- John Gu, chief executive officer at AlphaLab Capital Group, told Forkast that risks in crypto should be controlled with either regulation or smart contracts, or possibly both:
- “The FTX insolvency has obviously shaken confidence in the industry as a whole. Many are calling for more regulation. Those in DeFi are distancing themselves from the centralized crypto exchanges, and pointing out that truly decentralized exchanges and lending/borrowing protocols make it impossible to mishandle custodial funds the way that 3AC (Three Arrows Capital), Alameda, and FTX did.
- “We should remember that financial crises are not unique to crypto. Traditional finance has had plenty as well. The humbling lesson here is that human nature is highly fallible and that we fall prey to speculation and greed all too easily. We should seek to control those risks, whether with regulation or smart contracts or both.”
- Shivam Thakral, chief executive officer of India-based crypto exchange BuyUcoin, offered insight via email from the market perspective:
- “The FTX collapse has wiped out over $180 billion from the crypto market as digital assets across the board are under tremendous selling pressure. The largest crypto, Bitcoin, was down by over 9% and trading at a lower support level of $16,406.42 with some initial signs of recovery. Ethereum is trading at $1,170.12 which is a drop of over 10% in the last 24 hours, historical data shows that Ethereum follows Bitcoin’s trajectory. In the altcoin space, MATIC, AVAX, and SOL witnessed a double-digit drop in their value due to the broader sell-off across crypto assets.
- “As per the latest update, Binance has backed out of the deal to acquire FTX which is driving the investors away from riskier assets. Feedback from retail/Institutional investors on withdrawals of their funds from FTX will play a crucial role for market recovery in the coming weeks.”
- U.S. Senator Elizabeth Warren on Twitter calls for more aggressive oversight:
- “The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors. We need more aggressive enforcement and I’m going to keep pushing @SECGov to enforce the law to protect consumers and financial stability.”
- Meanwhile, in a Twitter reply, Coinbase chief Brian Armstrong says the U.S. Securities and Exchange Commission need not to punish crypto companies in the country for FTX:
- “FTX.com was an offshore exchange not regulated by the SEC. The problem is that the SEC failed to create regulatory clarity here in the US, so many American investors (and 95% of trading activity) went offshore. Punishing US companies for this makes no sense.”
- Brad Garlinghouse, chief executive officer of Ripple, also agreed with Armstrong, writing on Twitter:
- “@SenWarren, Brian is right — to protect consumers, we need regulatory guidance for companies that ensures trust and transparency. There’s a reason why most crypto trading is offshore – companies have 0 guidance on how to comply here in the US … Compare that with Singapore which has a licensing framework, token taxonomy laid out, and much more. They can appropriately regulate crypto b/c they’ve done the work to define what “good” looks like, and know all tokens aren’t securities (despite what Chair Gensler insists)”
- Commissioner Kristin N. Johnson of the U.S. Commodity Futures Trading Commission (CFTC) told Bloomberg that the situation is another sign the crypto industry needs regulation:
- “The shocks of recent events continue to reverberate across crypto markets, and beyond. And the events of this week are not isolated. In fact, if we think about it carefully, from Three Arrows to Voyager to Celsius Network, we’ve seen a continuous stream of events characterized by the following: liquidity crisis, acquisition and consolidation. I believe that these elements make plain that if regulation were adopted today, we could do a better job mitigating some of these concerns in advance.”
- Henry Liu, chief executive officer (CEO) of BTSE exchange, says FTX will likely end up in bankruptcy:
- “It seems that Binance walked away from the deal after discovering the amount of money needed to shore up FTX’s capital position. There aren’t many white knight investors large enough to save FTX so bankruptcy is likely; FTX shareholders could very well be forced to take pennies on the dollar, depending on the size of the company’s liabilities.
- “FTX has many lending counterparties throughout the industry, and its potential default on obligations to them could impact other crypto platforms over the next few weeks. With this in mind, we recommend that users diversify their assets across a wider range of platforms to mitigate risk.”
