Despite FTX’s fall, Texas’ crypto industry stays optimistic about its future

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The crypto neighborhood in Austin was buzzing.

Hundreds of buyers, legislators, professionals and lovers packed the halls of the AT&T Hotel and Conference Center on the University of Texas on Nov. 17-18 for the Texas Blockchain Summit. For two days, there have been discussions on every thing from bitcoin mining to cryptocurrency laws to blockchain improvements. But one factor was on everybody’s minds: the spectacular collapse earlier this month of main crypto change FTX and its billionaire CEO Sam Bankman-Fried, who was as soon as the industry’s face in Washington and a Democratic megadonor who gave $1 million to Beto O’Rourke.

So when Lee Bratcher, president of nonprofit commerce affiliation Texas Blockchain Council, took the stage to open the summit on Thursday, he was fast to acknowledge the elephant within the room.

“The obstacles we face as an industry have just expanded significantly as a result of FTX’s incompetence and potentially fraudulent activity,” he mentioned. “It’s time to roll up our sleeves and get to work.”

Other neighborhood members who spoke to The Texas Tribune echoed the sentiment. For them, FTX’s implosion has been an enormous setback for the industry, particularly one which simply skilled a market meltdown following the fall of one other high-profile crypto enterprise in May. But whereas these occasions have burned and sure turned away many retail buyers, the members say they may proceed investing within the house due to their perception within the expertise and philosophy behind crypto and blockchain. And Texas politicians attending the convention additionally stay bullish on an industry that the state has strongly courted.

On Nov. 6, rival change Binance CEO Changpeng Zhao tweeted that his firm would liquidate its holdings of FTX’s native token, which is a cryptocurrency that’s integral to the change’s operations. The news prompted many others to money out their investments, which FTX couldn’t deal with. There was a glimmer of hope when Zhao introduced a nonbinding settlement to purchase the corporate on Nov. 8, however he walked away from that deal a day later after going over his competitor’s monetary data.

By Nov. 11, FTX had filed for bankruptcy. That similar day, Bankman-Fried resigned as CEO and was changed by John J. Ray III, who has led a number of firms by main chapter processes together with Enron after the Houston-based power big’s accounting and company frauds had been uncovered twenty years in the past. The crash additionally erased Bankman-Fried’s nearly $16 billion fortune, in line with Bloomberg News.

In the aftermath, shoppers and buyers have misplaced billions of {dollars}.

“Frankly, this sucks,” Sam Padilla mentioned at a pre-summit gala on Nov. 15. Padilla was a speaker on the summit and is a member of ATX DAO, a volunteer group working to “make Austin the crypto capital of the world.”

But he and different ATX DAO members stay believers in crypto and blockchain.

“The actions of a few at FTX do not speak for and do not represent the values of what crypto is actually about,” Padilla mentioned. “There’s something really special about this technology, there’s something really special about this community. We’re really working to do something good.”

Several Texas politicians have proven related sentiment.

In the previous few years, Texas Republicans together with Gov. Greg Abbott have been vocal about making the state the top destination for crypto and blockchain, together with approving pro-industry laws final 12 months. Following FTX’s crash, Abbott skewered Bankman-Fried’s huge donation to his challenger O’Rourke and called for candidates who acquired his cash to return the funds, however the governor didn’t place doubt on crypto itself. FTX donors weren’t supporting solely Democratic candidates, although — Republicans across the nation additionally received hundreds of thousands.

Republican U.S. Sen. Ted Cruz, who’s a Bitcoin investor and a number one advocate for crypto, additionally reaffirmed his unwavering enthusiasm for the industry throughout his occasion on the summit on Friday. “I want Texas to be an oasis for Bitcoin and crypto,” he mentioned.

Later on the identical day, a bipartisan panel of state legislators — together with Sens. Angela Paxton, R-McKinney, and Royce West, D-Dallas, in addition to Reps. Giovanni Capriglione, R-Southlake, and John H. Bucy III, D-Austin — equally expressed their assist for strengthening crypto’s presence in Texas. FTX’s chapter, they mentioned, ought to be considered extra as a lesson fairly than a motive for disposing of the industry.

“Any conversation I’ve had in response to FTX, it’s been what do we do to make sure we’re not like them,” Bucy mentioned. “It’s how do we have commonsense policies to protect people without stopping progress.” Bucy is vice chair to the chief committee of the Texas House’s Innovation & Technology Caucus. Capriglione is the committee chair.

“This is the oil boom of this generation,” Bucy added.

