The FTX bankruptcy could lead to stricter regulation of cryptocurrencies. But how?
The head of the Commodity Futures Trading Commission (CFTC), Rostin Banham, sees cryptocurrencies as a threat to US national security, he said at a regular meeting of the regulator. Prior to that, Chairman Banham received a lot of criticism during a US congressional hearing on the collapse of cryptocurrency exchange FTX and the problems of its founder Sam Bankman-Fried. Still, many prominent figures within the crypto industry have previously stated that Sam was “on short notice” with politicians and regulators, so destroying his reputation would reflect badly on the entire digital asset industry. We tell you more about what’s going on.
Note that the impact of FTX’s demise on the cryptocurrency industry has already been commented on by the blockchain community. In particular, Tezos co-founder Kathleen Brightman had said the previous day that regulators perceived Sam as a serious person to engage with. In practice, however, it turned out that this was not the case and Bankman-Fried himself was hardly trustworthy.
FTX promo in Formula 1
What will happen to the cryptocurrency market
Until November, FTX was the industry’s second most popular exchange in terms of popularity and trading volume. Bankman-Fried had a reputation for being a philanthropist and active sponsor of various political campaigns within the US. However, after an official bankruptcy filing of his companies, it was revealed that one of the main reasons for the disaster was terrible accounting and the frequent use of client money for illegal purposes.
In particular, users' money was previously used to help the trading company Alameda Research, which was also founded by Sam. Naturally, their funds could not be used for such purposes without the users' permission.
In a conversation with members of the US Senate, Banham pointed out that even a complete ban on FTX operations in the United States could not solve the problem, officially only 2 percent of the exchange’s customers were from the US. FTX was based in the Bahamas and the platform’s services were officially closed to US customers. Here’s a pertinent rejoinder to that, cited by Decrypt.
A complete ban shouldn’t happen. Customers will still find a way to interact with offshore entities and their activities, even if they are banned in the United States. We need to do something about it.
CFTC Chairman Rostin Banham
According to Banam, the CFTC needs to be given more authority. The regulator should be able to make its own regulations and monitor the trading of digital assets. If necessary, the authority should have the power to restrict the activities of organisations that trade with exchange-based clients, according to his spokesman.
The latter is a reference to the activities of trading company Alameda Research, which was also founded by Bancman-Fried. It actively used FTX customer funds, engaged in insider trading, and a significant portion of its reserves consisted of native tokens from the exchange called FTT.
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Bankman-Fried himself continues to not act in the best way for his exchange’s bankruptcy lawsuit: this week he was a virtual guest at the DealBook Summit conference, although he also admitted that his lawyers had strongly advised against giving an interview. According to Cointelegraph sources, Sam’s behaviour has angered Galaxy Digital CEO Mike Novogratz.
Novogratz, speaking to reporters, called Sam a “lunatic”. Here’s his retort.
I’m surprised lawyers are even allowing him to appear in public at all. After watching two of his interviews, only the word “lunatic” comes to mind.
Galaxy Digital CEO Mike Novogratz
The former FTX CEO’s appearance also sparked a wave of outrage in the cryptocurrency community. As a result, Novogratz made a general point that many crypto investors are sure to agree with.
The fact is that Sam and his entourage committed fraud. He stole money from people, he should be jailed for that.
Incidentally, the Galaxy Digital fund is also listed among the victims of the FTX bankruptcy, as it invested $76.8 million in the exchange. That said, fund head Mike Novogratz isn’t the only one publicly harshly criticising Bachmann-Fried. Here’s what Kraken exchange co-founder Jesse Powell tweeted about him.
Sam Bankman-Fried is talking utter nonsense about how margin trading works. He says that the whole exchange operates on a net account funds model, and anyone can borrow anything (in any amount?) from client funds or from nowhere. It doesn’t work that way.
Jesse Powell’s tweet
We think the cryptocurrency industry hardly deserves different treatment from regulators and other categories of market participants because of the FTX collapse. Still, the problem here was the actions of Sam Bankman-Fried, the head of the trading platform, who handled other people's money. In fact, the blockchain-based decentralised finance industry would not have allowed this to happen, which means that the various agencies clearly need to look into what is going on.
What do you think about this? Share your opinion in our Millionaire Crypto Chat. We talk about other important topics there as well.
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