The Rise, Fall, and Rise of Crypto: Lessons from FTX amidst a changing regulatory landscape

In the sixteen years since Bitcoin ushered in the modern era of digital assets, crypto has evolved to become as much a political lightening rod as an alternative bank. Its fans see it as not just expeditious but gatebreaking, a way to access financial products without the interference of centralized banking systems. In the aspirational world of decentralized finance, banks don’t get to play gatekeeper. Even now, crypto is the fastest and cheapest way to send money around the globe, its proponents say.

Like Trump, the crypto market is volatile. The value of crypto assets has surged to outrageous highs, only to drop to stunning lows. It’s probably no surprise that crypto has found a fan in Trump, whose viewpoint has swung from both sides of the pendulum. In 2021, Trump took a firm anti-crypto stance, stating digital currencies were dangerous and that “we should be invested in our (U.S. fiat) currency.” Now in 2025, he professes to be a staunch believer.

Last November, when vote tabulations indicated Trump would once again occupy the Oval Office, the value of bitcoin skyrocketed to record highs, hitting more than $100,000 a month later.

“A large part of the issues and the problems that have kept crypto from either gaining adoption, going mainstream, or raising more capital [in the U.S.] is the uncertain regulatory outlook.”

– Sean Stein Smith, Founder, Institute for Blockchain and Cryptocurrency Research

Also analogous to the president-elect, the crypto industry has become synonymous with wealth and criminality. Its biggest setback may have been the 2022 collapse of the global cryptocurrency exchange FTX, which filed for bankruptcy on Nov. 16, a day after Trump formally announced his presidential candidacy. It is not just that founder Sam Bankman-Fried (SBF) misappropriated $8 billion in customer funds and defrauded investors out of $1.7 billion. It was also the companies’ ethos that soured the public’s taste. SBF masked a false sense of infallibility behind a smokescreen of quirky precociousness, an aura that set the tone at his companies.

Pro-crypto optimists might interpret the FTX crash as a growing pain for the industry. Anti-crypto advocates might perceive it as proof of the digital asset industry’s seedy subversiveness.

The truth is the crypto industry need not be politicized so much as defined. Proponents attribute its underuse to regulatory ambiguity. As it stands, crypto is defined variously by multiple agencies. The Securities and Exchange Commission (SEC) treats crypto as a security, Internal Revenue Service as a property, and the Commodity Futures Trading Commission as a commodity.

“A large part of the issues and the problems that have kept crypto from either gaining adoption, going mainstream, or raising more capital [in the U.S.] is the uncertain regulatory outlook,” said Sean Stein Smith, Lehman College associate professor and founder of the Institute for Blockchain and Cryptocurrency Research.

“The question with what will happen with the next administration is: Will they take more of the neutral stance to go back to the pre-Gary Gensler period, or will they take a stance that’s much more favorable to the development of the industry?” said Nemit Shroff, professor of accounting at the MIT Sloan School of Management.

Trump has largely answered that question for now.

A new regime

With Trump’s inauguration, the future of the U.S. crypto industry will likely be tied to the president’s political whims. At the moment, that appears bright.

In December, Trump announced plans to nominate popular crypto advocate Paul Atkins as the next chairman of the SEC. Trump made his announcement on his social media platform Truth Social, touting Atkins’s leadership in “common sense regulations” while highlighting his experience working on and studying the digital assets industry.

Atkins has served as co-chairman of the Digital Chamber’s Token Alliance, a policy voice for crypto firms, tokenized networks, apps, and issuers since 2017. Prior to founding Patomak Global Partners, he also served as SEC commissioner from 2002 to 2008.

It’s a significant reversal from the more hawkish crypto era under Atkin’s predecessor Gary Gensler (2021-2025), who characterized the industry as “rife with bad actors” as recently as a Jan. 8 interview with Bloomberg.

Looking beyond Bitcoin, which currently makes up around 80 percent of the digital asset industry, there are 10-15,000 alternative coins/projects. A fair number of them are purely pump and dump schemes, Gensler said. During his four-year tenure under President Joe Biden, the SEC brought about 100 enforcement actions against the crypto industry.

