There is a palpable feeling of relief in the cryptocurrency industry. Evangelists are preaching the good news that the industry has been purged of the Sam Bankman-Frieds, the Alex Mashinskys, the Do Kwons and the Changpeng Zhaos of the world. They proclaim that crypto can finally ascend from its purgatorial, “wild west” days to become a respectable sector of the financial world blessed by regulators and speculators alike.

That exultant attitude has contributed to surging cryptocurrency prices, which surpassed previous all-time highs in the weeks leading up to Bankman-Fried’s sentencing of 25 years in prison on Thursday.

This relief is unjustified, as is the faith that the cryptocurrency industry will get better and be different. Since Bankman-Fried’s conviction, there have been no changes that would prevent a new crypto mania just as devastating as the last.

The fall of crypto’s king

Bankman-Fried, the one-time cryptocurrency mogul behind the FTX exchange and the Alameda Research trading firm, was convicted in early November on seven charges of fraud and conspiracy. His investigation and trial, along with the ongoing bankruptcy proceedings surrounding his once multibillion-dollar businesses, helped to shine a light on the shady workings of an industry that has largely evaded regulation and oversight since its inception. Although FTX’s business practices have shocked those who are used to the more heavily regulated world of traditional finance, trial testimony and bankruptcy filings – along with similar filings from other failed cryptocurrency businesses – have highlighted that what happened at FTX is business as usual in cryptocurrency.

FTX and Alameda Research were operated by the same people, even working out of the same office, despite the clear conflicts of interest that stem from sharing the roles of exchange, market maker and asset custodian. Customer funds that were meant to be safeguarded were instead pooled with corporate assets and then spent with reckless abandon on everything from Bahamian real estate to Super Bowl advertisements to investments in companies operated by personal friends. Employees blurred lines between personal and professional, with Bankman-Fried’s longtime, on-and-off girlfriend Caroline Ellison also serving as one of his top lieutenants. She later testified that their tumultuous relationship contributed to the dysfunction at the firms and to her decision to become a co-conspirator in FTX’s fraud. (She is also awaiting sentencing after pleading guilty to seven charges.) The CEO of another cryptocurrency firm that loaned money to Bankman-Fried’s companies testified that he based his entire due diligence process on unaudited financial statements. He said this was the norm for the company’s crypto counterparties “because of issues with getting audits”. It bankrupted his company.

Absentee regulators

The downfall of Sam Bankman-Fried, and many others like him throughout 2022, stemmed not from proactive regulators protecting investors by cracking down on widespread malfeasance, but rather from the enormous implosions of the cryptocurrency firms built on rickety, risky loans and illusory tokens. These collapses were devastating to those who had been convinced that putting their money into cryptocurrency was a worthwhile investment. It was more akin to gambling. More than a few people believed that the firms who held their crypto tokens were regulated much like traditional banks. When the tokens disappeared, many were shocked at the absence of protections by regulatory agencies, and some were even surprised to find they had no depository insurance like what would shield them in the event of a bank failure.

Rather than protecting investors from these predatory crypto schemes, financial regulators and enforcers only stepped in once it was time to pick up the pieces and comb through the rubble of millions of people’s shattered investments. These agencies have been playing catch-up, laggardly investigating and charging people like Bankman-Fried or his cryptocurrency rival, Changpeng Zhao, after problems at FTX and Binance ballooned to enormous size.

Crypto’s crests and crashes will continue

As surviving firms crow of the sector’s newfound legitimacy, they can’t point to any changes that would prevent this checkered history from repeating itself.

We have seen this cycle before. Early excitement around bitcoin peaked and then plummeted in 2014 with the explosive growth and catastrophic collapse of the Mt Gox cryptocurrency exchange, which lost hundreds of thousands of bitcoins due to a combination of theft and mismanagement. Ten years later, most of those who had tokens stored on the Mt Gox exchange are still waiting to see any reimbursement for assets that would be worth billions today. Another crypto bubble in 2017 ended in a crash as regulators wised up to “initial coin offerings”: a trendy, scam-filled strategy that allowed companies to avoid the disclosures and oversight that generally come along with seeking investments from the public. Regulators and law enforcement agencies were still filing enforcement actions against the 2017-era ICO scammers when cryptocurrency entered its next mania in 2020 and 2021. And now, as crypto prices inflate once more, these same agencies are on their back feet, seemingly too busy prosecuting malfeasance from previous years to focus on the present day.

Where regulators have been able to take time away from trying to catch up on past disasters, their attempts to impose more investor protections on the sector have been furiously opposed by the crypto industry, even as the industry loudly proclaims to want more regulation. Legislators, emboldened by the support of powerful and well-resourced crypto lobbying groups, have helped to stymie rule changes that could help agencies be more preventive than reactive. When it comes to new legislation, lawmakers have been deadlocked on bill after bill as industry interests pressure them to codify the current state of lax regulation with carve-outs and loopholes. The crypto industry argues this will allow for continued “innovation” – despite little innovation to date from the sector, aside from finding new and inventive ways to scam people out of their money.

There will be others like SBF

Bankman-Fried is likely to spend a significant amount of time in prison for the fraud he engineered. But with no changes to how the industry operates and no watchdogs to check the abuse and greed that have defined it over its now-15 years of existence, we are doomed to see history repeat itself. More Bankman-Frieds will emerge to take his place, drawn by the promise of easy money and the low likelihood of consequences. How many like him have escaped punishment or even scrutiny?

Crypto advocates stand to profit enormously from regular people buying the story that the industry’s problems are fixed with the jailing of a few fraudsters. When they say that all the bad actors have been weeded out, ask: what’s actually changed? What new protections have been put in place to prevent the same types of scams from emerging, fleecing a new set of victims?

Regulators and lawmakers fail to make any changes to proactively protect the public, while allowing crypto firms to advertise and recruit new customers who seem far more likely to wind up as victims of yet another collapse as they are to become the next crypto-millionaires. How many people will have to lose how much money before we stop believing the lies from an industry that has preyed on people’s trust and hopes for financial miracles, only to dash them on the ground in failure after failure?

Bankman-Fried is going to prison, but nothing has changed.