Sam Bankman-Fried goes from toast of Washington to political pariah

Quick Take

  • FTX founder gave tens of millions of dollars in political donations and was a supporter of crypto legislation.
  • Industry advocates fear Bankman-Fried’s tarnished reputation will dominate the crypto conversation in Washington. 

Sam Bankman-Fried's days as a Washington insider appear over.

Even if the former billionaire can miraculously pull off a rescue of his troubled crypto empire, the cachet Bankman-Fried built through generous political donations and time rubbing shoulders with lawmakers on Capitol Hill now counts for little. 

FTX's rapid disintegration will be deeply embarrassing for the politicians who championed Bankman-Fried as a supporter of their policy causes, said Cathy Yoon, a committee member at the industry association Global Blockchain Convergence.

''I cannot imagine his actions over the weekend would allow government officials to be able to take his word as an ambassador of the space. I can't imagine his voice will carry any weight going forward,'' Yoon said. 

Some in Washington were blunter. "Unless it's him testifying at an oversight committee, it's over," said Alex Allaire, chief executive officer of the American Blockchain Initiative.

Experts see the whole affair as focusing a negative spotlight on the industry.

“For many years now there’s been renewed calls for stronger regulation of crypto finance overall,” said Fabian Astic, global head of DeFi and digital assets at the investment research service Moody’s. “Certainly this episode will probably add to that pressure.”

Bankman-Fried, known as SBF, became a public face for crypto within just a year of emerging on the scene around 2018. Touted as a genius with a knack for spotting lucrative trading strategies in crypto's volatile and inefficient markets, he quickly won over decision-makers and pundits alike with a wide-eyed vision for digital assets, a giant mop of hair and disheveled clothing. 

It didn't hurt that Bankman-Fried also was generous with his largesse: sponsoring conferences, touting his philanthropic ambitions, and handing over tens of millions of dollars to Washington lawmakers.

Bankman-Fried was a prolific political donor during the 2022 midterm election cycle. The FTX boss gave $27 million to his Protect Our Future super PAC, which said it backed candidates who were focused on preventing the next pandemic. Protect Our Future spent its millions in Democratic primaries this year, irking progressives. Super PACs can raise and spend unlimited funds, but cannot coordinate with campaigns.

Bankman-Fried also gave thousands in political donations to members of Congress, including Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark., the authors of Bankman-Fried's priority crypto regulation bill. His giving stretched beyond individual candidates, too. Bankman-Fried gave hundreds of thousands of dollars to major political groups, including the Democratic National Committee, the National Republican Congressional Committee and state Democratic parties across the country.

Rep. Chuy Garcia, D-Ill., became the first member of Congress to renounce donations from the crypto mogul. A spokesperson told The Block that Garcia plans to give the $2,900 campaign contribution he received from Bankman-Fried to charity. Several political action committees did not respond to similar inquiries over whether they would return donations from Bankman-Fried.

“A lot of Democrats who had considered that Sam Bankman-Fried was one of the good ones who we could really talk to, have a lot of egg on their faces,” said Rohan Grey, a legal professor at Willamette University who provides advice to left-leaning House Democrats.  

Ron Hammond, government relations director for the Blockchain Association, a major industry group, tweeted, “No CEO (crypto or not) has been personally lobbying in D.C. to this extent. This access to policymakers and staff was welcomed. Between his personality and apparent success, the Hill largely liked SBF.”

Bankman-Fried’s remarkable fall from grace seems a tale fit for the crypto age where fortunes have been made and lost trading digital assets named after pet dogs and fantasy unicorns.

The allegations of mishandling client assets and billions of dollars lost now cast a pall over crypto policy negotiations currently winding their way through Congress. The development has given succor to opponents who want the bills rewritten or scrapped.

The FTX CEO strongly pushed for the Digital Commodity Consumer Protection Act, a bill that would give the Commodity Futures Trading Commission more regulatory powers over the sector. The bill had divided the crypto community amid complaints the proposed rules were too stringent and would mainly benefit incumbents such as FTX. Several industry associations opposed the bill over fears that decentralized finance projects would be negatively impacted.

“DCCPA is still not finished yet and likely will be iced out til next year. However, Congress always feels compelled to act during a crisis,” tweeted Hammond. “That doesn't mean crypto will be an afterthought til 2023. In fact, it is very likely that hearings will be held this month or next on this. Every Member will ask 'what happened and how can we prevent this from occurring again.'"

The trail of destruction left by FTX’s implosion — and the possible contagion caused by it — risks further tainting crypto's reputation among policymakers and the investing public alike. Coinbase CEO Brian Armstrong and Circle founder Jeremy Allaire were among industry figures calling on lawmakers to focus on clearer regulations rather than any effort to clamp down. But it remains unclear to what extent Congress will become crypto-skeptical.

“Clearly the credibility of the FTX people is now shot,” said Jim Angel, a finance professor at Georgetown University’s McDonough School of Business. “The nice thing about politicians is that they generally have no memory."

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