Investor faith in cryptocurrencies has been shattered by the collapse of FTX, a $32 billion cryptocurrency exchange. Market participants are attempting to determine the severity of the harm it has inflicted and how it will change the sector in the years to come.
Sam Bankman-Fried, the outgoing CEO of FTX, was detained in the Bahamas last week. He resigned from his position on November 11. The American government has accused him of money laundering, wire fraud, and securities fraud.
FTX brought buyers and sellers of digital currencies such as bitcoin, as well as derivatives, together. However, the company went above and beyond, allegedly using client funds to make risky trades through its sister company Alameda Research.
Louise Abbott, a partner at the law firm Keystone Law who specializes in crypto-asset recovery and fraud, said: It’s hugely disappointing for investors, or more so devastating for investors.
It’s clear that the FTX saga will have a significant impact on cryptocurrency in the coming years. Here are three major changes that could occur in the industry.
1.Regulation
For starters, the disaster will probably prompt regulators to take action.
Due to the fact that the cryptocurrency sector is still largely unregulated, investors don’t have the same protections as they would if they deposited their money with a registered bank or broker.
This might be about to alter. The U.S., European Union, and British governments are working to purge the market.
The most complete regulatory system to date is the EU’s Markets in Crypto-Assets. By holding exchanges accountable if they misplace investor assets, it seeks to lower the risks for consumers purchasing cryptocurrency.
However, MICA won’t begin for another 12 months. Keystone Law’s Abbott emphasized the significance of quick action from regulators.
People must be able to see that measures are being taken to control it. And she believes that if we can provide some regulation, we will increase confidence. Investors are left without the necessary protection if there is no regulation.
According to Evgeny Gaevoy, founder and CEO of cryptocurrency market maker Wintermute, the saga has delayed the adoption of crypto assets by “one or two years.”
If you look at Celsius, Three Arrows, and FTX now, all of those guys were taking the worst of both worlds because they were not fully decentralized and not properly centralized either, he said.
The biggest lesson from FTX’s bankruptcy, according to Kevin de Patoul, CEO of cryptocurrency market maker Keyrock, is that you cannot have complete centralization and lack of oversight.
He claimed that decentralization and centralization would coexist in the future world. When there is centralization, proper oversight and a fair distribution of power are required.
2. Consolidation
In the years that followed the 2018 crypto winter, a lot of fresh businesses and initiatives were launched, with FTX among them. In the years to come, fewer companies and coins are anticipated to exist.
The FTX saga’s spread is already evident.
BlockFi, a cryptocurrency lender that had previously asked FTX for financial support, has declared bankruptcy. Other trading and lending companies like Gemini and Genesis are currently the focus of attention.
When considering contagion, the problem for the entire sector is that FTX and Alameda were very active investors, in a talk at a cryptocurrency conference in London, Peter Smith, CEO of Blockchain.com, said.
The Near Foundation, the company behind the Near blockchain network, was one of the companies that accepted funding from FTX. Although there was little exposure to FTX, according to Marieke Flament, CEO of Near, the collapse was still a concern a shock and a surprise.
Flament stated, he doesn’t believe all the dominoes from the contagion have fallen out. The effect of this will be that many projects won’t actually have the funding and resources to continue and develop.
After FTX’s failure, concerns have grown regarding the financial stability of other significant crypto exchanges. Approximately 900,000 bitcoins have left exchanges since the beginning of 2020.
The largest exchange in the world, Binance, is being questioned about the reserves it keeps on hand to safeguard customer funds. In the previous week, the company experienced billions of dollars in outflows.
There is no indication that Binance is in danger of going bankrupt right now. But with declining trading volumes and account balances, exchanges like Binance and Coinbase must contend with a gloomy market environment.
Although their survival will depend on how seriously they take risk management, governance, and regulation, experts believe they will continue to play a role.
There will be exchanges that operate ethically and continue to operate, according to Abbott.
Regarding tokens, bitcoin may be in a better position than its smaller competitors because it is the oldest digital currency.
According to Gaevoy from Wintermute, his prediction is that Bitcoin and DeFi [decentralized finance] will become independent of other cryptocurrencies and begin to live a life of their own.
3. Innovation
The digital asset industry is likely to survive despite the slump in crypto markets and the toll it has taken on investors.
Proponents of “Web3,” a hypothetical blockchain-based internet, anticipate that 2022’s crypto winter will pave the way for more innovative uses of blockchain, rather than the speculative uses that crypto is currently associated with.
Companies increasingly have digital innovation arms or metaverse innovation arms, according to Flament. They are aware that technology is available. It will not disappear.
NFTs, or nonfungible tokens, could modify how users interact with different elements in games and events, for instance. These are digital assets that use the blockchain to track who owns particular virtual goods.
Ian Rogers, chief experience officer at cryptocurrency wallet company Ledger, told that digital assets will become a bigger part of our lives, whether they serve as collectibles, tickets, values, or forms of identification. Identity could be membership, [people] using their own NFTs to gain access to a specific event or something of that nature.
But many people still have a learning curve to get over. At the Slush startup conference in Helsinki, Finland, Carry1st CEO Cordel Robbin-Coker said, It’s hard creating wallets, storing keys, and going through different platforms.
Web3 today is compared with the internet in the early 1990s. It was awkward. Dial-up was available, connecting took four minutes, and the first web browsers weren’t exactly user-friendly. At that point, early adopters are the ones who are most active. However, businesses develop slicker interfaces over time. They also removed the steps from it, according to Robbin-Coker.
