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The Demise of FTX

FTX's recent collapse was triggered by reports that founder Bankman-Fried used customer funds to back affiliates' risky venture investments. The founder is potentially criminally liable for this conduct.


The criminal issue turns on the use of customer monies for proprietary trading or indeed the lending of monies without the investor's consent. Such conduct is generally forbidden in the regulated securities and derivatives markets.


Source: Jeenah Moon/Bloomberg/Getty Images

The Market's Response

Resultantly, investor confidence in cryptocurrencies is ebbing as a result of the collapse of Bankman-Fried's FTX exchange. The total market capitalisation of digital assets has fallen this month below $800m.


It has shaved $183bn from the industry market and also sent other cryptocurrencies into a spin. For instance, BTC is down 5% over the last seven days and has been trading in a range of $15k-$17k. It now makes up $319bn worth of the entire cryptocurrency market capitalisation. Notably, at the peak of the market when Bitcoin reached its all-time high of $69k, its market value was worth $1 trillion. The demise of FTX has shown the natural frigidity of crypto per se and investor confidence.


More regulation?

The FTX situation has led to calls for Australia to increase crypto regulation. Indeed, Australia could become a global leader in crypto regulation after the government pledged to introduce custodial and exchange legislation. Such legislation would prevent losses akin to the FTX situation.


Legislative developments would ensure greater transparency and consumer protection within decentralised markets like crypto. Ultimately, this would serve to safeguard investors from the actions of the FTX founder or at minimum, at least allow them to be aware of such conduct.


Custody refers to where money or tokens are stored and who is responsible for keeping them secure. This remains one of the largest issues facing the growing number of crypto investors and businesses in Australia.


"If we developed custody regulations by next year, we would be forerunners around the world" - Kate Mulligan, partner at Sydney law firm King Irving

Some crypto exchanges act more like banks and markets. This is because they take customer deposits and engage in third-party activities with said funds like lending. It is the lack of transparency concomitant in this commercial transaction that demands oversight.


America has seen similar oversight calls emerge in the coming days. However, Lisa Braganca is doubtful about whether Congress will act.


An opportunity for honesty

While unrelated to the demise of FTX, the founder has used this time to deliver the truth about ESG. Some of Bankman-Fried's recent quotes are presented below:


"ESG has been perverted beyond recognition" (WSJ, 2022).


He said he feels "bad for those who get" harmed by "this dumb game we woke westerners play where we say all the right shibboleths [sic] and so everyone likes us" (WJS, 2022).


"What matters is what you do - is actually doing good or bad, not just talking about doing good or using ESG language" (WSJ, 2022).


These quotes, when considered collectively show how Blackman-Fried thinks a lot of companies are two-faced. This is because he finds that the American public in how progressive virtue-signalling is used to conceal business vices.

 

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