Notes 12/13: FTX CEO Sam Bankman-Fried Is Arrested

We finally have respite from former FTX CEO Sam Bankman-Fried’s (SBF) media tour.

The thirty-year-old boy genius’s repeated public appearances to “explain” his actions were finally cut short last evening after he was arrested by the Royal Bahamas Police Force based on charges filed by the Department of Justice. The Securities Exchange Commission (SEC) has also filed a separate civil complaint against SBF.

The list of charges against SBF is long and includes wire fraud conspiracy, securities fraud conspiracy, and money laundering. If proven guilty, his prison term could range from 165 years to 115 years according to Twitter. The Bahamian government says it is also conducting a separate investigation on its own.

The timeline for SBF’s extradition to the United States remains unclear. A New York Times piece stated that the process can take weeks or even longer. Considering the top legal talent that SBF has hired to defend himself, he could vacation in Bahamas for an extended period.

A Pause to Media Appearances

More importantly, the prospect of prison time could finally put an end to his useless public visitations. He was supposed to virtually attend a Congressional hearing today to discuss the collapse of his cryptocurrency exchange. Given his past media junkets, I doubt if his appearance would have made much of a difference.

Despite numerous interviews and tweets by the former CEO, a full accounting FTX’s relationships and relationships with other crypto companies remains a mystery. SBF claims to not have “access” to his data – personal as well as that of his exchange – and his compadres-in-crime Caroline Ellison and Sam Trabucco are yet to speak on the matter. But the suggestion of “conspiracy” in the complaints filed by U.S. prosecutors means that their days might be numbered.

A commentator on Coindesk’s morning show suggested that there will be a “race to regulation” in crypto in the coming weeks due to the public nature of FTX’s problems. Thus, it can be said that SBF has achieved his goal.. While his appearances before lawmakers failed to cut it, he has hastened long-awaited crypto regulation by conducting fraud.

A Crypto Reckoning?  

SBF’s arrest is a key development in the crypto turmoil. But it might turn out to be a short interlude in much bigger drama. Depending on the source, FTX was the third or fourth biggest cryptocurrency exchange by trading volume. Considering the small and incestuous nature of the circular crypto economy, it is hard to believe that the trading outfit existed in isolation.

Its unraveling has already caught some big players in its net. More are due. Among those in line are two big names: Binance and Tether. The former is the world’s biggest exchange by trading exchange by volume and the latter is the world’s biggest stablecoin. Both are connected to FTX in different ways, and both are important to the overall crypto ecosystem.

Tether and Binance

Binance was an early investor in FTX and its CEO Changpeng Zhao (CZ) instigated FTX’s downfall on Twitter. CZ seems to have taken over from FTX in attempting to shepherd the unruly and unregulated mess that is crypto to order. But his efforts have only served to highlight Binance’s deceits. A Reuters report last week about U.S. authorities considering enforcement actions against the exchange caused a surge in withdrawals there.   

Tether, on the other hand, is the troubled systemic backbone of crypto that is connected to FTX through Alameda Research, SBF’s trading firm. Alameda was the biggest buyer of Tether last year. That’s not surprising considering the stablecoin’s strategic and widespread use across crypto exchanges to conduct trades. Alameda also bought a small bank, which shares management with Tether’s banking partner, in the US last year.

But Tether’s controversy-laden existence has become a liability to an ecosystem striving to present itself as a candidate for regulation. The suggestion of a partnership between both entities is sure to shake up crypto.

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