What does the Sam Bankman-Fried verdict mean for crypto markets?

Michael M. Santiago

Sam Bankman-Fried, the disgraced founder of collapsed crypto exchange FTX, has been found guilty on all seven criminal counts related to fraud and conspiracy. Prosecutors presented evidence and testimony showing that SBF had siphoned billions of customer deposits and doctored balance sheets at FTX to bankroll speculative investments, donate millions of dollars in political contributions, and cover major losses at sister hedge fund Alameda Research. While an appeal is likely, SBF now faces decades behind bars, with Judge Lewis Kaplan setting a sentencing date for March 28, 2024 (SBF also faces a second trial earlier that month).

Quote: “Sam Bankman-Fried perpetrated one of the biggest financial frauds in American history,” U.S. Attorney Damian Williams, whose office led the investigation, said at a press conference outside the courthouse. “The cryptocurrency industry might be new; the players like Sam Bankman-Fried might be new, but this kind of fraud, this kind of corruption, is as old as time, and we have no patience for it. It’s a warning to every single fraudster out there who thinks that they’re untouchable, or that their crimes are too complex for us to catch, or that they’re too powerful for us to prosecute.”

Since his arrest in December, the former billionaire has maintained his innocence, claiming that unfortunate management mistakes, not criminal activity, were tied to the downfall of FTX. Earlier this month, three of Bankman-Fried’s business affiliates told the jury that he posted, or had influenced others to post, misleading messages on social media to falsely represent the health of FTX in an effort to put an end to a deposit run. All three witnesses also agreed to cooperate with prosecutors after pleading guilty to fraud and other offenses.

What it means for crypto: The knee-jerk reaction saw benchmark cryptocurrency Bitcoin (BTC-USD) lose $1,000 in value since the SBF verdict was released to trade at the $34,000 level, but the losses were mostly contained. Interestingly enough, the collapse of FTX in November 2022 came after crypto hit its lowest point over the past three years, which was mainly due to the Fed’s rate-hiking cycle and its impact on high-risk assets. Since SBF was arrested that December, things have actually been on the upswing, with Bitcoin even climbing 105% YTD and making crypto one of the best investment classes of 2023.

Go deeper: While the SEC and other agencies have expanded their crackdowns, like suing Coinbase (COIN) this past summer, the push for more regulation and enforcement could benefit investors by defining legal parameters and legitimizing the industry. There are also increased hopes for new spot bitcoin ETFs, which have been filed by several major financial firms. including Blackrock (BLK), and could draw in institutional players while keeping traders bullish. In the words of Assistant U.S. Attorney Nicolas Roos, who said in his closing statement before the jury, the SBF trial was “not about complicated crypto,” but rather about “deception, lies, stealing and greed.”

Related tickers: Marathon Digital (MARA), MicroStrategy (MSTR), Riot Blockchain (RIOT) and Robinhood Markets (HOOD), Bitfarms (BITF), Canaan (CAN), CleanSpark (CLSK), HIVE Blockchain (HIVE), Hut 8 Mining (HUT).

Cryptocurrencies and tokens: Bitcoin (BTC-USD), Ethereum (ETH-USD), Binance Coin (BNB-USD), Monero (XMR-USD), Litecoin (LTC-USD), Solana (SOL-USD), Cardano (ADA-USD), XRP (XRP-USD), Dogecoin (DOGE-USD) and FTX Token (FTT-USD).