Sam Bankman-Fried, now in prison in the Bahamas and awaiting extradition to America, is due to stand trial next year on, at the moment, eight criminal counts, including wire fraud and conspiracy. The question is whether the whole crypto kingdom will, at least figuratively, join him in the dock and whether his fall will signal not just one man’s folly, but a whole sector’s reckoning. 

Whether Mr. Bankman-Fried is seen as the exception or the rule will go a long way toward determining if crypto is more tulip mania or future currency. If FTX’s collapse is more feature than bug, then the industry, valued in November at more than $900 billion, is built on sand, a playground  for criminality and hucksters.  

If, on the other hand, Mr. Bankman-Fried is a story of ambition gone haywire and meritocracy bent by greed, the contagion of FTX’s implosion might not prove fatal for the minnows who dabble in crypto and the whales who hoard it. Crypto’s promise could be deferred by this debacle, but it will not be canceled.

Those who point a finger at Mr. Bankman-Fried rather than the industry in which he worked are beginning to develop a theory of the disaster that underlines the failure of regulators in general, and the Securities and Exchange Committee in particular, to effectively conduct oversight. The problem is not the game, but the umpires. 

Among these regulators is Maxine Waters, who chairs of the Financial Services Committee and who has been exceptionally friendly to Mr. Bankman-Fried since the news of the implosion broke. She claimed that his “willingness to talk to the public will help the company’s customers, investors, and others.” 

That debate thrummed throughout the House Committee on Financial Services’ session on “Investigating the Collapse of FTX, Part I.” The meeting was meant to feature Mr. Bankman-Fried, but he was, to Ms. Waters’s apparent annoyance, arrested in the morning. Current FTX chief executive John Ray III testified for nearly four hours, calling FTX “a company uniquely destined to fail.”

One of the first speakers was Representative Patrick McHenry, who will serve as the committee’s chairman in the 118th Congress. He stressed that Mr. Bankman-Fried should be distinguished from the industry as a whole. He argued that “we have to separate out the bad actions of an individual from the good created by an industry and innovation.”

Mr. McHenry quoted Ecclesiastes to the effect that there is “nothing new under the sun,” and averred that fraud is as old as that Biblical phrase. He cited swindles perpetrated during the construction of the first Transcontinental Railroad, the con man George Parker, and Enron. However, he observed that Americans still ride the rails, buy real estate, and use financial services. 

Asserting that he believes in the “promise of digital assets,” Mr. McHenry trained his ire for the FTX debacle on the chairman of the SEC. The SEC has filed a civil complaint against Mr. Bankman-Fried, alleging that his web of businesses was a “house of cards on a foundation of deception” and “corrupt from the start.”

All that is too little and too late for Mr. McHenry, who warned that “Next year, I look forward to hearing from Mr. Gensler early and often.” That sentiment is shared by another Republican on the committee, Tom Emmer. In a tweet, Mr. Emmer called Mr. Gensler’s belated turn on Mr. Bankman-Fried “egregious.”

Mr. Emmer went on to elaborate that Mr. Gensler had “more meetings with Bankman-Fried than anyone in the space to discuss a crypto regulatory framework designed to benefit FTX alone.” Mr. Bankman-Fried gave at least $40 million in political donations last election cycle, suggesting a close relationship with the lawmakers setting the rules of the road. 

Mr. Bankman-Fried is a vociferous supporter of the bipartisan Digital Commodities Consumer Protection Act. The disgraced tycoon donated tens of thousands of dollars to the bill’s co-sponsors, who include Senators Gillibrand and Booker. OpenSecrets, a watchdog group, finds that it was FTX’s top lobbying priority in 2022. 

Ms. Gillibrand received more than $10,000 from Mr. Bankman-Fried and reacted to the latest news by, her office says, sending it to a charity called Ariva that works to promote financial literacy. However, the divestment of those funds in the face of a bankruptcy proceeding could raise questions regarding Ms. Gillibrand’s own judgment, not to mention her sense of irony.   

The proposed legislation, in any event, would assign the Commodity Futures Trading Commission rather than the SEC the primary responsibility of regulating cryptocurrencies, ending a long running feud between the two agencies. The Akins Gump law firm, in a memorandum, concludes that the act is “generally consistent with the preferences of the crypto industry.”

The chief executive of the cryptocurrency exchange platform Coinbase, Brian Armstrong, wrote in a CNBC op-ed that regulators, up to and including Mr. Gensler, created a “situation where FTX could take dangerous risks with no repercussions.” In another tweet, Mr. Emmer accused Mr. Gensler of “helping SBF and FTX work on legal loopholes to obtain regulatory monopoly.”

The head of policy at the Blockchain Association, Jake Chervinsky, turned up the heat on Mr. Gensler, noting that “nobody who cares deeply about this technology, this industry, this community wants to see them abused by crooks. But current SEC leadership has proven incapable. I want to know why.”

The former SEC regional director for San Francisco, Robert Fagel, takes a different position. He tells Protocol magazine that the “same people who have fought hardest to keep crypto unregulated” and “trade unregistered cryptocurrencies on a Caribbean-based exchange, are now screaming at the SEC for not protecting them. I’m not sure if that’s irony or schadenfreude.”

The anti-crypto mantle is being assumed by Representative Bradley Sherman. At Tuesday’s hearing, he confessed  his fear is that “we will view Sam Bankman-Fried as just one big snake in a crypto Garden of Eden,” said Sherman. “The fact is, crypto is a garden of snakes.”

Mr. Sherman has long believed that crypto is corrupted by original sin. In a statement released in the wake of the collapse of FTX, Mr. Sherman, who worked as an accountant before becoming a solon, called for “an aggressive approach in confronting the many threats to our society posed by cryptocurrencies.”