The predictable defects of FTX show the need for crypto regulation

The author is a former regulator, lawyer and executive director of the Financial Technology & Cybersecurity Center

The most remarkable in the collapse of FTX and the arrest and indictment of his founder Sam Bankman-Fried is how unobtrusive he is. Despite the many crypto frills that have hypnotized investors and owners all over the world, FTX looks like just another story of misconduct from companies. And ironically, many holders of cryptocurrencies who estimated their decentralized character and freedom of government interventions will finally advocate regulation.

as a former banking supervisory authority, which worked in the cases of hundreds of failed banks and savings banks and represented parties in about 30 of the 50 largest financial broken breeds in American history, FTX history is very familiar to me. Regardless of the industry or the century, speculative dollars find their way into hyped, unregulated companies that grow too well to be true.

There always seems to be unrealistic falling in shiny new financial instruments. In combination with leverage, these combustible financial incubators have created, in which managers who tend to sloppy bookkeeping, take great risks or engage in their own business could be deceived for some of the people for some time.

forgive me if I consider the cryptic crypticism of investments and borrowings that have promoted the growth of the industry as predictable, secured by nothing but hope.

What will probably happen now? The renovation or liquidation stories after a financial collapse are always complicated, even if the legal situation is clear. If the law is unclear, as is the case in the area of ​​digital assets, progress is probably the exception rather than the rule.

The heads will turn for some time when new questions about property, focus and tangibility of cryptocurrencies are treated. For the owners, the critical question will be whether real money was legally reserved for them or whether they are simply one of many general unsecured creditors who are waiting for the liquidation of assets that are secured by air. We don't know 10 percent of what we will know in six months. And in six months we probably only know 50 percent of everything there is to know. The only thing we know is that crypto owners are likely to have a hard drive and many unfortunate surprises.

The risks associated with cryptocurrencies may be unique, but the way in which crypto companies can lose customer funds. Fraud, mismanagement, willingness to take risks and crime are just as likely in the business with digital assets as in any other business. In fact, they are rather encouraged there because nobody really watches the business like other financial services companies.

Bill Gates described the cryptocurrency phenomenon as an embodiment of the theory of the larger fool. This is the idea that a "bigger fool" will always be nearby to buy securities, even if you buy them if they are already overpriced. Those who have done business with FTX are likely to feel foolish when they read the reports about their collapse who, if not the credibility of management, question what was described as "the most complete failure of corporate controls", which was described by a "very small group of inexperienced and potentially compromised persons".

The mills of the judiciary will slowly grind. The search for all the digital assets that should be there is already difficult and clouds the hopes of the FTX owners that they will ever see their money again. Everyone with an apparently reasonable financial claim to FTX will question any priority that crypto owners could claim. Months will merge for years, and with every day on which the owners have no access to their investment, the glow of cryptocurrencies will fade.

When journalists and investigators pursue money, they will inevitably draw attention to the role of the congress in view of the enormous political donations. The congress on his part is called up hearings to begin the game of blame. But who should watch the crypto shop? I guess that the global cryptocurrency industry has grown bigger than the amount of the outstanding mortgage debts in the United States. And yet 13 years have passed without the modernization of being modernized, which almost everyone can shape cryptocurrencies and market them in a way, dealing with traditional regulatory structures that have proven to be the best protection that the public can have.

Before everything is said and done with FTX, the crypto industry will endeavor to be regulated in order to restore market trust and offer the industry a leash. Until then, you can just as well bring your money to the next casino - at least you are regulated.