The trial of Sam Bankman-Fried began this week in federal court in Manhattan . The disgraced cryptocurrency wunderkind faces seven counts of fraud and conspiracy in connection with the creation of cryptocurrency exchange FTX .
The incredibly massive nature of the SBF collapse affected not only crypto startups and venture funding in the space, but venture capital in general.
The collapse of FTX is one of the biggest startup and investor failures of all time. By comparison , Theranos raised nearly $1.3 billion in funding and surpassed the $10 billion mark before Elizabeth Holmes and Sunny Balwani 's walls came down . While this embarrassing fiasco gave us the movie, Bankman-Fried's FTX and their US stock exchange FTX US raised a combined $2.2 billion at valuations of $32 billion and $8 billion respectively before going bankrupt.
Crypto infection
After FTX filed for bankruptcy on November 11, 2022, everything changed for the cryptocurrency industry.
The cryptocurrency contagion has swept the industry , with startups like Genesis and Voyager ultimately filing for bankruptcy and announcing more layoffs (continuing: This week , crypto transaction tracking firm Chainalis laid off 150 employees).
Not surprisingly, the crisis has also affected venture capital funding in the cryptocurrency sector.
From the start of 2022 to the day FTX filed for bankruptcy, crypto startups raised $14.5 billion in 1,312 different funding deals (which, of course, included both FTX and $400 million), according to Crunchbase , which reports that they are collected every year in the United States) .
According to Crunchbase, crypto startups have raised nearly $3.7 billion in just 695 deals since November 11th . The largest deal was that of Singapore-based Amber Group , which raised $300 million in December to address FTX's collapse. Others, such as Swiss company Islamic Coin and French crypto-hardware maker Ledger , have also raised large six-figure sums.
While it is certainly fair to note that all ventures have slowed down considerably , especially between 2021 and early 2022, the cryptocurrency suffered in the second half of last year.
In the third quarter of last year, just before FTX's collapse, crypto startups raised $1.9 billion in 279 deals, Crunchbase data shows, surpassing anything since FTX's collapse, both in dollar terms and in terms of transactions.
Change of initiative
The decline in FTX may not be the only change that led to the dollar becoming a cryptocurrency.
Back in August, the Securities and Exchange Commission adopted new rules for venture capital and other private financial advisors.
The new rules included mandatory cover letters – preferential terms offered to some investors – that must be disclosed to all innovators, as well as quarterly performance reports and third-party mandates.
The new rules didn't go as far as previous proposals. The proposal included giving MPs the ability to sue an investor if due diligence was not carried out on a deal , something VCs previously did not have to worry about.
The most important thing in the FTX debacle is that the SEC and venture capitalists have traditionally been at odds. The adoption of new rules pushing for greater transparency may not be solely responsible for what happened to FTX, but it's also hard to believe it didn't play a role. At the very least, the collapse of cryptocurrency exchanges has likely made the SEC and other regulators more interested in policing the emerging venture capital sector.
It is also worth noting that the fact that precautionary provisions have not been adopted does not mean that they cannot be revisited in the future, perhaps again, which could result from ongoing litigation.
It should be noted that earlier this year it was reported that the agency wanted to investigate what due diligence had been carried out by investors in FTX.
While Bankman-Fried's future will be determined by a panel of peers, part of FTX's legacy has already been decided by venture capitalists, government regulators and others.
However, the legacy may only be partially devalued.
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Illustration: Dom Guzman
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