FTX shows why banks should embrace cryptocurrency

FTX — three letters on everyone’s lips these days. For those active in the crypto space, it was a crushing blow as the tumultuous year for cryptocurrency came to an end.

According to bankruptcy filings, the cryptocurrency exchange’s bankruptcy has had serious consequences, leaving more than a million people and businesses in debt. As the investigation into the spill continues, he is sure to push for regulatory changes, either through lawmakers or federal agencies.

While regulators are relieved the scandal didn’t happen under their watch, it simply highlights the lack of action against crypto exchanges by regulators around the world, many of whom welcome clear frameworks from those in power.

Related: Bankman-Fried misguided regulators by steering them away from centralized finance

Some have argued that regulators are guilty of allowing or even encouraging FTX’s behavior, thereby creating many flawed cryptocurrencies. It is fair to say that regulators are partly to blame for this tragedy, and while inaction shields them from liability, their inaction is equally damaging to their reputation as they are portrayed as irresponsible for not doing more to protect consumers.

Ripple CEO Brad Garlinghouse tweeted on November 10: “Singapore has licensing framework, token taxonomy designed and more. They can regulate cryptocurrency appropriately because they’ve done the work to define what ‘good’ looks like and know that not all tokens are securities… we need regulatory guidance for companies that provides trust and transparency to protect consumers.”

Cryptocurrencies are a unique asset class and only continue to gain traction. The longer the sector continues without established regulations, the more potential there is for adverse events and crises. Given the novelty and international nature of crypto-assets, it is not surprising that regulators are facing an unprecedented challenge that is difficult to manage.

However, the lack of action taken by regulators is a major factor contributing to Sam Bankman-Fried’s ability to manipulate and abuse assets for his own benefit – without direct oversight any financial service (including banks) is at risk of losing all of its customers’ money. face to face and increase their profits.

Related: Will SBF face the consequences of FTX’s mismanagement? Don’t believe it

When comparing the behavior of regulated and unregulated businesses, a good example is the German crypto bank Nuri, which told its 500,000 users to withdraw money from their accounts before the firm closed and liquidated. This is in contrast to unregulated companies like FTX and other cryptocurrency exchanges that simply freeze their clients’ assets and cannot get their funds back.

While it makes sense for any business that holds third-party assets (such as centralized exchanges and lending platforms) to be subject to the same level of scrutiny and guidelines as banks, traditional banks can be even more helpful. about the role of “trusted third party” and offer crypto services directly to their customers. Their centuries-long history of acting as a trusted intermediary gives them a level of trust and security that can help consumers use cryptocurrency services more easily.

As the cryptocurrency world continues to await much-needed regulatory intervention, banks must take the lead and adopt a new digital asset to begin mitigating the risks and losses affecting millions of cryptocurrency users today.

Yang Lan, CFA, is the co-founder and chairman of Fiat24, the first Swiss bank built on blockchain. He holds a master’s degree in economics from the University of Munich and an MBA from IE Business School. A former UBS banker, he has a decade of banking experience.

The views expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph. This article is for general information purposes and should not and should not be construed as legal or investment advice.

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