Two of the biggest crypto billionaires went from hero to zero in 12 months
After a brutal 18 months of bankruptcy, company failures, and criminal trials, the crypto market is beginning to regain some of its former positions.
But even as prices soar, the industry's reputation will be difficult to recover, as almost all names synonymous with Bitcoin have been convicted of crimes directly related to its multibillion-dollar crypto empire.
FTX's Sam Bankman-Fried and Binance's Changpeng Zhao went from industry giants to convicted fraudsters in the space of 12 months.
Former FTX CEO Sam Bankman-Fried (left) and Binance founder and CEO Changpeng Zhao (right)
After a brutal 18 months of bankruptcy, company failures, and criminal trials, the crypto market is beginning to regain some of its former positions.
Bitcoin is up more than 150% this year. At the same time, Bitcoin miners have soared almost 10x in the last 12 months. Cryptocurrency-pegged stocks, such as Grayscale Bitcoin Trust, are up more than 300% in value so far this year. Solana Marathon Digital Currency Library Micro Strategy
But even as prices soar, the industry's reputation will be difficult to recover, as almost all names synonymous with Bitcoin have been convicted of crimes directly related to its multibillion-dollar crypto empire.
Binance's Changpeng Zhao and FTX's Sam Bankman-Fried have been promoting the power of decentralized digital currencies to the masses for years. Both are billionaires who run their own global cryptocurrency exchanges and have spent most of their careers pitching new, technology-driven world orders to the public; An alternative financial system consisting of borderless virtual coins replaces middlemen such as banks and government agencies.
Ultimately, however, both of them are crooks and fraudsters intent on using new technology to commit ancient crimes.
Even at the height of the cryptocurrency market, some of the biggest names in business and politics voiced their doubts as the token price hit an all-time high in October 2021.
Microsoft co-founder Bill Gates said earlier this year that digital currencies are a way to short Bitcoin if he could, adding that cryptocurrencies are "a pure 'big fool' type of investment." Legendary investor Warren Buffett's "hyped fraud." Because "it doesn't produce anything".
Instead of ushering in a new era of financial freedom, Changpeng Zhao and Bankman-Fried were convicted of multiple counts, including fraud and money laundering. Once two of the biggest names in cryptocurrency, the industry's greatest supporters now face jail time.
Bankman-Fried, 31, was sentenced to possible life in prison in early November, including charges related to stealing billions of dollars from FTX customers, after Bankman-Fried, 31, was sentenced to possible life in prison. Less than three weeks after Bankman-Fried's conviction, he was and resigned as Binance's CEO as part of a $4.3 billion settlement with the Department of Justice.
Their crimes vary, but in the end, the two crypto executives went from industry giants to convicted fraudsters in the space of 12 months, in part because a feud between them got them into trouble.
Renato Mariotti, a former prosecutor in the U.S. Department of Justice's Securities and Commodity Fraud Division, said: "They are all responsible for the conduct of cryptocurrencies and their links to criminal acts.
early stage
Changpeng Zhao and Bankman-Fried started out as friends and later became each other's main rivals.
Changpeng Zhao, also known as CZ, was the first to enter this field. After a stint as CTO of a centralized cryptocurrency exchange called OKCoin, he launched his own spot exchange, Binance, in 2017 and has since become the world's largest cryptocurrency trading platform.
That same year, Bankman-Fried gained a street reputation in cryptocurrency circles for his Bitcoin arbitrage trading strategy, known as pickle swaps.
While today's Bitcoin price is relatively standard among world exchanges, six years ago, price differences sometimes exceeded 50%. This arbitrage-based strategy, while relatively simple, was not the easiest thing to execute on the cryptocurrency track at the time, as it involved establishing a connection to every trading platform.
To scale its business, Bankman-Fried launched its own quantitative crypto hedge fund, Alameda Research. But according to Bankman-Fried, it was CZ himself who really made him famous.
He first met CZ in late 2018 after Bankman-Fried moved his operations to Hong Kong, when he donated $150,000 to co-sponsor the Binance conference in Singapore. One of the benefits of this donation is the position on the stage with the Binance CEO.
