The collapse of cryptocurrency exchange FTX has shaken confidence in the sector, but should result in greater regulatory scrutiny and therefore increased protection for investors
Cryptocurrencies have been branded by experts, and indeed increasingly by major institutions and governments, as the future of finance.
I also believe that the financial sector’s future inevitably is digital. However, the crypto sector has been rocked to its core over the last two weeks by the collapse of FTX, hitherto the world’s third largest cryptocurrency exchange.
It began when FTX boss Sam Bankman-Fried, known as SBF, dropped the bombshell that his exchange and some 130 affiliated entities had filed for Chapter 11 bankruptcy protection.
In a bizarre turn of events his rival, Changpeng ‘CZ’ Zhao, CEO of Binance, tweeted that his firm might come to the rescue by signing a non-binding deal to buy the non-US portion of FTX, with both SBF and CZ confirming the agreement via Twitter.
However, the acquisition was not guaranteed, and just a few days later, Binance said it would not be going through with it after all.
The FTX fiasco has shaken confidence across the board. Where does this leave the crypto industry?
Expect more regulation
I expect the key, long-term outcome will be more regulatory scrutiny, especially following other, different cases from earlier this year when one US-based firm was accused of insider trading and another of promising clients ridiculous returns on unguaranteed loans.
As such, regulators are itching to get at the industry – and rightly so. I have long been calling for this as digital currencies are set to play an ever-greater role in the global financial system and, therefore, must be held to the same standards as the rest of the financial system.
The best way, to my mind, to achieve this is through exchanges. Almost all foreign exchange transactions go through banks or currency houses, and this is what needs to happen with cryptocurrencies. When flows run through regulated exchanges, it will be much easier to make sure tax is taken and also to tackle potential wrongdoing.
As I said earlier this week in regard to the now-dropped FTX-Binance deal: “Crypto does not need saviours in the form of business leaders with their own interests at stake. What crypto does need is a strong regulatory framework to be established and approved at an international level.”
Choose carefully
The FTX saga also underscores the importance of choosing the right exchange from the get-go. It highlights why you should spend some time on choosing the right one. Do not necessarily just jump on the ones with the flashiest TV ads and celebrity ambassadors.
Security, liquidity, fees, history and user experience are essential checks you should make. It might take time, but your future self will thank you for it.
Financial ‘traditionalists’ will use these events as a chance to attack crypto. These are those people who somehow still believe that cryptocurrencies, such as bitcoin and Ethereum, are ‘just a fad’. These cynics should be compared to King Canute who is said to have attempted to command the tides of the sea to go back. They would be the people who in the 2000s who would say that e-commerce giant Amazon’s business model wouldn’t catch on.
The future of money
The genie is out of the bottle and it is becoming increasingly clear that digital, borderless, global currencies are the future of money. Indeed, they have already changed the way the world handles money, does business, makes transactions and manages assets.
This can only increase as trillions of pounds in wealth will soon be passed down from the baby boomers, the wealthiest generation ever, to millennials and Gen Z. These cohorts have grown up on technology and are ‘digital natives’.
As bitcoin, the original crypto, is now into its second decade and as authorities, governments and sovereign nations globally seek to harness the enormous potential of cryptocurrencies, it is clear the market is, unquestionably, coming of age.
The FTX fiasco will be used as an inflection point to further shore-up the future-focused sector which will add further protections for investors.
Nigel Green is CEO & Founder of deVere Group
