FTX News: A Handful of Simple Rules Might Have Prevented FTX’s Demise

A Handful of Simple Rules Might Have Prevented FTX’s Demise

Industry and regulators watchers have praised FTX as one of the most open cryptocurrency businesses. It is one of the biggest exchanges where those digital assets were traded and Futures Exchange is the abbreviation for FTX. However, the money that is exchanged digitally is known as cryptocurrency. There are supposed to be “safeties” attached to it that keep it from being traded more than once, keep track of it, and guard against copying or hacking.

According to experts, the collapse of the FTX bitcoin exchange has raised the question of whether Sam Bankman-eventual Fried’s empire collapse, which might expose up to 1 million of its creditors to damages, could have been prevented with stronger restrictions. Following the fall of the FTX bitcoin exchange, some have questioned if more stringent rules may have prevented Sam Bankman-empire Fried’s from eventually collapsing, which might expose up to 1 million of its creditors to damages.

The solution is unclear, legal experts told Insider, but Washington has a duty to strengthen investor protection monitoring. In “what was essentially a Ponzi scheme,” according to a potential class-action complaint, Bankman-Fried and several famous FTX endorsers were persuaded to invest. Authorities have not brought any official complaints of criminal activity or filed any criminal charges in connection with the FTX failure. However, the control of cryptocurrencies today and in the future, who is in charge, and whether or not the market can be effectively regulated all raise significant concerns.

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Then Who is in Charge of Crypto Regulation in the First Place?

Even after the Biden administration instructed federal agencies to develop a cohesive approach to regulating earlier this year, oversight is fragmented and lacks a comprehensive strategy. The government finds it challenging to comprehend cryptocurrency and how it works, just like other leaders do. Depending on whether the definition is accepted, a variety of regulatory schemes with various effects can be implemented. According to Gerard Filitti, senior attorney of The Lawfare Project, a global non-profit li

The SEC considers cryptocurrencies to be securities. He claimed that the Treasury Department refers to it as a currency while the Commodity Futures Trading Commission views it as a commodity. Therefore, it will be exceedingly challenging to implement any real regulations that make sense unless the government agrees on what cryptocurrency is, according to Filitti. The team tasked with clearing up the mess at FTX claimed to have discovered software that covered up the theft of customer monies in addition to a dearth of proper security measures and record-keeping. John Ray III, the new CEO of FTX who oversaw Enron’s bankruptcy, is in charge of the bankruptcy clean-up.

According to CFTC Commissioner Kristin Johnson’s comments to CoinDesk last week and If FTX had been a regulated entity under our regulatory umbrella, customer bonds would have been protected, there would have been liquidity reserve requirements in place [and] there would have been monitoring and surveillance that is not immediately available. The CFTC failed to effectively oversee or monitor FTX, according to Better Markets, an advocacy group that promotes safety measures for financial markets. Consequently, regulation is dispersed, yet the main issue persists: tigation fund and legal think tank with headquarters in New York City, Insider.

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Is There Any Way to Avoid This?

At The Lawfare Project, Filliti gave a somewhat sardonic response. The government has a lot of power, but the markets function on their own. The market itself may easily blow through any laws or stopgap measures that are put in place, as we have repeatedly seen over the course of millennia of experience. The head of the US litigations teams at the legal firm Withers worldwide, Christopher LaVigne, noted that financial history is full of instances of systemic blowups that occurred in spite of regulations and that authorities have put rules in place after significant concerns arise. According to him, a similar catastrophic catastrophe has occurred almost every decade in recent memory, including the Savings & Loan (crisis), Enron, subprime mortgages, and Bernie Madoff.

In my gloomy opinion, as long as there is money in a capitalist society, there will always be those who seek to profit from it. I believe that the relationship between rules and the next stage of uncontrolled greed is continually a game of catch-up. Better Markets, whose founding dates back to the global financial crisis of 2008, rejected the notion that additional legislation is needed to regulate the cryptocurrency market in the wake of FTX’s demise.

More law is not necessary. According to Dennis Kelleher, CEO of Better Markets, we need greater money and support for regulators to go after what is fundamentally a lawless business. Elected officials must place the welfare of the public ahead of the interests of campaign donors. In a press release, Kelleher said that the SEC is “stretched thin” from overseeing the capital markets. The SEC and financial regulators need more resources so they can enforce the laws and regulations that are already in place, according to the elected officials who are meant to advance the public interest.

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Will There Ever be a Single Set of Rules?

Despite what currently seems to be a split Congress, LaVigne said that he think, unfortunately, regulation is going to have to come from there, and he is reasonably optimistic they can work that out. Historically, there has been some bipartisan support for some regulation in this area. LaVigne cited the Lummis-Gillibrand Responsible Financial Innovation Act’s bipartisan cooperation. The goal of the law was to define who had authority over digital assets that the CFTC and the SEC owned.

He believes that law, rather than some sort of agency fiat, is where regulations should come from because otherwise, they will just be back where three different agencies are trying to control the same space concluded the author. SBF seemed to think that having regulatory ties to his company would benefit his brand in the eyes of the public. According to documents cited by Reuters on Friday, FTX saw its regulatory standing as a means of attracting more funds from significant investors.

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FAQ’s

Q1.What could have prevented the FTX collapse?

Ans.Had worldwide lawmakers and regulatory bodies stepped in as cryptocurrencies blossomed from obscurity to a colossal $10 trillion industry over 14 years, the catastrophe surrounding FTX might have been averted.

Q2. What was the main factor in the demise of FTX?

Ans. On November 11, 2022, FTX faced a grim reality, declaring bankruptcy following an unexpected tide of customer withdrawals that had swelled earlier that month. In a moment of stark honesty, then-CEO Sam Bankman-Fried confessed the harrowing truth: the company’s coffers were alarmingly inadequate, lacking the necessary reserves to satisfy the clamor of customer demands. The revelation not only shook the foundation of FTX but also sent ripples across the crypto industry, highlighting the fragile balance on which these platforms often operated.

Read Also: Bankrupt Crypto Exchange FTX has $7 Billion in Assets

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About Maria Morgan

Maria Morgan is a full-time cryptocurrency journalist at Coinography. She is graduate in Political Science and Journalism from London, her writing is centered around cryptocurrency news, regulation and policy-making across the glob.

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