According to Lewis, the two are completely different in their business or personal dealings. Zhao and Bankman-Fried's relationship began to deteriorate months after they met.
In March 2019, CZ paid Bankman-Fried $40 million for the futures cryptocurrency exchange that SBF designed with his team, instead building a version of the same platform in-house. A month later, Bankman-Fried and a handful of others founded FTX.com, a first-of-its-kind futures trading exchange with a gorgeous new clearing engine and features that cater to large institutional clients. In March 2019, CZ paid Bankman-Fried $40 million for the futures cryptocurrency exchange that SBF designed with his team, instead building a version of the same platform in-house. A month later, Bankman-Fried and a handful of others founded FTX.com, a first-of-its-kind futures trading exchange with a gorgeous new clearing engine and features that cater to large institutional clients. , which funded a Series A funding round in 2019. As part of the arrangement, Binance holds a long-term position in FTX's native token, FTT, which is designed to provide benefits to customers.
FTX's success spawned a fund that gave birth to other crypto companies. Bankman-Fried's personal fortune of $2 billion in venture capital funds was around $100 million, while FTX was valued at $32 billion before it all collapsed.
As cryptocurrency prices rose in 2021, so did Bankman-Fried's reputation. Suddenly, the child prodigy was hailed by the media as the poster boy for the ubiquitous cryptocurrency.
The FTX logo adorns everything from Formula 1 cars to Miami basketball courts. Bankman-Fried held endless press conferences, boasting that he had the FTX logo adorning everything from Formula 1 cars to Miami basketball courts. Bankman-Fried held endless press conferences, boasted that his balance sheet was) and became a regular in Washington, one of the largest donors to the Democratic Party, could one day buy Goldman Sachs into the American political campaign, and became a regular in Washington, where he was one of the largest donors to the Democratic Party. Bankman-Fried used this political clout to cast a shadow over Zhao's deal with Binance.
At the same time, CZ's influence continues to grow, and Binance's market dominance continues to grow. With more than $65 billion in assets on the platform, billions of dollars in trading volume are processed annually.
Zhao said that as the two gradually became formidable rivals, FTX chose to acquire Binance in 2021 with a combination of FTT and other tokens.
But much of Bankman-Fried's empire is a mirage, and Zhao's operations are rife with questionable business tactics. What ultimately exposed the discontent of the two exchanges was the rivalry between the crypto bosses.
With cryptocurrency prices plummeting in 2022 and a spate of bankruptcies shaking confidence in the industry, Bankman-Fried boasted that he and his business were unaffected. But in fact, the destruction of the entire industry took a considerable toll on his operations.
Alameda borrowed money to invest in a failing digital asset company in the spring and summer of 2022 to keep the industry afloat, and then reportedly siphoned off FTX customers' deposits to avoid margin calls and meet immediate debt obligations.
In November 2022, Bankman-Fried and CZ unveiled the plan through an altercation on Twitter (now known as X).
Zhao said at the time that due to the revelations that came to light recently, we decided to liquidate any remaining FTT on our books.
This threat led to a panic sell-off of the FTT token. As the price of the token plummeted by more than 75%, so did confidence in the platform. FTX executives scramble to contain losses, but customers continue to withdraw billions of dollars from exchanges. Zhao abruptly joined and agreed to buy FTX in a big fire sale, exiting the deal after a day of due diligence, and the company went bankrupt.
When outsiders first saw FTX's actual accounts, the fraud became clear: Bankman-Fried and other FTX leaders took billions of dollars in customer funds.
In fact, during Bankman-Fried's criminal trial, both the prosecution and the defense agreed that $10 billion in customer funds from the FTX cryptocurrency exchange was missing, some of which was used to pay in fact, and during Bankman-Fried's criminal trial, both the prosecution and the defense agreed that $10 billion of customer funds from the FTX cryptocurrency exchange were missing, some of which were used for payments, loan recalls, venture capital.
