This analysis was first published in SvD Näringsliv, in Swedish, on July 10th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

He was on the cover of Forbes. Now he sits under house arrest at his parents’ home, facing over 100 years in prison. When the crypto market is in crisis, the former white knight — Sam Bankman-Fried — won’t be there to help.

Green tree-lined avenues crisscross the wealthy small town of Palo Alto, just over an hour south of San Francisco. On its outskirts you find the prestigious Stanford University, workplace of law professors Barbara Fried and her husband Joseph Bankman.

At home in their house, they have a new lodger. He sits under house arrest playing the video game Storybook Brawl while awaiting his trial.

Or SBF, as he has come to be known.

Once celebrated as a modern company-builder.

Now under investigation for fraud, embezzlement, and money laundering.

The luxury apartment in the Bahamas where he lived with his colleagues and former girlfriend has been confiscated. Bankruptcy administrators are trying to work out where all the customers’ money and assets have gone.

Getting to the bottom of it appears to be a complicated task.

John Ray III — the person appointed to oversee the effort — has made clear that the situation at FTX was worse than at the scandal-hit energy company Enron. And he should know — Ray was the one who had to untangle that mess too.

Bankman-Fried was long the public face of the entire crypto industry. Now he stands accused of, among other things, embezzlement running into the billions. A last-ditch attempt to have many of the charges dismissed failed in the middle of summer.

Bankman-Fried faces over 100 years in prison if convicted.

In many ways, the situation is symptomatic of the state of the cryptocurrency market as a whole.

Rise like a rocket, fall like a stone.

Sam Bankman-Fried was the white knight whose company FTX stepped in to buy up collapsed crypto projects like Voyager and BlockFi. They were compared to being a central bank within the world of cryptocurrencies.

But even central banks can apparently collapse.

And with FTX went the air out of a speculative market that has struggled to explain what it is actually for — beyond the speculation itself. Trading volumes for cryptocurrencies have halved in a year and are at their lowest level in three years.

Perhaps reality is starting to catch up with the crypto market?

At the start of summer, the American financial regulator the SEC sued two of the dominant cryptocurrency trading platforms — Binance and Coinbase. The SEC believes they have traded in the equivalent of securities, and that those securities have therefore not been handled correctly. The platforms deny any wrongdoing.

The SEC lawsuit puts its finger on a central question — how should a cryptocurrency actually be regarded? If it is not a form of security, then what is it?

This will now likely be worked out in court. The case could bring clarity — and with it legal precedent — to something that is, at best, unclear today, and at worst, the Wild West.

The number of crypto projects that have gone up in smoke after taking in millions from retail investors is uncountable. An updated regulatory framework could help prevent similar situations in the future.

A likely outcome, however, is that cryptocurrency is deemed to be exactly that — a security — and therefore needs to be handled in the same way as a stock or a bond. That would mean more laws and centralized oversight to ensure everything is done properly.

This would in turn likely lead to something of an identity crisis, since a large part of the appeal of cryptocurrencies is that they are meant to be decentralized — economic systems where no single individual, party, or institution can control the free flow of value being exchanged. That sounds utopian. But now the utopia has stalled, at least temporarily, in the somewhat dry and slow world of everyday regulation.

On this side of the Atlantic, in the United Kingdom, there is another interesting line being drawn. Their equivalent of the financial regulator, the FCA, has decided that crypto companies must ensure that their customers have “adequate knowledge and experience” to invest in cryptocurrencies. That too runs against the decentralized and anonymous ethos.

Not everything is pitch black, however. Many enthusiasts distinguish between bitcoin and all other cryptocurrencies. A cleanup among the less serious players could benefit bitcoin and a handful of other, more established currencies.

There is also something to suggest that bitcoin specifically has shown resilience against what has been a decidedly grim news cycle of late. Since the start of the year, the price of bitcoin has risen over 86 percent. Asset management giant BlackRock has applied to operate an ETF — an exchange-traded fund — based on the bitcoin price. Several similar products already exist, though none quite as prominent as BlackRock.

This messy and rebellious industry appears to be in the middle of a professionalizing ordeal. Many companies, cryptocurrencies, and ideas are unlikely to survive it. But for those that manage to pass through the new regulatory eye of the needle, a new and larger market may become accessible.

It may not be the decentralized vision that some had hoped for. But it could come to be what has so far been missing — a truly global digital currency that everyone can use.

Meanwhile, Sam Bankman-Fried’s house arrest continues.

And his story captivates. Bloomberg recently released the podcast series Spellcaster, which documents his rise and fall. Several books have already been written. Michael Lewis — the author who wrote The Big Short — spent months with him before the crash. His book is released in early October, just as the trial against Sam Bankman-Fried is expected to begin.