Is This Crypto’s Lehman Moment?

Second, is crypto’s regulatory future in jeopardy? FTX, after all, was one of only a handful of US crypto firms that had invested heavily in lobbying, and Mr. Bankman-Fried was seen as a “white knight” who stood the best chance of persuading skeptical lawmakers of crypto’s value. Now, it appears that those efforts have stalled, at best — and that regulators who want to portray crypto as an out-of-control Wild West will have one more example to point to. Katherine Wu, a crypto investor, tweeted on Tuesday that it was a “truly sickening news day- can’t even begin to assess the potential damage our industry will have to face.”

Third, will FTX’s collapse set off a broader market failure, as the collapse of Lehman Brothers did in 2008?

Already, the news has rippled out into the rest of the crypto market. Bitcoin and Ether prices both fell on Tuesday, and the price of Solana (a cryptocurrency that FTX has supported) fell roughly 20 percent. Shares in publicly traded crypto companies, such as Coinbase, were down as well. FTX’s investors, which included Sequoia Capital, Lightspeed Venture Partners and SoftBank, will most likely lose most or all of their investments. (Binance didn’t disclose what it had agreed to pay for FTX, but given the firm’s problems, it was probably next to nothing.) And given how interwoven FTX was with the rest of the crypto economy, it is likely to be a while before we know the full extent of the damage.

The hope, of course, is that in contrast to 2008, when Wall Street’s collapse cascaded into a global financial crisis that led to millions of Americans losing their jobs and homes, the fallout from FTX’s collapse will stay mostly contained in the crypto industry. But it’s still too early to tell.

And lastly, what will become of Mr. Bankman-Fried? Until this week, he was the undisputed king of crypto — and an powerful force in American politics, thanks to his big donations to Democratic candidates and causes. His fortune, which was estimated at more than $15 billion before the Binance sale, has propped up philanthropies (he is a major donor to the effective altruism movement), media organizations (he is an investor in Semafor) and companies both inside and outside crypto (he is a major shareholder in Robinhood, the stock-trading app).

Mr. Bankman-Fried’s days as a crypto mogul may be over. (On Tuesday, Bloomberg estimated that his net worth had fallen 94 percent.) But the bigger question, for crypto investors, is whether his empire was unusually wobbly, or whether it was just the first to fall.

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