Following the bankruptcy of the main crypto exchange FTX, Bitcoin and cryptocurrencies have received unprecedented attention.
The amount of money thought to have been lost by FTX and it’s sister company Alameda Research has reached eye-popping levels, threatening to swallow the larger crypto market, and prompting calls for tougher regulatory oversight.
Following the latest Group of 20 (G20) industrialized countries meeting in Indonesia, the leaders of the participating countries called the need for international rules to govern the rapidly expanding bitcoin and crypto space “critical,” and said potential risks to “financial stability” needed to be mitigated.
After their conference this week in Bali, Indonesia, the G20 leaders, including American president Joe Biden, released a statement on the White House website that emphasised the importance of raising public awareness of risks, improving regulatory outcomes and promoting equality of opportunity.
The Financial Stability Board (FSB), which establishes worldwide financial standards, recently suggested regulations that would hold cryptocurrency businesses and markets to the same strict regulations that apply to traditional finance.
The G20 leaders stated that they “welcome the FSB’s proposed approach for creating a thorough international framework for the regulation of crypto-asset activities based on the principle of “same activity, same risk, same regulation,” adding that they want to “ensure that the ecosystem of crypto-assets, including so-called [traditional currency-pegged] stablecoins, is closely monitored and subject to robust regulation, supervision, and oversight to mitigate potential risks to financial stability.”
According to reports, the Bahamas-based FTX exchange may have lost up to $8 billion by lending customer deposits to Alameda Research, a trading firm that is also owned by former billionaire and founder Sam Bankman-Fried (SBF).
Other cryptocurrency companies with FTX exposure have issued a barrage of warnings in response to the massive hole in the balance sheet of FTX, forcing them to scramble to disassociate themselves from the collapsed exchange.
In a statement this week, U.S. Treasury secretary Janet Yellen stated that the demise of FTX “demonstrate[s] the need for more effective monitoring of cryptocurrency markets” and that the same safeguards provided in traditional markets should be extended to crypto assets.
Instead of just a hiccup or perhaps the end of the road, Cristiano Bellavitis, a professor at Syracuse University who specializes in cryptocurrencies and blockchain technology, called this a wake-up call. Despite the industry’s enormous financial size, there is no oversight. The conventional financial system would not have experienced the same issues.
Bellavitis predicts that regulation will enable the technology to advance and that the bitcoin and cryptocurrency sector will eventually bounce back from the FTX disaster.
Although the collapse of FTX may reduce trust in the cryptocurrency sector, this sector and blockchain technologies are here to stay, “said Bellavitis. “This industry’s potential will only be strengthened by additional laws and regulations.
