Dec 2 (Reuters) – Regulators must step in to protect cryptocurrency investors after the collapse of FTX, financial industry executives and lawmakers said this week at the Reuters NEXT conference in the latest call for tighter oversight of a sector prone to collapse.
Policymakers have been stressing the need for effective regulation of the cryptocurrency industry for years, citing risks to consumers after a series of major market crashes and corporate failures.
But cryptocurrencies and related businesses remain largely unregulated.
European Union regulations designed to revive cryptocurrency are expected to come into effect in 2024, but the United States, in particular, still lacks general rules.
The collapse of Sam Bankman-Fried’s FTX was the biggest cryptocurrency failure this year. This led to a cryptocurrency crash and left nearly 1 million lenders facing billions of dollars in losses.
“The collapse of something as big as FTX shows the importance of transparency, proper regulatory protection, regulatory requirements for all financial activities,” said Laura Cha, chairman of Hong Kong Exchanges and Clearing (0388.HK).
Lynn Martin, president of the New York Stock Exchange, said institutional investors will not accept cryptocurrency without clearer regulations.
“There was no regulatory framework, and an institutional investor isn’t really going to meaningfully dip a toe into a market unless they understand what the regulatory framework is,” Martin said.
Some cryptocurrency investors share these concerns.
“Regulators could send more guidance to cryptocurrency,” said Brian Fakhoury at crypto venture capital fund Mechanism Capital.
ARE THEY ADJUSTED OK?
The cryptocurrency sector reached a record value of almost $3 trillion late last year, before market turmoil caused by rising interest rates and a series of industry explosions wiped more than $2 trillion from its valuation. Bitcoin, the largest token, is down three quarters from a record high of $69,000.
This extreme volatility has not done the cryptocurrency space any favors in terms of gaining wider support in the financial services industry.
“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley ( MS.N ) CEO James Gorman told Reuters NEXT. “I don’t like to invest in things that have a series of consequences or attract customers.”
In the wake of the FTX collapse, regulators in the US, as well as financial industry executives and crypto entrepreneurs, are focusing on the need for a workable set of rules and greater transparency.
Nasdaq ( NDAQ.O ) CEO Adena Friedman called for a balance in regulation between protection and innovation — a common refrain among major cryptocurrency businesses.
Expected to launch the cryptocurrency in the first half of 2023, Nasdaq has been providing trading and monitoring technology to cryptocurrency exchanges for several years after regulatory approval.
“Now is the time for regulation to mature, and it’s time to make sure we have safety and soundness as we move forward, but we’re also enabling innovation and an agile ecosystem,” Friedman said.
India’s Finance Minister Nirmala Sitharaman said the FTX collapse underscores the need for greater visibility into the often anonymous cryptocurrency transactions.
Sitharaman said the collapse of the FTX “shows the importance of well-structured regulation so that countries are clear about who is conducting these operations and why. Who is the ultimate beneficiary?”
Crypto entrepreneur Justin Sun said investors rarely get clarity on how funds in crypto companies are being used.
“(There is) a lack of transparency for many exchanges and lending providers and institutions. Customers mostly don’t know where the funds are allocated,” said Sun, founder of cryptocurrency Tron.
Investors “can lose their life savings in seconds, but have no idea where their money is going.” he said.
Reporting by Sumeet Chatterjee, Megan Davies, Aftab Ahmed, John McCrank, Lananh Nguyen, Elizabeth Howcroft, Saeed Azhar and John Sinclair Foley. Written by Tom Wilson. Edited by Jane Merriman
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