Crypto industry grapples with FTX fallout as trial looms

guardian.ng:

The collapse of cryptocurrency platform FTX, whose disgraced former boss goes on trial this week, sparked shock waves worldwide, with regulators still seeking to get to grips with the sector.

Sam Bankman-Fried, once the wunderkind of crypto, will appear in a federal New York court on Tuesday facing seven counts of fraud that could see him spend decades in prison, capping a spectacular fall from grace.

FTX, once the world’s second-biggest crypto exchange, collapsed last November amid accusations that client money was being funnelled to prop up its investment arm Alameda.

Investors pulled their money as the rumours snowballed, sinking FTX into bankruptcy and making Bankman-Fried a financial pariah.

The crisis also prompted a mass exodus of capital from the highly speculative industry and a string of other business failures.

FTX stoked concern over a sector dubbed by critics the “Wild West”, with its promises of high returns in a volatile marketplace and a lack of oversight — two aspects that can appeal to criminals seeking to launder money.

– Collapsing ‘like dominos’ –
Crypto firms with large exposure to FTX fell by the wayside, including the trading firm Genesis and the BlockFi platform, as well as a host of lenders.

“I’m seeing the crypto collapses from last year like dominos” following FTX, said Erica Stanford, a fintech specialist at law firm CMS.

Several other cryptocurrency projects unrelated to FTX also bit the dust.

“Many were clear Ponzi schemes,” Stanford told AFP, referring to pyramid investment scams designed to con consumers with the lure of a quick buck.

Stanford, author of best-selling book “Crypto Wars”, said the FTX bankruptcy had also affected a lot of “people from the industry”.

Bankman-Fried had carefully styled