The demise of FTX, a $32 billion crypto exchange, has shaken investor confidence in cryptocurrencies. Market players are attempting to assess the extent of the damage done — and how it will reshape the industry in the coming years.
The US government has arrested and charged FTX’s former CEO, Sam Bankman-Fried, with wire fraud, securities fraud, and money laundering. The firm allegedly used client funds to make risky trades through its sister company, Alameda Research.
The exchange’s demise is “devastating for investors,” according to Louis Abbott, a partner at Keystone Law.
The FTX disaster has the potential to alter the crypto landscape in the coming years drastically. Here are three significant ways the industry could change.
The FTX disaster will almost certainly compel regulators to act. Because the cryptocurrency industry is still largely unregulated, investors do not have the same safeguards as they would if they invested with a licensed bank or broker.
On the other hand, governments in the United States, the European Union, and the United Kingdom are taking steps to clean up the market.
The EU’s Markets in Crypto-Assets (MICA) regulatory framework is currently the most comprehensive. It seeks to reduce the risks for consumers purchasing cryptocurrency by holding exchanges accountable if investors’ assets are lost.
Keystone Law’s Louis Abbott emphasizes the importance of regulators acting quickly; otherwise, investors will be left vulnerable.
The most important lesson from FTX’s bankruptcy, according to Kevin de Patoul, CEO of crypto market maker Keyrock, is that complete centralization and lack of oversight cannot exist. Centralization requires proper management and a balance of power.
In the years after the 2018 crypto winter, FTX was one of the numerous businesses to emerge. However, fewer businesses and coins are anticipated to exist in the years to come. The fallout from the FTX debacle is already being felt.
BlockFi, a cryptocurrency lender previously seeking financial assistance from FTX, has declared bankruptcy. The focus is now shifting to other trading and lending firms. Following FTX’s failure, concerns have grown about the financial health of other major cryptocurrency exchanges.
Binance, the world’s largest exchange, is under scrutiny for the reserves it holds to protect customer funds. There is currently no reason to believe Binance will go bankrupt. However, these exchanges face a bleak market outlook in the coming months, with falling trading volumes and account balances.
Experts believe they will continue to play a role, but how seriously they take risk management, governance, and regulation will determine their survival.
Despite the current state of crypto markets and the impact on investors, the digital asset industry will likely survive.
Web3 supporters believe that the 2022 crypto winter will pave the way for more innovative uses of blockchain.
For instance, NFTs, or nonfungible tokens, may change how users interact with game and event properties. Digital assets, whether collectibles, tickets, values, or memberships, will become increasingly important in our lives.
Many people still have a learning curve to get over. Cordel Robbin-Coker, CEO of mobile games firm Carry1st, likened the adoption of Web3 today to the internet in the early 90s: “It’s really the early adopters that really engage at this stage. But over time, companies build smoother interfaces. And they cut steps out of it,” he said.