When rumours emerged of financial difficulties with billionaire Sam Bankman-Fried's crypto exchange FTX, nobody could have guessed the eventual outcome. He was recently sentenced to 25 years for defrauding customers and investors. The initial investigation by the US authorities prompted rumours and counter-rumours with allegations of massive fund transfers from the now-bankrupt firm. So what happened, and what will the consequences be for the cryptocurrency market going forward?

 

Hong Kong and Singapore lead the way

 

As we have mentioned numerous times, the Hong Kong and Singapore authorities have taken a proactive approach to cryptocurrency trading. This prompted a significant shift in trading volumes from the US and the UK to the Far East. While the case of Sam Bankman-Fried has been headline news for some time, it is unlikely to significantly impact the cryptocurrency market in the long term.

 

The mysterious $8 billion transfers

 

Once the authorities were able to access company records, it became apparent that more than $8 billion had been transferred from the company to other operations owned by Sam Bankman-Fried. These funds were used to buy property, investments (one successful investment was in the trading app Robinhood) and political donations. In total, the former billionaire has been ordered to forfeit $11 billion, which will be used to compensate those who lost money when the company crashed.

 

Sentenced to 25 years in prison

 

While Sam Bankman-Fried’s legal team plans to appeal, the co-founder of the FTX crypto exchange was sentenced to 25 years in prison. Strictly speaking, he could have been sentenced to more than 100 years, but surprisingly, the federal prosecutors deemed this was not required. Instead, they requested a 40-year prison sentence, while Sam Bankman-Fried’s legal team was looking at between five and six ½ years. Amid suggestions that he could be out within 13 years, there are mixed feelings amongst those awaiting compensation.

 

A trailblazer gone wrong

 

Even though there have been suggestions that Bankman-Fried has been suffering from some form of mental illness, he did admit mistakes in his management. The judge was a little more forthright with his opinions about the evidence given by the former billionaire. It is fair to say the whole saga has impacted short-term confidence in the cryptocurrency market, but looking at it in the longer term, it has allowed regulators to flex their muscles.

 

We will see the introduction of tougher regulations, more detailed checks, and restrictions on investor trading. In the long term, this is unlikely to have a significant impact on the wider digital asset market, but regulators will probably need to up their game and introduce new regulations.

 

Summary

 

It is fair to say that Sam Bankman-Fried was seen as an innovator and basked in his billionaire status. While he suggested that there is much more to come out of this case, the fact that the authorities identified at least $8 billion of unauthorised transfers and confiscated $11 billion of personal assets says everything. This type of activity is not uncommon in areas of high level innovation, which are, in some cases, years ahead of the regulators. However, each prosecution and the introduction of new regulations is rebuilding confidence amongst investors. Many believe digital assets, headed by cryptocurrencies, will become an integral part of traditional portfolio asset allocation in the long term, but time will tell.

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