The Political and Legal Risks of Crypto Investing in a Post-Bankman-Fried Era

The collapse of FTX and the subsequent conviction of Sam Bankman-Fried in 2023 marked a turning point for the cryptocurrency industry, exposing systemic vulnerabilities and triggering a wave of regulatory scrutiny. Yet, as the sector navigates the post-Bankman-Fried era, a new layer of complexity has emerged: the interplay between high-profile legal appeals, presidential pardons, and shifting regulatory priorities under the Trump administration. These dynamics are reshaping market sentiment and investor perceptions, creating both opportunities and risks for crypto participants.

Legal Appeals and Market Uncertainty

Sam Bankman-Fried's ongoing appeal of his 25-year prison sentence has become a focal point for the industry. His legal team argues that the trial was compromised by restricted access to evidence regarding FTX's solvency and procedural errors that limited their ability to defend his "good faith" claims. While the appeals court has expressed skepticism about these arguments, the mere possibility of a retrial or pardon has introduced volatility. Prediction markets like Polymarket reflect this uncertainty, with SBF's pardon odds rising to 12% following the pardon of Binance founder Changpeng Zhao but stabilizing at 4% by late 2025.

The appeal process itself has had mixed market effects. On November 4, 2025, when the appeals court hearing began, Bitcoin and Ethereum experienced muted price movements, as traders balanced optimism about potential regulatory leniency against broader macroeconomic headwinds, including inflation concerns and Federal Reserve policy uncertainty.

. However, trading volumes spiked during the hearing, underscoring the sector's sensitivity to legal developments.

Presidential Pardons and Regulatory Signals

The Trump administration's pardons of crypto figures have further complicated the landscape. In early 2025, Trump pardoned Ross Ulbricht (founder of Silk Road) and Changpeng Zhao, sending a clear signal of pro-crypto policy alignment. These actions coincided with a 9% rally in Bitcoin during January 2025, as investors interpreted the pardons as a repudiation of Biden-era enforcement rigor. Binance Coin (BNB) also surged 5% following Zhao's pardon, reflecting renewed confidence in institutional crypto adoption.

However, the market's response to these pardons has been nuanced. While short-term price gains were observed, critics warn of long-term risks. The U.S. Securities and Exchange Commission (SEC) has dropped or paused nearly 60% of crypto-related cases under Trump, including major investigations against Ripple and Binance. This regulatory retreat has raised concerns about accountability, with Democratic SEC commissioner Caroline Crenshaw cautioning that leniency could exacerbate market contagion risks. For investors, the tension between pro-crypto policies and weakened enforcement creates a paradox: reduced regulatory friction may boost adoption, but it also risks eroding trust in the sector's integrity.

Regulatory Arbitrage and Political Favoritism

The Trump administration's selective enforcement has highlighted the dangers of political favoritism. The SEC's decision to abandon cases against firms with Trump ties-while maintaining pressure on entities without such connections-has fueled accusations of regulatory arbitrage. This dynamic is particularly evident in the case of Sam Bankman-Fried, whose legal team has reportedly sought advice from Trump allies, though no formal pardon request has been confirmed. If SBF were to secure clemency, it could reinforce perceptions that financial crimes are rewarded for those with political connections, undermining the rule of law and deterring institutional investors wary of reputational risk.

Meanwhile, the administration's promotion of Trump-linked crypto ventures-such as the Official Trump memecoin and American Bitcoin-has further blurred the line between policy and self-interest. While these projects have driven short-term liquidity, they also risk politicizing the industry and inviting scrutiny from global regulators.

Implications for Investors

For crypto investors, the post-Bankman-Fried era demands a recalibration of risk assessments. The interplay of legal appeals and pardons introduces a new variable: political risk. Unlike traditional markets, where regulatory clarity is often prioritized, crypto's evolving legal landscape means that market outcomes are increasingly tied to the whims of political leaders. This volatility is compounded by the lack of standardized frameworks, as seen in the SEC's abrupt policy reversals under Trump.

Investors must also weigh the long-term implications of weakened enforcement. While reduced regulatory pressure may spur innovation and adoption, it could also lead to a surge in fraudulent activity, as seen during FTX's collapse. The challenge lies in distinguishing between projects that benefit from pro-crypto policies and those that exploit regulatory gaps.

Conclusion

The post-Bankman-Fried era is defined by a fragile equilibrium between legal accountability and political expediency. High-profile appeals and pardons have demonstrated the power of legal and political narratives to sway market sentiment, but they also expose the crypto industry's vulnerability to regulatory overreach and political favoritism. For investors, the path forward requires vigilance: monitoring not only price movements but also the broader interplay of legal, political, and regulatory forces that continue to shape this nascent asset class.