Cuffing season

SBF has been arrested

Welcome back. There are only 18 days left in 2022. Time to take a step back to review the rollercoaster ride that this year has been…and what better way to do that than by ranking the people who defined crypto this year? We want to hear from you—who was crypto’s most influential person in 2022? Hit that reply button and sound off.

On the agenda today: SBF faces the music, FTX’s collapse infects the NFT space, and the SEC dials up the pressure on crypto-exposed public companies.

—Vincent & Angelina

The US Arrests SBF

US regulators are coming after Sam Bankman-Fried. The fallen FTX CEO was arrested on Monday in the Bahamas after the US Justice Department and several other regulatory agencies filed criminal charges against him.

Here’s what we know so far:

Prosecutors in the Southern District of New York filed criminal charges against SBF, but they haven’t yet specified what those charges are.

  • The New York Times reported that the charges include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.

  • SBF was the only former FTX employee charged in this indictment.

The SEC is charging SBF with defrauding investors and customers.

  • The SEC allegations are expected to reveal how far the regulator will go in terms of enforcing securities laws on exchanges.

  • In the filing, the SEC says that SBF violated both the Securities Act of 1933 and the Securities Exchange Act of 1934.

The CFTC filed charges against SBF in “parallel action” with the SEC.

So what happens next? SBF will appear before a Nassau court sometime today, but it’s unclear when he’ll be extradited to the US.

Zoom out: White collar criminal cases often take months to build (a reality SBF’s lawyers had expected to apply to his case, too), but SBF was arrested quickly once the FTX story broke and charges were filed—suggesting regulators have put considerable time and effort into pursuing rapid justice.

And FWIW: We don’t know for sure, but all of the talking that SBF did after his exchange went bankrupt might have helped speed along prosecutors’ case.

Bottom line: It’s no exaggeration to say that this is the most significant arrest in crypto history. What happens to SBF is going to be a stark warning for crypto executives around the world—the fact that US regulators could build a case and file charges so swiftly despite FTX being an international entity means all execs, no matter where they live, are fair game.

—Vincent

Yes, NFTs Can Break

In life, few moments are truly terrifying—but along with meeting your significant other’s parents for the first time, getting a blank image instead of your NFT definitely makes the list. Which is exactly what folks who minted NFTs on FTX are experiencing right now.

Although the NFTs still exist on the blockchain, their owners haven't been able to see the corresponding images when viewing their NFTs in wallets or on exchanges ever since FTX filed for bankruptcy.

Here’s why:

  • Most NFTs don’t contain image files themselves, but links to them (*gasp*). Why? Blockchains are often limited in size. The more data an NFT stores on-chain, the more it usually costs.

  • The metadata of FTX-minted NFTs—including links to .jpeg files—was stored on centralized web2 servers (think Amazon Web Services or Google Cloud).

  • Since FTX collapsed, its web2 servers shut down too…which deleted the links to NFT image files. Which resulted in blank NFTs.

Lesson learned: The issue serves as a reminder of how important it is to keep NFT data on-chain (not on centralized third-party servers). And this phenomenon is not just an FTX problem—web3 firms generally tend to outsource their hosting to web2 services from Amazon or Google. What was that about decentralization?

—Angelina

The SEC Wants More Disclosure

The SEC is asking that public companies across all industries report any kind of impact they might be experiencing after the latest crypto crash.

This is going to affect several companies that put Bitcoin on their balance sheets in recent years or developed products related to purchasing or trading crypto. Here are a notable few:

  • Business intelligence firm MicroStrategy, which has leaned into buying Bitcoin

  • Silvergate Bank, which is now dealing with Congressional scrutiny over its FTX involvement

  • Microsoft, which has had a pretty active venture arm in the web3 space

  • Visa, which has been raking in fees from crypto linked payments

  • Tesla, which has been selling the Bitcoin on its balancing sheet at a loss

—Vincent

In other news:

And that’s what you need on your radar today in crypto. Don’t forget to reply with your thoughts on this year’s most important person in crypto. Catch you on Friday!