Asked whether bringing charges against high profile cases like FTX led to a change in ethical behavior in the crypto industry, Gensler replied there was still work to be done.

“It’s a field that was built up around noncompliance,” the outgoing SEC chairman said.

Decentralized, not exactly borderless

There is a catch twenty-two. If the U.S. regulatory system around crypto is too weak, fraud will continue to beset the industry. Too strict, and the industry will move out of the U.S. There should be a well-struck balance between protecting investors and fostering financial innovation stateside, crypto experts say.

According to critics, Gensler made a lot of crypto projects unviable by requiring registration with the SEC as securities, said Shroff.

“Because it is so [impossible and expensive] to run a compliant business in the U.S., the people with the least scruples end up getting a competitive advantage by cutting corners and operating businesses that are not compliant offshore and delivering products that are not safe for users.”

– Tara Mac Aulay, Founder, Lantern Ventures

Registering with the SEC requires a variety of disclosure regulations, “like providing quarterly financial statements, your balance sheet, your cash flow statement. In addition, tokens that register as securities would not be tradeable on existing crypto exchanges because none of them are currently registered as a national securities exchange. And that would just make certain crypto projects—I’d say most crypto projects—basically unfeasible,” said Shroff.

“Because it is so [impossible and expensive] to run a compliant business in the U.S., the people with the least scruples end up getting a competitive advantage by cutting corners and operating businesses that are not compliant offshore and delivering products that are not safe for users,” said Tara Mac Aulay, founder of Lantern Ventures. She cofounded Alameda Research with SBF in 2017 but dissolved the partnership and left the crypto trading firm more than a year before FTX began.

Notably, SBF chose to establish FTX’s headquarters first in Hong Kong and later the Bahamas. The exchange specialized in spot, derivatives, and leveraged markets, which the U.S. prohibited with crypto. Although FTX was primarily not a U.S. company, it filed for bankruptcy protection in the U.S. when it collapsed in 2022.

The fallout from the FTX fiasco is still being cleaned today. It provides a grounding in how not to run a cryptocurrency company—without corporate controls or transparency, and with a reliance on faulty regulatory oversight abroad.

The United Kingdom’s regulatory regime, where the compliance burden reflects the size and complexity of the crypto business, is a model for the U.S. to consider. Both Mac Aulay and Shroff advocated for a size-based strategy to regulation. Small crypto companies would not be unduly burdened by regulation, but companies like FTX–valued at more than $30 billion at its height in 2021–would be obliged to comply with basic disclosure regulation. 

Some basic disclosures would be, “if a crypto project has its own native token and issues it, what does the supply of that token look like? What fraction of the token does the issuing entity own? How often do they sell or buy back their token?” Shroff said.

FTX’s native token, FTT illustrates why such disclosures are critical. Native tokens are digital assets built into a blockchain network; significantly, they can serve as collateral. SBF’s FTX and Alameda Research collectively held ninety percent of FTT, which meant the token’s underlying value rose–and fell–in tandem with FTX’s. This financial entanglement was never disclosed. Instead, it was eventually leaked, sparking the exchange’s public crash.

Stein Smith boiled crypto regulation down to three guardrails: corporate controls, financial disclosures, and regulatory inspections.

“Any company being entrusted with customer funds, either individual or institutional, has to be subjected to the highest level of scrutiny,” he said. Even if the company is headquartered in a light-touch regulatory haven abroad, if it has U.S. operations and is attracting U.S. funds, it should undergo all U.S. GAAP audits, he went on.

And finally, “if you have a company like FTX that is run by people that don’t have experience in the industry, that are having relationships with each other, and are taking in billions of dollars in capital, that is probably cause for a supervisory visit,” said Stein Smith.

Crypto founders have long bemoaned the U.S.’s regulation by enforcement. Mac Aulay suggested development of principles-based regulation, a set of standards of conduct and principles of operating business.

“I think that in some ways, crypto regulation should be modeled out of the way we regulate tech, where because it is moving so fast and there’ll always be innovations, regulators kind of need to accept that they’re always going to be a year or two behind in their understanding of the cutting edge and therefore not able to protect consumers with very specific rules,” she said.