FTX explained why banks need to acquire cryptocurrency

FTX – The three letters on everyone’s lips in recent days. For those active in the crypto space, it has come as a crushing blow as the turbulent year for cryptocurrencies is coming to an end.

The fallout has been serious, with more than a million people and businesses owing money after the cryptocurrency exchange crashed, according to bankruptcy filings. As investigations continue to unravel, it will certainly drive regulatory changes, either via lawmakers or through federal agencies.

While regulators may be relieved that the scandal did not happen under their supervision, it highlights that there has simply not been enough action taken by regulators around the world towards cryptocurrency exchanges, many of whom would welcome clear frameworks by those in the know. Authority.

Related: Misleading regulators constrained by banks by steering them away from central finance

Some have argued that the regulators are wrong to allow or even encourage the behavior of FTX and thus create many flawed cryptocurrencies. It’s fair to say that regulators are partially responsible for this tragedy, and while inaction shields them from liability, inaction on their part is equally damaging to their reputation as they are presented as irresponsible for not doing more to protect consumers.

Ripple CEO Brad Garlinghouse tweeted on November 10, “Singapore has a framework for licensing, token classification, and more. They can regulate cryptocurrency appropriately, they’ve done work to define what’s the ‘good’ look, and they know all tokens are not securities.” … To protect consumers, we need regulatory guidance for businesses that ensure trust and transparency.”

Cryptocurrencies are a unique asset class that continues to gain traction. The longer the sector remains without specific regulations, the higher the likelihood of negative events and crises. Given the newness and international nature of crypto assets, it is not surprising that regulators faced an unprecedented challenge that was difficult to deal with.

However, the lack of action by regulators is a major factor that has contributed to Sam Bankman-Fried’s ability to manipulate and misuse assets for its own benefit – without direct oversight, a financial service (including banks) would be tempted to use its clients to increase their profits while exposing them at the risk of losing all their money.

Related: Will SBF face the consequences of mismanaging FTX? Don’t count on it

Comparing the behavior of regulated and unregulated entities, a good example is the German crypto bank Nurey, which required its 500,000 users to withdraw funds from their accounts before the company was shut down and liquidated. This is in contrast to unregulated companies like FTX and other crypto exchanges, which simply froze their clients’ assets and left them unable to recover their funds.

While it would be appropriate and sensitive for any company that owns third-party assets (such as centralized exchanges and lending platforms) to be subject to the same level of scrutiny and guidance as banks do, it may be more beneficial if traditional banks take on the role of a “trusted third party” and provide services. encoder to its customers directly. As a trusted broker, their history over the centuries gives them a level of trust and security that can help consumers get on board and use crypto services much more easily.

As the crypto world continues to await much-needed regulator intervention, banks must take the lead and embrace new digital assets as a way to begin mitigating the risks and losses affecting millions of digital currency users today.

Yang LanCFA, is the Co-Founder and Chairman of the Board of Directors of Fiat24, the first Swiss bank built on the blockchain. He holds a Master’s degree in Economics from the University of Munich and an MBA from IE Business School. He is a former UBS banker with decades of banking experience.

The opinions expressed are those of the author alone and do not necessarily reflect the opinions of Cointelegraph. This article is for general information purposes and is not intended and should not be considered legal or investment advice.


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