After a tumultuous period, cryptocurrencies are staging a big recovery.

Crypto had been rocked since the collapse of several major companies in 2022, including FTX, which had become one of its biggest and best recognized players.

Its failure deepened a so-called "crypto winter" that sent bitcoin to around $16,500, a sharp decline from its record high of around $68,000 on Nov. 8, 2021.

But something remarkable has happened since FTX CEO and founder Sam Bankman-Fried was convicted in November: bitcoin and other cryptocurrencies have staged an impressive comeback. Bitcoin, for example, has surged to above $43,000.

"There has been tumult," says Helen Gugel, a partner at the law firm Ropes & Gray. "But I think that there is also reason for optimism."

Here's a look at crypto's turbulent period — and why things appear to be looking better.

Weeding out the bad actors

It was a blockbuster trial — and it ended badly for Bankman-Fried.

He was convicted of all seven charges he was facing, marking a stunning fall from grace for someone who was once heralded as "crypto's golden boy." Bankman-Fried now faces the prospect of spending the rest of his life in prison.

Then, just weeks later, Attorney General Merrick Garland announced a major plea deal with another crypto giant as part of a continued crackdown of the sector by regulators and law enforcement.

Under the settlement, Binance agreed to pay $4.3 billion in fines, while its founder, Changpeng Zhao, widely known as CZ, relinquished his CEO title and pleaded guilty to violating anti-money-laundering laws. He also agreed to pay a $50 million fine.

Bankman-Fried's conviction and regulators' pledge to continue to crack down on an industry they see as rife with fraud could have been seen as a negative spotlight on an entire industry.

Instead, many crypto advocates saw this moment as a good thing — a moment when confidence in crypto could return now that prominent bad actors had been weeded out

Cryptocurrencies surged soon after Bankman-Fried's conviction, and the survivors of the crypto winter also benefited: Shares of Coinbase, another major cryptocurrency exchange that is under regulatory scrutiny, are up more than 400% this year.

Turning bitcoin into a mainstream investment

There's another critical reason behind crypto's comeback.

This year, several prominent financial firms, including BlackRock and Fidelity, have asked the Securities and Exchange Commission to approve a spot bitcoin ETF.

Exchange-traded funds have surged in popularity with regular investors. They are funds that track the performance of a particular index or asset.

An S&P 500 ETF, for example, simply tracks the S&P 500's gains and losses. These funds are meant to lower commissions since investors don't generally pay fees to fund managers.

A spot bitcoin ETF would track the price of the cryptocurrency and allow investors to have it in their portfolios through an investment fund, instead of having to shell out over $43,000, or the price at which bitcoin is currently trading.

After several delays, the SEC could make a decision on whether or not to authorize a spot bitcoin ETF in January. But it's far from guaranteed the regulator will approve it. The SEC has rejected previous applications, arguing the cryptocurrency market is too easily susceptible to manipulation.

But an investment firm called Grayscale Investments sued the SEC, and a court agreed that the regulator was wrong to reject its application.

That has boosted optimism the SEC will approve it this time around, which could be a game changer, helping to solidify the digital currency's legitimacy.

"It would potentially open up the door to lots and lots of people who say, 'Look, I don't buy this entire crypto story, but bitcoin sounds interesting,'" says Kevin Werbach, a professor at Wharton.

But regulators are still leery about crypto

Cryptocurrencies may be making a recovery, but regulators are by no means embracing them.

The SEC has filed suits against some of the biggest names in crypto, including Coinbase and Kraken. And notably, the SEC was not part of that major settlement with Binance. The market regulator has filed 13 charges against the crypto company and CZ, alleging they misled investors, and those suits will continue to move forward.

SEC Chair Gary Gensler has long been leery of crypto, comparing it to "the Wild West" and there is no indication he has changed his mind.

In the year ahead, Wharton's Werbach expects to see more crypto-related enforcement actions.

"It takes time to build these cases — especially the major ones against these big players who are nominally not based in the United States," he says.

Tensions between regulators and crypto companies have continued to rise because of a lack of clear rules about digital currencies. Gensler has made it clear he believes that most of them are securities, and therefore fall under his agency's purview.

Ultimately, Congress could decide how crypto should be regulated, and whether they should be treated as stocks, bonds, commodities or something completely different — as crypto advocates want.

But with an election year in 2024, there's little prospect for any meaningful regulations in the year ahead.

So, crypto may be staging a comeback — but the fight against the industry from regulators and law enforcement is looking far from over.

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