The crypto community in Austin was buzzing.
Hundreds of investors, legislators, professionals and enthusiasts packed the halls of the AT&T Hotel and Conference Center at the University of Texas on Nov. 17-18 for the Texas Blockchain Summit. For two days, there were discussions on everything from bitcoin mining to cryptocurrency regulations to blockchain innovations. But one thing was on everyone’s minds: the spectacular collapse earlier this month of major crypto exchange FTX and its billionaire CEO Sam Bankman-Fried, who was once 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 trade association Texas Blockchain Council, took the stage to open the summit on Nov. 17, he was quick to acknowledge the elephant in 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 said. “It’s time to roll up our sleeves and get to work.”
Other community members who spoke to The Texas Tribune echoed the sentiment. For them, FTX’s implosion has been a huge setback for the industry, especially one that just experienced a market meltdown following the fall of another high-profile crypto venture in May. But while these events have burned and likely turned away many retail investors, the members say they will continue investing in the space because of their belief in the technology and philosophy behind crypto and blockchain.
And Texas politicians attending the conference also remain bullish on an industry that the state has strongly courted.
On Nov. 6, rival exchange Binance CEO Changpeng Zhao tweeted that his company would liquidate its holdings of FTX’s native token, which is a cryptocurrency that is integral to the exchange’s operations. The news prompted many others to cash out their investments, which FTX could not handle. There was a glimmer of hope when Zhao announced a nonbinding agreement to buy the company on Nov. 8, but he walked away from that deal a day later after going over his competitor’s financial records.
By Nov. 11, FTX had filed for bankruptcy. That same day, Bankman-Fried resigned as CEO and was replaced by John J. Ray III, who has led several companies through major bankruptcy processes including Enron after the Houston-based energy giant’s accounting and corporate frauds were exposed two decades ago. The crash also erased Bankman-Fried’s almost $16 billion fortune, according to Bloomberg News.
In the aftermath, consumers and investors have lost billions of dollars.
“Frankly, this sucks,” Sam Padilla said at a pre-summit gala on Nov. 15. Padilla was a speaker at 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 other ATX DAO members remain 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 said. “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 shown similar sentiment.
In the past few years, Texas Republicans including Gov. Greg Abbott have been vocal about making the state the top destination for crypto and blockchain, including approving pro-industry legislation last year. Following FTX’s crash, Abbott skewered Bankman-Fried’s massive donation to his challenger O’Rourke and called for candidates who received his money to return the funds, but the governor did not place doubt on crypto itself. FTX donors were not supporting solely Democratic candidates, though — Republicans around the country also received millions.
Republican U.S. Sen. Ted Cruz, who is a Bitcoin investor and a leading advocate for crypto, also reaffirmed his unwavering enthusiasm for the industry during his event at the summit on Friday. “I want Texas to be an oasis for Bitcoin and crypto,” he said.
Joe Rotunda, the Texas State Securities Board’s enforcement director, said his stomach dropped when he first heard about FTX’s bankruptcy. But having been scrutinizing its operations since October, particularly over whether the exchange’s yield-bearing crypto accounts were offering 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 said. “But it’s one of those things where you see it, and it becomes so very real.”
Rotunda told the Tribune that the state securities board has since expanded its investigation to also examine the impact that the unraveling of FTX and around 130 of its subsidiaries has on other companies and investors. Within days, the blowup forced several crypto companies to suspend withdrawals and at least one, crypto lender BlockFi, to reportedly consider declaring bankruptcy. In addition, FTX’s court filing notes that there are more than 100,000 creditors based on debtors’ petitions, though there could be over one million affected creditors. And the top 50 unsecured creditors alone are owed over $3 billion.
“Holy smokes, that’s a big bankruptcy. There’s going to be a lot to unpack,” he said.
In Texas’ upcoming legislative session, Bratcher said the Texas Blockchain Council will be talking with its legislative partners to see if they want to enact stronger consumer protections. Meanwhile, ATX DAO members are soldiering on with their current work by looking for state legislators to champion a bill that would legalize decentralized autonomous organizations — entities without a central authority that depend on blockchain-based contracts that self-execute when preset conditions are met.
Ultimately, Bratcher told the Tribune, it could take a few years for the industry to heal from this reputation stain. But he and others are staying optimistic about its future.
“We have work to do to regain the confidence of the consumers,” he said. “(The industry) will be slowed down, but it’s not going to be stopped by these obstacles.”
The Texas Tribune is a member-supported, nonpartisan newsroom informing and engaging Texans on state politics and policy. Learn more at texastribune.org. This story was edited for length.
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