In the aftermath of the FTX crash, the crypto market experienced significant shifts, with developments like the Ripple v.s. SEC lawsuits and BlackRock’s Bitcoin bonds injecting energy and optimism into the community. Despite the distance from that troubling period in 2022, the panel discussion on FTX, regulations, and self-regulation remains insightful.
Led by Sebastian Becciu from Sygnum Bank, the panel includes experts like Robert Le from Pitchbook, Kevin Murcko of Coinmetro, James Ryan from GammaX, and Michael Jackson from Fabric Ventures. As the crypto industry rebuilds trust and aligns with regulations worldwide, it paves the way for institutional players to enter the space.
Could the FTX Collapse Have Been Prevented With More Regulations?
The FTX collapse sparked a debate on the role of regulations in preventing such incidents. Michael attributes the FTX bubble to FOMO and the abundance of free cash during the Covid-19 pandemic.
On the other hand, Robert emphasizes the cyclical nature of financial markets and argues that the lack of regulations allowed FTX’s founder to present the exchange as legitimate while evading legal oversight.
While Michael and Kevin believe that regulations may have lessened the damage, they acknowledged that bad actors will persist in any industry, making complete prevention challenging. Michael points out that the crash might have been caused more by internal governance and management issues within the company rather than a regulatory failure. He thinks that maybe with proper regulations, the damage of the FTX crash would have been lessened, but it wouldn’t have been stopped.
“Regulations move slower than innovation, everybody knows that saying, right? At the same time, if you’ve ever run a business, you’ll know that criminals outpace whatever you do to stop them. At the end of the day, you can try, you can lessen, but you’re not going to stop it.”
– Kevin Murcko, Founder & CEO of Coinmetro
What Are the Impact of Regulations?
James thinks that it’s inevitable that companies are going off-shore. If customers are demanding less friction, companies will move to countries where they can set up an exchange with less friction, which is basically going off-shore.
Robert responds to this by saying that in the U.S. a lot of the federal regulators are taking steps to cut off crypto from the banking system, and he believes this is going to push crypto companies off-shore.
Kevin agrees with them, stating that the current cycle of regulation hasn’t worked to prevent fraud and has failed to establish a better ecosystem. Apart from pushing companies off-shore, there might also be potential regulatory risks that come along. He states that regulations often leave the biggest companies in the world to do whatever they want while smaller entities have to follow rules, making them less competitive.
Michael complements this conversation by looking at the finance and VC perspective. He thinks nowadays VCs won’t permit their money to be invested in companies that are in shady jurisdictions, but only in reputable companies that don’t focus merely on arbitrage. He believes that this, rather than regulations, will be what brings companies on-shore.
More EBC insights on crypto regulations:
- Regulations Unmasked: Decoding Banks and Laws in the Crypto Realm
- The Future of Crypto Market-making: What’s the Role of Regulations and AI?
- The Potential of Stablecoins and the Impact of MiCA Regulation
- Navigating Uncertainty: MiCA and the Challenges of Regulating Crypto
What Are Your Take on Self-regulation?
Robert foresees a combination of regulations and self-regulatory organizations (SROs) in the industry while Michael also thinks that the regulations will be framework regulations.
On the other hand, Kevin emphasizes the importance of self-regulation. He thinks a self-regulating system is like having a person in your neighborhood that is always complaining about everything, but after the complaint, the annoying things just stop happening, benefiting the whole community.
Similarly, he points out that it was Twitter that first disclosed the scandal of FTX. Kevin thinks that what differentiates SROs from regulators is that SROs are formed by insiders, which can also be corrupt, for sure, but they can be more powerful as well.
How Do We Get Rid of Bad Actors in the Industry?
Michael states that enforcement needs to be stronger against scammers in crypto, who often hide their identity. Self-sovereign identity systems are being developed to link real-world identities to online activities and prevent scamming by illuminating the shadows. Meanwhile, the development of insurance policies in DeFi may also improve the problem.
Kevin argues that bad actors exist in all industries, there will always be people that outsmart the system, and it’s impossible for us to ever get rid of them. In crypto, scammers exist, but they represent a small percentage of transaction volume. The problem is the media focuses on sensational numbers without comparing them to other industries. The solution is to establish norms and standards as the industry grows.