waiting for it.

In recent months, the Securities and Exchange Commission (SEC) and the CFTC have filed more enforcement actions. In recent months, they have chased other crypto exchanges, such as Coinbase, Kraken, and Binance.

The SEC has accused Binance of operating an unlicensed exchange and says it sits on top of a dark and sprawling network of corporate subsidiaries.

The SEC and CFTC are using their existing law enforcement authority and decades-old laws to crack down on crypto companies.

But as the 2024 elections approach, cryptocurrency legislation is less likely to be among Congress' top priorities.

At the same time, cryptocurrencies are not going anywhere

Despite tensions between regulators, lawmakers, and the industry, there are signs that cryptocurrencies continue to evolve.

On Wall Street, major banks continue to take cryptocurrencies seriously. Although the size of the cryptocurrency market is a fraction of, say, the stock market or commodities market, financial firms like Citigroup and JPMorgan Chase have analysts and strategists who focus on cryptocurrencies.

And cryptocurrencies have become more accessible.

Earlier this year, Fidelity announced that it would allow clients to add Bitcoin to their retirement portfolios.

And after a recent court decision, there is new optimism among asset managers that the SEC will approve an exchange-traded fund that tracks the price of cryptocurrency.

For family investors who are interested in Bitcoin but don't want to hold the asset itself, investing in a structured and regulated security could be attractive.

Twelve companies, including BlackRock, Invesco, and Fidelity, have applications to the SEC to introduce crypto ETFs. Regulators there could decide whether to approve them at any time. Previous requests were rejected. The SEC said the market was too susceptible to manipulation.

And a year after FTX filed for bankruptcy, it's poised to make a comeback of sorts.

This week, The Wall Street Journal reported Three companies are vying to buy the remains of the defunct cryptocurrency exchange in hopes of restarting it.