The spectacular collapse of Sam Bankman-Fried’s empire was as much a shock to the cryptocurrency markets as it was a personal surprise to those in the halls of power. For years, SBF, as he’s known, had established himself as arguably the chief lobbyist for the blockchain world; he was a friendly, helpful face guiding lawmakers through a mysterious new industry. He glad-handed crypto-curious senators and representatives, donated millions to political candidates, and helped craft policy. Then it all came crashing down, forcing a reckoning in Washington: Had they been played by this 30-year-old financial wunderkind? Was it all a house of cards?
“I was impressed with him. He always struck me as a very bright, engaging guy who seemed to want some kind of constructive legislation and regulatory framework,” Republican senator Pat Toomey says. “I was shocked to learn about what happened.”
Toomey is one of several lawmakers pushing a crypto bill that SBF had input on. That was once an asset, a sign of due diligence and industry outreach. Now that Bankman-Fried’s contempt for oversight has been revealed, his fingerprints are more of a liability. He’s admitted to loaning billions in his customers’ funds to another company he owns, Alameda Research. The Justice Department, Securities and Exchange Commission, and Commodity Futures Trading Commission are all reportedly investigating FTX.
Over Twitter DMs, Bankman-Fried told a Vox journalist Tuesday that his push for regulations was “just PR” and his stated interest in effective altruism was to build his reputation. “Fuck regulators,” he wrote. “They make everything worse.” In another message on ethics, he said he felt bad for “those who get fucked by…this dumb game we woke westerners play where we say all the right shiboleths and so everyone likes us.” (He later tried to clean up these comments over a series of tweets, saying he was “venting” and that regulators have a tough job.)
Among the others who were seemingly aligned with him: Democratic senator Kirsten Gillibrand, Republican Cynthia Lummis, House Financial Services Committee chair Maxine Waters, whom he reportedly had his arm around at the House Democrats retreat last March. Now, Waters’s committee says it will hold a hearing in December on the FTX collapse, and has made clear it expects Bankman-Fried to testify.
The collapse has flung the crypto policy scene into a state of chaos. Depending on who you talk to, the FTX fiasco is either proof that crypto regulation bills need to be passed now, or proof that those bills are too weak and must be defeated. The politicians proposing crypto regulations are downplaying SBF’s involvement. “We took input from all the stakeholders, CFTC, SEC, Treasury, all the stakeholders. Including Sam,” says Democratic senator Debbie Stabenow, one of the coauthors of a bipartisan crypto bill. Gillibrand, who has a separate bill with Lummis, says stalling on proposed regulation now would be “the most irresponsible action.” Meanwhile, Senator Elizabeth Warren says the proposals are too industry driven to be acceptable—including ones her Democratic colleagues have put forward: “We need much stronger legislation than has been proposed so far,” she says.
In some ways it is a typical policy fight, with politicians jockeying over whose bill will make it to the president’s desk. But what makes this debate awkward is that the key political players all personally know the man at the center of arguably the biggest scandal in the history of crypto. SBF hosted meetings with members of both parties, donated millions to political candidates (which some now intend to donate to charity or return to FTX’s customers), appeared at Democratic Party strategy meetings, and reportedly even visited the White House. If a politician is pushing crypto legislation, it’s not a matter of if they’ve met him, but how many times.
That involvement has fostered a distrust among the already crypto-skeptical. Their theory is that SBF was pushing for a lightly regulated system so that the industry would gain a patina of credibility and thus the trust of banks and other large institutional investors. It was a step, in other words, to going mainstream. Some politicians are very resistant to going down that path. Arguably the most important of them is Senate Banking Committee chair Sherrod Brown, whose committee would oversee any one of these proposals.
That said, the industry still has its champions in Congress, and there is a wide gulf between Democrats calling for a regulatory crackdown and Republicans who say government interference will hamper innovation. Toomey, for example, characterizes FTX’s collapse as a story about an individual’s malfeasance, not a broad warning about investing in cryptocurrencies.
Until a plan emerges that can attract wider support, it appears the current Wild West environment will continue. Senate Democrats had their first full meeting since the FTX collapse Tuesday. Gillibrand says not a single one of her colleagues brought it up.
“There’s not a great deal of expertise or interest in blockchain and digital currencies and digital tokens,” she says. “And so there’s not a lot of senators that are following what’s happening.”
Still, the news wasn’t lost on everyone: Senator Richard Shelby, the 88-year-old senator from Alabama, who blocked a bipartisan effort to regulate crypto last year, smiled when asked if he was surprised by the FTX crash.
“It’s not surprising to some of us,” he says. “A lot of hope out there and maybe not as much substance.”
