Tech investors lauded Mr. Bankman-Fried and helped fund his FTX crypto exchange. The tech industry has since done what it does best: move on.
In the four weeks that Sam Bankman-Fried, the founder of the FTX cryptocurrency exchange, was on trial on fraud charges, the tech industry:
Reacted to the war in Israel and Gaza, including protesting a tech conference organizer’s social media posts about the conflict.
Buzzed over a manifesto from a top venture capitalist outlining a list of enemies to technological progress.
Scrambled to invest money in the hottest artificial intelligence company, OpenAI, at triple its valuation earlier this year.
Hotly debated the new features on Threads, a social media site owned by Meta.
All of which is to say that, despite the involvement of many Silicon Valley insiders in FTX, people in tech were not outwardly obsessed over the ins and outs of Mr. Bankman-Fried’s trial, which ended when he was found guilty of seven counts of fraud and conspiracy on Thursday. They barely mustered a shrug.
The apathy may have had many reasons, including that FTX’s downfall has been well covered by two books, a documentary and multiple podcasts in the year since it happened. But a simpler answer could be that the tech industry has again done what it does best: move on to the next thing.
The industry hasn’t fixated on Mr. Bankman-Fried’s fate because it is no longer fixated on crypto — or web3, blockchain, DeFi, NFTs and other crypto-fied buzzwords that signified the cutting edge just two years ago. They may come back around in a few years. But for now, they are out of style and therefore irrelevant.
It is the beauty and the curse of Silicon Valley’s innovation machine — so eager to fail fast, so focused on the future and the shiny new thing — that few ever seem to learn from its mistakes.
Hype cycles repeat themselves with a new flavor of technology, and the money quickly follows. Gig economy, daily deals, wearables, meal kits, social commerce, native ads, gamification, augmented reality, metaverse, internet of things, creator economy. Maybe a winner emerges; maybe it was all a big joke. Few get hurt, except perhaps the employees — and those battle scars fade in time, too.
When the crypto industry collapsed last year, setting off a wave of lawsuits and criminal indictments that culminated in FTX’s bankruptcy in November, it should have been a humbling comeuppance for those who had promoted it. The tech industry had poured billions into the promise of a new decentralized internet that could solve society’s ills, and anyone expressing skepticism was labeled a hater. That promise turned out to be a casino that was easily exploited by criminals and hucksters, some of whom fled overseas when it all came crashing down.
Between November 2021 and November 2022, the cryptocurrency market lost roughly $2 trillion in value, or two-thirds of its total. Since then, 95 percent of nonfungible tokens, or NFTs, have become worthless, according to an analysis by the crypto gambling company DappGambl. Shares of Coinbase, the only crypto exchange to list its shares on a U.S. stock exchange, have plunged 74 percent since it went public in 2021. Investors who parked money with Gemini, Genesis and Digital Currency Group, three well-known crypto firms, lost $1 billion, according to a fraud lawsuit by the New York attorney general.
Yet few in the tech industry have admitted that crypto failed to deliver on its hype. The crash is just part of a normal “crypto winter” cycle, the thinking goes, not a symptom of a larger problem.
Some crypto companies have since tried rebranding with less stigmatized terms like “decentralization” or “on chain.” Autograph, an NFT start-up co-founded by the retired football star Tom Brady, quietly removed some of the crypto language from its marketing. Paradigm Capital, a crypto investment firm that poured $278 million into FTX, erased mentions of the word “crypto” from its website this year, describing itself as a “research-driven technology investment firm.” After criticism from crypto die-hards, the firm reinstated the language.
Marc Andreessen, whose venture firm, Andreessen Horowitz, has raised more than $7 billion to invest in the crypto industry, touted the technology’s “extraordinarily high” potential in a February interview with Reason magazine. In October, he published a manifesto longer than the U.S. Constitution that outlined his views for the future of civilization, including praise for the “upward spiral” of free markets. He named tech ethics and risk management as enemies of progress.
Yury Lifshits, the founder of the start-up Superdao, was one of the few to call the bust for what it was and return his remaining funding to investors. Superdao sold software and analytics tools to crypto projects; in September, Mr. Lifshits wrote that the company had failed because its customers had a “short life span” and he didn’t see a way to build a big business.
“Many of the promises of crypto turned out to be unachievable,” he told The New York Times, adding that he has concluded that crypto “doesn’t have the power to change the world across dozens of industries as ‘the new internet.’”
In Mr. Bankman-Fried’s trial, tech investors dodged scrutiny of any role they had played in the company’s operations. Judge Lewis A. Kaplan, who is overseeing the fraud case in the Southern District of New York, barred evidence that painted investors as “negligent, gullible or insufficiently vigilant” as irrelevant.
Matt Huang, an investor at Paradigm Capital, testified that he had never been told that FTX allowed Mr. Bankman-Fried’s separate hedge fund, Alameda Research, to take enormous risks, which would lead to FTX’s demise. Knowing about that, Mr. Huang testified, would have affected his decision to invest. Paradigm declined to comment.
When one of Mr. Bankman-Fried’s lawyers, David Lisner, tried pointing out that Mr. Huang knew FTX had little oversight, including no board of directors, Judge Kaplan stopped the line of questioning and warned Mr. Lisner against “suggesting that the investment loss was the product of gullibility and negligence by the investor.”
One lawsuit is trying to take FTX’s largest outside investors to task, accusing them of lending the company an “air of legitimacy” with their investments and promotions of the exchange. Sequoia Capital, an FTX investor, commissioned and published a glowing profile of Mr. Bankman-Fried for its website, for instance. Sequoia deleted the article after FTX collapsed.
The lawsuit is a long shot, since investors can easily respond that they, too, were victims of FTX. Plus, hyping investments is one of the venture capital industry’s most cherished pastimes. A settlement or victory in such a case would spell doom for a large portion of the conversations on LinkedIn, Substack, X, YouTube and many tech conference stages.
Sequoia’s reputation has hardly suffered. The firm has backed several of the hottest A.I. companies, including OpenAI and Hugging Face, and it continues to publish aggrandizing profiles of founders on its website. Stephanie Zhan, a partner at the firm, recently told Crunchbase News that “A.I. has brought new life to the investing ecosystem in the last year.” Sequoia did not respond to a request to comment.
In court, Mr. Bankman-Fried testified that his vision for FTX was to take the best elements of the finance world and combine them with the best of the crypto world.
“It could move the ecosystem forward,” he said. But in the end, he acknowledged, “it turned out the opposite of that.”