FTX-Like Situations Should Be Avoided By Regulating Cryptocurrency Markets

(CTN News) – In the wake of revelations about the FTX company’s business practices, one of the world’s largest crypto exchanges declared bankruptcy Friday after customers began withdrawing funds that were not sufficient to cover them.

In order to prevent something like this from happening again, it’s also important to understand why it happened – and what needs to change.

I sympathize with everyone involved in the current predicament, even though Coinbase has no material exposure to FTX. FTX’s problems have resulted in many people losing money, making our profession difficult every time there’s the potential for client loss.

As a result of dangerous, immoral business practices, such as conflicts of interest between closely related firms and lending assets without consent, FTX has failed. Blockchain technology will make it easier to identify and punish these types of behavior in the future as well as in traditional financial markets.

Regulators in the United States have yet to develop a practical framework for how these services can be delivered in a safe and transparent manner under crypto legislation.

Consequently, many crypto-based financial instruments, including lending, margin trading, short selling, and other tools that are entirely legal and regulated in traditional financial markets, are effectively illegal in the United States.

The fear of being sued prevents entrepreneurs from constructing new decent raised goods outside the United States. It is not in their interest to break the laws, and they have no idea what the laws are at the moment.

It has already been suggested that cryptocurrency businesses need stronger regulation, with tighter restrictions on access and innovation following this week’s events. Until now, US officials have failed to provide clear, logical crypto legislation to protect consumers.

Thus, both Americans and advanced traders have been dealing with offshore platforms that lack the authority and protection of US regulators. Currently, more than 95% of bitcoin is traded on overseas exchanges.

A small island government with limited regulatory control and capabilities to regulate financial services enterprises allowed FTX to be able to do so. Was FTX compelled to behave this way by regulations? I don’t. In exchange, however, they created a system in which FTX could take dangerous risks without consequence.

Regulation through enforcement has been the focus of US regulators instead of setting clear guidelines for crypto, pursuing US-based enterprises that do not follow the rules before defining them. We vehemently dispute the SEC’s claim that Coin base listed unregistered securities earlier this year.

When foreign enterprises fail, Americans lose money and their competitiveness suffers. Thus, more stringent regulation will exacerbate the problem of crypto companies and users moving offshore. We must create an enticing environment for crypto entrepreneurs while also protecting consumers.

SEE ALSO:

US Says Elizabeth Holmes Should Get 15 Years For Fraud