- Ariel Seidman, chief executive officer and and cofounder of blockchain mapping service Hivemapper, remains optimistic about crypto’s future in an interview with Forkast:
- “The crypto industry, ultimately, will be fine. I remember — I was pretty young — but I still remember the dot-com era when all the dot-com companies basically blew up the entire global economy. The dot-com and the internet was just fine after that. Right? So a lot of companies died. A lot of people lost their jobs, unfortunately. But ultimately, you know, the internet came back. It just continued to thrive.
- “And so if you look at what’s interesting and what’s important about crypto, it’s still true. And there were obviously some mistakes made at FTX. And it’s unfortunate for all those people who lost money or who will lose money. I feel bad about that.”
- Alicia Kao, managing director of KuCoin, says the FTX situation is a loss for the crypto industry:
- “It’s going to hurt hundreds and thousands of users. They’re going to lose their money. And it’s definitely not a good thing for the entire industry. Like they’re not just a competitor, right? They are not just another exchange. I think [they played] an important role in the crypto industry. So I think we’re going to see, maybe there is some good news, and maybe there are some opportunities that we could also help them to protect the whole industry.”
- United States Senator Cynthia Lummis, in her public comment made before Binance officially retracted its acquisition announcement, says the situation calls for more transparent rules and guidelines for crypto exchanges:
- “The recent events that have transpired between FTX and Binance are the clearest example yet of why we need clear rules of the road for digital asset exchanges in the United States … Market manipulation, lending activity, and whether customer funds and assets were appropriately safeguarded are just a few of the many issues my colleagues and I need to consider in the coming days. Transparent and fair exchange regulation, which is provided for in the Lummis-Gillibrand Responsible Financial Innovation Act, is essential to ensuring customers are protected while still promoting responsible innovation.”
- Fabian Astic, managing director and global head of DeFi and Digital Assets at Moody’s Investors Service, told Forkast in an interview that the FTX situation could put the traditional finance sector at risk:
- “Now, the question that remains is the link between crypto finance and what’s happening here with the FTX developments and traditional financial markets. And I would say that so far crypto losses have been largely contained within the crypto world and there’s been very little contagion from crypto finance into traditional financial markets. And the reason is that connections between crypto finance and traditional finance are pretty limited.
- “That being said, we’ve seen more and more traditional institutions being exposed to crypto assets and there are new assets and structures bridging the two worlds. And because of those links, if risks like leverage build up in crypto finance, where those risks are hard to track because of the lack of transparency that I mentioned before, this could lead to instability in traditional finance.”
- Stephen Innes, managing partner at SPI Asset Management, says this could be the “tipping point” for crypto investors who endured a series of insolvencies earlier this year:
- “You can’t deny the growing correlation between Bitcoin and risk assets. The FTX news is having an outsized effect on asset prices. Once the second-largest crypto exchange globally, FTX has told investors that without more capital, bankruptcy is likely. Hence all ships were sinking on the crypto tumult. Bitcoin spillovers are not negligible, and given how widely crypto coins are held, it could mean more forced liquidation of other assets to cover margin calls as long position investors were massively wrong-footed.
- “Unfortunately, for crypto buyers, there is no lender of last resort. Hence the selloff could have more legs to run as industry liquidation chasers remain on the hunt selling a variety of cryptos and native FTX coins to protect their downside as the crypto contagion effect roils. Indeed, this could be a tipping point for crypto after investors were left bag-holding a series of significant industry insolvencies earlier this year.”
- The Binance statement:
- “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance wrote on Twitter.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance explained, adding that as the crypto space becomes more resilient, players that misuse user funds will naturally be “weeded out” by the free market.
The tweet comes only a day after Changpeng Zhao, Binance chief executive officer (CEO), confirmed on Twitter that Binance had reached a non-binding deal to acquire FTX facing liquidity crunch. However, Zhao did mention in his tweet that his exchange could “pull out from the deal at any time.”
On Nov. 7, Zhao announced on Twitter that Binance is liquidating all of its reserves of FTT, FTX’s exchange token, which contributed to the decline of the token price. FTT is valued around US$2.52 per token at the time of publication, while it was traded around US$25 just a week ago, according to CoinGecko data.
FTX sister company and trading arm Alameda Research’s balance sheet of US$14.6 billion in assets were reportedly filled with the FTT token which plummeted over the last few days, suggesting that Alameda and closely-tied FTX face insolvency.