The biggest crypto court case in history is about to begin.
The landmark trial of FTX founder Sam Bankman-Fried, which starts on Tuesday, is a golden opportunity to build trust and drive mass adoption of cryptocurrency by moving to apply the same rules as other parts of the financial system and by clearing out bad actors.
SBF, as he’s known, is accused of having defrauded dozens of the world’s major investors plus millions of customers at his FTX cryptocurrency exchange, and stealing billions of dollars entrusted to his custody.
The shambles left behind by FTX’s $40bn bankruptcy in November 2022 was described by US prosecutors as “one of the biggest financial frauds in American history”.
The FT said: “The trial will feature millions of pages of evidence and will probably include testimony by Bankman-Fried’s closest friends and romantic partners. It represents the first big test for US authorities in their efforts to bring to heel… crypto trading.”
One of the key reasons why Sam Bankman-Fried’s trial holds such promise for the cryptocurrency market is the potential for regulatory convergence.
As crypto continues to gain prominence, governments and regulatory bodies worldwide are grappling with the need for consistent and comprehensive regulations. The trial can serve as a catalyst for regulators to develop a unified framework, harmonising rules governing cryptocurrencies with those applied to traditional financial systems.
Such regulatory convergence can significantly enhance trust among investors, especially institutional investors, who often cite regulatory uncertainty as a barrier to entry.
Cryptocurrency markets have often been criticised for their lack of oversight and susceptibility to manipulation.
By subjecting Sam Bankman-Fried and FTX to the same rules as traditional financial institutions, this trial sends a powerful message about the industry’s commitment to fairness and transparency. It levels the playing field, ensuring that all market participants, whether in crypto or traditional finance, adhere to the same standards of conduct.
This is critical as crypto is increasingly in the mainstream of the international financial system.
This parity instils trust among potential investors, who are more likely to engage in a market where they perceive a fair and even-handed regulatory environment.
Clearly, the cryptocurrency space has not been immune to bad actors and fraudulent schemes.
The trial presents an opportunity to identify and penalise individuals or entities engaged in illicit activities. By holding wrongdoers accountable, the industry demonstrates its commitment to weeding out bad actors and enhancing a safer environment for participants.
Investor confidence is essential for the mass adoption of cryptocurrencies. A well-conducted trial that results in appropriate consequences for wrongdoing can build investor confidence in the asset class. This newfound trust encourages investors to allocate capital to cryptocurrencies, thereby contributing to broader adoption.
A robust and legitimate crypto market is more likely to attract institutional investors who may have been on the sidelines due to concerns about security and compliance, and who always bring with them capital, expertise and reputational clout – which, in turn, boosts crypto values.
I hope that the trial can also spur the adoption of enhanced security measures within the cryptocurrency industry.
As the legal and regulatory landscape becomes clearer, exchanges and wallet providers are likely to invest more heavily in cybersecurity to protect their users and assets.
The resulting improvements in security can mitigate risks associated with hacking and fraud, making the entire crypto ecosystem a safer place for both retail and institutional investors.
As the industry evolves and matures, it’s vital to address legal and ethical concerns head-on to create a more trustworthy and inclusive ecosystem that can benefit a wider range of users and investors. SBF’s trial is a big test and must not be squandered.
Nigel Green, deVere Group CEO and founder