“There’s going to be a lot to unpack”

FTX and Bankman-Fried are at the moment dealing with a class-action lawsuit in addition to quite a few state, federal and worldwide investigations, together with a bipartisan hearing by the U.S. House Financial Services Committee. Some are additionally FTX’s alleged misuse of buyer funds, together with whether or not the corporate had used them to shore up Alameda Research, a buying and selling agency additionally began by Bankman-Fried.

Joe Rotunda, the Texas State Securities Board’s enforcement director, mentioned his abdomen dropped when he first heard about FTX’s chapter. But having been scrutinizing its operations since October, notably over whether or not the change’s yield-bearing crypto accounts had been providing unregistered securities to residents, he was not caught off guard.

“We knew the bankruptcy was coming based on events during that week and interactions with different witnesses in different aspects of our investigation,” Rotunda mentioned. “But it’s one of those things where you see it, and it becomes so very real.”

Rotunda informed the Tribune that the state securities board has since expanded its investigation to additionally look at the impression that the unraveling of FTX and round 130 of its subsidiaries has on different firms and buyers. Within days, the blowup pressured a number of crypto firms to suspend withdrawals and a minimum of one, crypto lender BlockFi, to reportedly think about declaring chapter. In addition, FTX’s court filing notes that there are greater than 100,000 collectors primarily based on debtors’ petitions, although there might be over a million affected collectors. And the highest 50 unsecured collectors alone are owed over $3 billion.

“Holy smokes, that’s a big bankruptcy. There’s going to be a lot to unpack,” he mentioned.

Rotunda’s crew is now working to seek out out who these collectors are, how a lot they’re owed and whether or not there are belongings that might be used to pay them again. All the whereas, the priority round how far the ripple impact will attain looms massive within the background.

According to Bratcher, who leads an affiliation with over 100 company members within the crypto industry, Texas firms aren’t more likely to be onerous hit by the crash — but it surely might be a special story for shoppers within the state.

FTX, Bankman-Fried and his current former attorneys didn’t reply to the Tribune’s requests for remark. But the 30-year-old former crypto billionaire has been tweeting continually and at occasions cryptically since his agency’s collapse, together with apologizing on varied threads. He additionally told Vox that he regretted submitting for chapter.

In a Nov. 12 tweet, FTX’s new CEO Ray mentioned the corporate will “continue to make every effort to secure all assets, wherever located.” He additionally blasted the previous administration in a recent court filing.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” learn the Nov. 17 submitting. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

“We have work to do”

In the meantime, Bratcher has been emphasizing the necessity for crypto firms to observe a set of finest practices, together with stopping the improper mixing of buyer cash with different funds and enabling real-time proof of money and different reserves available. And much like Rotunda, he confused the significance of holding belongings in safer methods, equivalent to by a digital pockets not linked to the web, to spice up safety towards hacks.

“[FTX’s collapse] doesn’t really reflect on the promise of decentralization and Bitcoin,” he mentioned. “It’s really just a reflection of poor risk management.”

In addition, Bratcher and ATX DAO members who spoke to the Tribune shared the sentiment that the industry wants to maneuver away from having outstanding CEOs and towards nonprofit and grassroots teams because the champions of crypto and blockchain insurance policies. In his conversation with Vox, Bankman-Fried mentioned his political lobbying was “just PR.”

“We’re feeling disheartened but also reinvigorated because the key change that needs to happen is that in the past, the CEOs of big centralized exchanges have had the most capital, the most influence and the most reach — but they have conflicts of interest,” Bratcher mentioned. “It can’t be just CEOs galavanting around D.C.”

“The loudest voice in the room doesn’t always speak for everyone, and those of us who aren’t that loud are not that loud for a reason,” added Jesse Patterson, an ATX DAO member. “We’re building things.”

In Texas’ upcoming legislative session, Bratcher mentioned the Texas Blockchain Council will probably be speaking with its legislative companions to see in the event that they need to enact stronger client protections. Meanwhile, ATX DAO members are soldiering on with their present work by on the lookout for state legislators to champion a invoice that might legalize decentralized autonomous organizations — entities with out a government that depend upon blockchain-based contracts that self-execute when preset situations are met.

Ultimately, Bratcher informed the Tribune, it may take a number of years for the industry to heal from this fame stain. But he and others are staying optimistic about its future.

“We have work to do to regain the confidence of the consumers,” he mentioned. “[The industry] will be slowed down, but it’s not going to be stopped by these obstacles.”

Disclosure: Texas Blockchain Council has been a monetary supporter of The Texas Tribune, a nonprofit, nonpartisan news group that’s funded partially by donations from members, foundations and company sponsors. Financial supporters play no function within the Tribune’s journalism. Find a whole listing of them right here.