Travis Kling has spent a lot of time this year focusing on his mental, physical, and spiritual health. That has been his coping mechanism since his cryptocurrency company, Ikigai Asset Management, lost most of its assets following the collapse last year of the FTX cryptocurrency exchange, where he was a client.
Kling said he harbored no hatred toward Sam Bankman-Fried, the founder of FTX. But as Bankman-Fried’s criminal fraud trial begins Tuesday, Kling is eager to see the one-time cryptocurrency mogul, now seen as his biggest villain, held accountable for his actions.
“That will be cathartic for the crypto ecosystem,” Kling said.
Eleven months after FTX’s implosion sent an already declining cryptocurrency market into a fatalistic spiral, the Bankman-Fried trial will reopen wounds that have barely had time to heal in the cryptocurrency industry. As painful as it may be to relive the fall of FTX, the industry is united in its enthusiasm for Bankman-Fried to be held accountable.
“Sam should be convicted because he is a criminal,” said Sheila Warren, executive director of the crypto Council for Innovation, a lobbying group. “The industry supports him because a lot of people felt burned by him.”
The distancing is partly a matter of self-interest. The Bankman-Fried trial is seen as a referendum on the cryptocurrency industry, which has struggled for more than a decade to shed its associations with lawlessness and fraud.
And it may be wise to point the finger at FTX’s founder, even as some in the industry benefited from his rise. During the boom times of 2020 and 2021, Bankman-Fried made venture capital investments in crypto companies with inflated valuations. When the market crashed last year, it initially rescued its struggling peers.
When Bankman-Fried drove up the valuations of other cryptocurrency companies, “no one said, ‘This is ridiculous,’” said Kathleen Breitman, founder of cryptocurrency platform Tezos. “The industry often gets the reputation it deserves.”
A representative for Bankman-Fried declined to comment.
At the center of Bankman-Fried’s case is whether she oversaw the misuse of FTX customer deposits to fund a network of political donations, technology investments and real estate purchases. Prosecutors have charged him with seven counts of wire fraud and conspiracy on behalf of FTX clients and investors, as well as groups that lent money to his sister company, Alameda Research. Bankman-Fried, who has pleaded not guilty, could serve the equivalent of a life sentence if he is convicted.
The FTX bankruptcy in November, which incinerated $8 billion in customer deposits and damaged the reputations of famous and powerful people who were courted by Bankman-Fried, set off a domino effect of crypto failures from which the industry has not recovered. . It also incited a regulatory crackdown and angered the public about cryptocurrencies just as the asset class was going mainstream.
“The failure of the FTX fraud was a huge setback for the industry,” said David Pakman, an investor at CoinFund, a crypto investment firm. “That has polluted the market and made it difficult to raise capital.”
Venture capital investments in cryptocurrency startups have steadily declined for five consecutive quarters. In the three months ending in July, crypto companies raised $2.3 billion, down 71 percent from a year earlier, according to PitchBook, which tracks startups.
The cryptocurrency world has tried to separate itself from FTX since its collapse, echoing high-profile tech scandals of the past. When Elizabeth Holmes, founder of the failed blood-testing company Theranos, was accused of lying about her company’s technology and business performance, Silicon Valley investors dismissed her stock as unrepresentative of the startup industry. (Ms. Holmes was convicted and went to prison in May.)
Likewise, the crypto industry has been among Mr. Bankman-Fried’s fiercest critics.
Changpeng Zhao, founder of rival crypto exchange Binance, helped incite panic around FTX in November by expressing concern about its stability. Then, industry influencers on social media relentlessly applauded, investigated and memed Mr. Bankman-Fried’s well-deserved payout, with some calling it the “Bankman-Fraud Scam.” In March, a conference on cryptography. stocked their bathrooms with toilet paper that represents his face.
The crypto world’s anger was acute because Bankman-Fried had positioned himself as an industry leader, particularly when it came to regulatory and policy issues, said Ari Redbord, a former federal prosecutor who now heads policy at TRM Labs, a company cryptographic analysis. .
“The breach of trust was felt by the broader crypto community,” he said.
The extraordinary speed with which the case has come to trial (similar cases often take years to come to trial) means that emotions are still running high for many of the people involved, Redbord added.
Qiao Wang, founder of Alliance, a cryptocurrency startup accelerator program, has been frustrated by all the bad actors in the industry that have gone unpunished. That lack of consequences has made people outside the industry skeptical and insiders abandoning it out of frustration, he said.
“It hurts the industry,” Wang said. “I can’t wait to see Sam punished.”
Some experts believe a reorganization was necessary. The market had become too overheated in 2021, fueling greed, hype and bad ideas, experts said. But they lamented how Bankman-Fried’s actions destroyed trust throughout the industry.
Yury Lifshits, founder of cryptocurrency company Superdao, said the narrative connecting the FTX fraud to the rest of the industry was deserved on some level, as many cryptocurrency projects were guilty of similar shady behavior. But many legitimate companies are not related to the FTX situation at all, he said.
Ultimately, a guilty verdict for Bankman-Fried would make it easier for cryptocurrency companies and executives to put this ugly spectacle behind them.
“This can’t end soon enough,” Ms. Breitman said. “The only gift this man has given to the industry is that he has so aggressively self-immolated.”
Mr. Kling’s company, Ikigai, lost $65 million in the FTX bankruptcy. In group chats, he has tried to remind other debtors that it is unhealthy to hold on to hate. He has solved it by going to the gym.
“I’m in the best physical shape of my life,” he said.
Kling’s belief in the potential of cryptocurrency technology has not changed, as long as the industry can find a way to crack down on scammers.
“We haven’t been doing a very good job of it,” he said.
David Yaffe Bellany contributed with reports.
