Mark Cuban is not happy and makes it known.
The successful entrepreneur, like most business circles, appears to have been shocked by the internal collapse, in less than a week, of FTX, one of the biggest players in the cryptocurrency space.
The cryptocurrency exchange filed for Chapter 11 bankruptcy on November 11, after three turbulent days that saw a $32 billion company in February urgently call on its competitors for help.
But FTX’s financial situation was so dire that a potential savior didn’t even try to save it. Binance, the largest crypto exchange and a major competitor to FTX, tried, but eventually gave up.
“As a result of the companies’ due diligence, as well as the latest news reports regarding mishandled client funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of http://FTX.com,” Binance said. November 9.
“Initially, our hope was to be able to support FTX clients to provide liquidity, but the issues are beyond our control or our ability to help.”
Controversial FTX Practices
As a crypto exchange, FTX executes orders for its clients, takes their money and buys cryptocurrencies on their behalf. FTX acted as a custodian for cryptocurrency.
Then FTX used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market making. Cash borrowed from FTX was used to bail out other crypto institutions in the summer of 2022.
At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This represents a significant exposure, due to concentration risks and FTT variability.
As soon as this exposure appeared, clients, fearing the collapse of FTX, quickly liquidated their crypto positions and got their money back. On November 6, customers withdrew a record $5 billion. It was a run for the stock market. This led to the bankruptcy of FTX, as it did not have the crypto assets, now on loan or sale, to fulfill the sell orders of its customers.
The panic caused cryptocurrency prices to drop. Crypto stocks like Coinbase (Currency) – Get a free reportMicroStrategy (MSTR) – Get a free report and Robinhood (Hood) – Get a free report They are sold by investors, who fear the impact of contagion. The question now is which companies will be affected.
The search for responsibility also began, trying to understand how a company of this size could explode from the inside, without regulators being aware of the risks, especially since former CEO, Sam Bankman-Fried, was whispering in the ears of the same regulators and politicians to determine the appropriate regulation of the sector.
Where was the Supreme Education Council?
Mark Cuban, who has invested in several crypto-related companies and projects, believes the regulators have not done their job. It targets the US Securities and Exchange Commission (SEC) in particular.
For a billionaire, contrary to what people say, the cryptocurrency industry is regulated. It just so happened that the Securities and Exchange Commission failed in its role. That’s what he just said on Twitter.
The Shark Tank star said on Twitter on November 12: “Everyone says crypto is unregulated. It’s not true. SEC says they regulate cryptocurrency. Ask Kim Kardashian and the tokens they have filed against them or settled.”
He continued, “The question is, given the clarity of centralized exchanges, why didn’t the SEC actually knock on its doors?”
FTX was a centralized exchange.
The owner of the Dallas Mavericks refers to the penalties and fines imposed on cryptocurrencies or projects by the Securities and Exchange Commission. For him, if the Securities and Exchange Commission deems it appropriate to punish Kim Kardashian for promoting fraudulent currencies, this clearly means that the federal agency is regulating the sector. So part of the responsibility for the FTX disaster lies with them.
Last month, the Securities and Exchange Commission accused Kardashian of promoting cryptocurrency on social networks, which turned out to be a scam. The reality TV star agreed to pay a $1.26 million fine to settle the investigation.
The crypto industry is particularly suspicious of the regulatory agency, accusing it of willful refusal to enact clear rules. The federal agency favors regulation by enforcement, as crypto players criticize.
Contacted by TheStreet, the Securities and Exchange Commission did not respond immediately.
“I think investors need better protection in this area. But I would say this, this is a hugely incompatible area,” Gary Gensler, president of the SEC, told CNBC on November 10. It’s very clear and we have multiple paths.”
“And one of the two paths is to work with cryptocurrency exchanges, crypto-lending platforms, get them properly registered and why this is important is protecting the public. But we have another path which is enforcement. We have brought between my predecessor and the teams now in the SEC at least 100 actions in these case and we were very clear in these various enforcement actions and we scored a big win.”
The Securities and Exchange Commission, the Commodity Futures Trading Commission (CFTC), and the Department of Justice (DoJ) have opened investigations into FTX. Regulators are under pressure from lawmakers.
Senator Elizabeth Warren called for “stricter” enforcement of consumer protection laws.
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