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But like the Lehman Brothers bankruptcy triggered by the 2008 stock market crash, we shouldn’t celebrate that FTX’s mismanagement and corruption didn’t cause a global recession. This is a reminder that fledgling businesses are relatively small and isolated from the mainstream financial system. For now, most bankers seem to agree with JPMorgan Chase CEO Jamie Dimon.
Will cryptocurrencies remain a niche investment? (even institutional investors) could destabilize the broader economy as they invest in digital assets. In fact, one year before his FTX implosion, the head of the Securities and Exchange Commission, Gary Gensler, said, “There is not enough protection for investors in cryptocurrencies at this point. It’s like the Wild West at the moment.”
Then what do you do?
Investigators are now trying to figure out what went wrong in the FTX rubble. The company is one of the largest cryptocurrency exchanges helping investors trade digital assets, including using fiat currency. And practically until that plunge, it was considered one of the best runs. and the situation of a company with crude and disorganized bookkeeping practices that may have diverted investors’ money to fund his own lavish lifestyle.
These revelations may have spurred efforts in Washington to tighten cryptocurrency regulation and have federal agencies, including the SEC, to be more proactive with the industry. In response to the demise of FTX, Senator Elizabeth Warren said in an op-ed for The Wall Street Journal, “Power is worthless if beat-riding cops don’t use it.” We have taken several enforcement actions related to fraudulent and unregistered cryptocurrency offerings, but we are far behind as the crypto industry attracts millions of new investors.”
In December, Warren, along with Kansas Republican Senator Roger Marshall, proposed a bill that would extend anti-money laundering rules to the digital asset market. The core goal is to make it difficult for criminals and terrorists to use anonymous accounts to fund their activities.
Although some experts have expressed concern that the bill will impose a burden on small businesses, the bill appears to be a good first step in exposing the industry to the sun. However, this action does not address how investors are protected against the kind of fraud and fraud that Bankman-Fried was indicted for. Congress should turn its attention to that challenge in 2023 as well.
In a cryptocurrency world where anti-government libertarianism is deeply rooted, some have criticized Warren’s bill as an “unconstitutional attack on cryptocurrencies.” But the reality is that many companies want some regulation, hoping to bring a greater aura of stability and legitimacy to their services. The big question in Washington is who regulates and how much regulation is appropriate.
This was Bankman-Fried’s vigorous lobbying before the company went bankrupt. He and other crypto companies, who spent tens of millions of dollars in campaign donations, called on Congress and the Biden administration to regulate the industry with a relatively light touch. But Warren and other congressional crypto skeptics have countered, and the FTX demise may have strengthened their hands.
True cryptocurrency fans like to repeat the mantra “Come for profit, stay for revolution”. Or, as Peter McCormack, who got rich with bitcoin and created a popular crypto-focused podcast, recently said, “Stop buying bitcoin to get rich. Anyone who goes to buy it will probably fail.”
Such advice may be useful to the disciplined, long-term, mission-oriented investor. But as centuries of financial crises have proven, most investors are really looking to get rich quick via tulips and bitcoins. As the memory of this disastrous year fades, cryptocurrency speculation may surge again.
The FTX scandal shows that a clearer and tougher regulatory structure is needed before the next cryptocurrency crisis can bring the entire economy to a halt and even more people lose their savings. Financial crises in traditional markets may be good for revolutionaries, but bad for the rest of us.
Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter. @grove opinion.
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