The government is different from Zhao and Binance's beef
The exchange was charged with three criminal charges, including conducting unlicensed money transfers, violating the International Emergency Economic Powers Act, and conspiracy. Binance has agreed to confiscate $2.5 billion from the government and pay a $1.8 billion fine, which includes allowing illegal actors to conduct more than 100,000 transactions in support of activities such as terrorism and illegal narcotics.
U.S. Attorney General Merrick Garland said at a Nov. 21 news conference that the fine was "one of the biggest penalties we've ever had."
"Using new technology to break the law doesn't make you a disruptor; It makes you a criminal," Garland said.
A $4.3 billion settlement and plea arrangement with the U.S. government, including the Department of Justice, the Commodity Futures Trading Commission, and the Treasury Department, resolves a multi-year investigation into the world's largest cryptocurrency exchange. However, the SEC was conspicuously absent.
According to the U.S. Department of Justice, Zhao and others are also accused of violating the Bank Secrecy Act, failing to implement an effective anti-money laundering program, and knowingly violating U.S. economic sanctions by "deliberately and systematically attempting to profit from the U.S. market without implementing controls required by U.S. law." The U.S. Department of Justice recommended that the court fine Mr. Zhao $50 million.
CZ, meanwhile, has been secured $175 million in personal bond bail, secured by $15 million in cash, and is scheduled for a sentencing hearing on Feb. 23. Bankman-Fried will face a sentencing hearing on March 28.
FTX founder Sam Bankman-Fried, who was indicted on July 26, was in a U.S. court in New York City
Win the war?
Legal experts told CNBC that a key difference between the Zhao and Bankman-Fried cases is the success of their respective businesses.
"One key difference between CZ and SBF that should not be underestimated is that CZ operates a lucrative and solvent company," Mariotti said. He added: "Binance has a war fund that can be used to pay huge fines and provide leverage to give the DOJ and CFTC a reason to settle."
Under the settlement, Binance will continue to operate, but with new ground rules. The company will be required to maintain and strengthen its compliance program to ensure that its operations comply with U.S. anti-money laundering standards. Companies are also required to appoint an independent compliance monitor.
FTX, on the other hand, is still in bankruptcy court in Delaware as it looks to recover the cash in an attempt to make the exchange's former investors and customers whole.
Braden Perry, who was once a senior trial attorney at FTX's only official U.S. regulator, the CFTC, told the outlet: "There are several factors that may have influenced CZ's outcome and why his guilty plea may have allowed him to spend the least, if not any, of time in prison, while SBF could be sentenced to a lengthy sentence, if not life sentence, in prison."
Perry said links to foreign crimes, including money laundering and violations of international financial sanctions, were key to Binance's collapse. However, there was no criminal fraud pursued for client funds – a key difference from the Bankman-Fried case.
Zhao's possible choice: he is willing to cooperate with the authorities
Whenever the Department of Justice files a criminal case or the SEC initiates a civil enforcement action against a defendant, they consider the defendant's cooperation, said Richard Levin, a partner at Nelson Mullins Riley & Scarborough, who leads the fintech and regulatory practice.
While CZ faces a much shorter prison sentence, Mariotti noted that despite the Binance founder's vast wealth, he will still be financially hit by the U.S. government.
In the end, neither CZ nor SBF won, and the leaders of the crypto community have seen what will happen, and perhaps the fall of these crypto "giants" will be a harbinger of much smoother things to come. However, the continued lack of regulatory clarity and regulation through enforcement has not helped those seeking guidance on crypto compliance.
Even as the dust settles, some companies that are still standing are struggling to stay afloat as venture capital funds seek safer shores among generative AI-oriented startups.
The turnaround in cryptocurrency-linked stocks has already started to boost investor sentiment.
Traders are also increasingly bullish on the SEC's approval of applications for new spot Bitcoin ETFs launched by traditional finance leaders starting in the first quarter of 2024. This type of exchange-traded fund will allow investors to buy digital currencies directly through the same mechanism as buying stock and bond ETFs.
Top asset managers, including BlackRock, WisdomTree and Invesco, have all submitted applications. A Bernstein report said that, if approved, it would be "the largest ever connected conduit between traditional financial markets and crypto financial markets."