Sam Bankman-Fried’s conviction on fraud, money-laundering, and other charges may put him in jail for 110 years. It’s a huge fall from grace for a man who just three years ago was viewed as the future of ethical entrepreneurship and tech, and who was President Joe Biden’s second-biggest 2020 donor.
SBF, and his company FTX’s related bankruptcy, has had ripple effects across the crypto market, into regulators’ offices, and into Capitol Hill hearings. Republicans and Democrats alike are hungry to use the conviction as evidence that the industry is dangerous to consumers and can’t manage itself. The recent evidence that Hamas raised $130 million in crypto to fund the October 7 attack is adding fuel to this regulatory fire.
The crypto industry’s future may now hinge on its ability to convince the public and Congress that it offers a net benefit to consumers. Here’s how crypto can use classic crisis communications for the unique challenge of turning congressional and regulatory scrutiny into positive branding and credibility.
First, transparently acknowledge the industry’s trust deficit. Bankman-Fried’s conviction comes after he propped up companies, after he affected the 2020 elections, and after he lied to investors and consumers. Congress isn’t going to have patience for “less regulation” arguments after fielding “do something” calls from constituents who see an industry that has embezzled billions in customer funds and wiped out life savings. On top of that, revelations about Hamas carry more weight than libertarian dreams of a decentralized currency utopia.
Second, share relevant and proven good news. For example, crypto’s self-regulating nature and record-keeping functionality exposed the millions Hamas raised in Bitcoin and forced the terrorist organization into a self-imposed exile from cryptocurrency. Crypto also offers millions of people in countries which lack financial infrastructure access to the same type of capital and banking services first-world economies take for granted. Finally, show how crypto’s innovative capabilities have helped banks and other mainstream institutions serve millions of consumers’ financial needs.
Third, take prompt action toward proactive solutions. This can be crypto’s emergence from a Wild West industry into one that combines innovation with stability for consumers. For this rebranding to be credible, Washington needs to see fewer twenty-somethings claiming to change the world and more adults who understand the consequences of illegal activity and market crashes. One approach that seems to be working in Britain is led by an industry association named CryptoUK. The organization that is working with politicians and regulators to pull together rules of the road, including a proposed Code of Conduct that includes consumer protections like segregating consumers’ non-crypto currency from company funds and making customers whole in the event of a crash.
The law as it stands held SBF accountable, but new self-regulating organizations, or SROs, operating under government regulators and establishing guardrails for the industry would be a forward-looking way to prevent bad actions on the front end. The Brookings Institute argues that SROs have proven track records within the financial system and would not require Congressional action for implementation.
The story of crypto is being written in Washington right now. Last month, Senator Elizabeth Warren (D-MA) led 101 other members of Congress, from both houses and both parties, in asking the Treasury Department what measures it plans to take to keep terrorists from financing their activities with crypto. And SBF’s conviction will undoubtedly result in many other elected officials and regulators salivating at the chance to nail others to the same prison wall.
Crypto needs to tell a story of success that resonates with its (many) opponents in Washington. It needs to show how regulatory capture threatens American innovation and hinders the poor’s ability to build wealth. It will also need to show contrition and a commitment to reestablishing consumer confidence in a way that mainstreams crypto as a tangible financial asset. Otherwise, it’s at risk of being over-regulated – and the opportunities it creates will go to other countries.
Dustin Siggins & Kelly Ferguson originally published this piece at TabbFORUM.