What is the post-FTX future of cryptocurrency? | Crypto News

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John Jay Ray III took over failed cryptocurrency exchange FTX in the early hours of November 11. During a US House hearing on financial services, Ray was asked to compare FTX to Enron, another financial debacle he cleaned up after. It’s just plain old embezzlement, Ray said. Not sophisticated at all. FTX simply took customers’ money and used it for its own purposes.

FTX and its sister company, cryptocurrency hedge fund Alameda Research, both operate from the Bahamas, without any oversight. At least $8 billion in client funds are now missing, forcing cryptocurrency enthusiasts to rethink the future of finance and politicians to demand tighter reins on the cryptocurrency space.

Is this the end of cryptocurrencies?

In its current form, yes, Frances Coppola, an independent financial and economics commentator, told Al Jazeera. She pointed out that in its 14-year history, the cryptocurrency world has failed to generate any meaningful real-world use cases outside of crime financing. It was mostly a speculative investment, which only worked as long as real dollars entered the system.

Crypto has never known anything but easy money, she said. Today, central banks around the world are rapidly raising interest rates and reversing quantitative easing. There is a sharp squeeze on liquidity in global markets and money is being sucked out of risky asset classes.

Cryptocurrencies have been about as risky as it gets. The valuations the crypto enjoyed only a year ago are gone, and I don’t think they will return for a long time, if ever, she said. I actually think crypto prices need to drop further. There is still too much leverage in the space and central banks are not done with tightening yet, she said.

Carol Alexander, professor of finance at the University of Sussex, didn’t think cryptocurrency would go away completely. She argued that non-fungible tokens will certainly survive as metaverse development continues. However, we are now experiencing a jolt similar to the bursting of the dot-com bubble with many small businesses in default.

Alexander thought the survivors would be smart contract blockchains like Ethereum, a few regulated exchanges like Coinbase, and futures exchanges like the Chicago Mercantile Exchange.

Charles Whitehead, a professor at Cornell Law School in New York, agreed. It may be too early to sound the death knell for crypto, but we are clearly behind in our efforts to regulate it, he told Al Jazeera.

Get rich quick

The theoretical promise of cryptocurrency was a payment system free from the control of middlemen, Nicholas Weaver, a researcher at the University of California, Berkeley who has been an outspoken critic of cryptocurrencies, told Al Jazeera. But the real promise was that the price of cryptocurrency would always rise, he said.

FOMO, or the fear of missing out, is as old as money itself, said John Stark Reed, a cryptocurrency skeptic who once headed the Internet Law Enforcement Office of the US Security and Exchange Commission. The promise of cryptocurrencies has always been to get rich quick with no effort, no experience and no risk, he said.

Bankman-Fried’s soft-spokenness also played a part in making people believe that FTX was a safe way to store their money and a safe bet for an investment.

Some investors appear to have been blindsided by SBF’s charisma the same way Softbanks Masayoshi Son was blindsided by fast-talking WeWorks Adam Neumanns, Coppola explained. There wasn’t a lot of due diligence going on.

Masayoshi Son invested his first $4.4 billion after Neumann showed him around a 12-minute WeWork in 2016. Similarly, FTX investors turned over $2 billion, bringing FTX’s valuation to $32 billion. dollars, without worrying about knowing more about the company’s operations.

FTX went on a massive buying spree from late 2021 to 2022, spending nearly $5 billion on a myriad of cryptocurrency ventures. FTX also spent $256 million on 35 properties in the Bahamas. SBF and Ryan Salame, the CEO of FTX Digital Markets in the Bahamas, have spent tens of millions on political donations. Salame was buying up restaurants in western Massachusetts. Bankman-Fried has also donated money to charities and several media outlets.

Ray’s role in the Chapter 11 proceedings will be to try to recover as much money as possible, a process he has already begun. Bankman-Fried, meanwhile, has been extradited to the United States to face charges and FTX co-founder Gary Wang and former Alameda Research chief executive Caroline Ellison have admitted to the charges. brought against them and agreed to cooperate with the authorities. in ongoing investigations.

All cryptocurrencies are FTX

I think a lot of investors thought FTX was safe, even though the reality is that no cryptocurrency exchange is regulated enough to be considered safe, Weaver said.

Most of the real money inflow into cryptocurrencies plummeted in 2021. The rest stopped in May 2022, when the TerraUSD stablecoin crashed, destroying $18 billion in suspected value and making blow up the books of many other cryptocurrency companies. FTX’s fall followed that of cryptocurrency hedge fund Three Arrows Capital and cryptocurrency lending platforms Voyager Digital and Celsius Network.

Now even Binance, the largest cryptocurrency exchange in the world, has started to falter. Accounting firm Binances Mazars recently announced that it was suspending all cryptocurrency work, and the company removed all mention of such work from its website. Binance clients withdrew $6 billion worth of cryptocurrency assets in the week Mazars halted its cryptocurrency work.

One theory among critics was that all cryptocurrency exchanges are broke because they are overexploited and full of unsellable cryptocurrency assets that have no market demand, but are still priced at full value. market and not what a seller might actually get for them. If this is true, then the future of cryptocurrencies may involve even more cryptocurrency businesses filing for bankruptcy in the near future.

There were many opinions about what the death of cryptocurrencies even meant. According to Weaver, that meant, we don’t care anymore. He envisioned a world where there are no more Crypto.com logos on the racetrack, no more TV ads touting cryptocurrencies as a financial investment future. Those who have put their money into cryptocurrency over the past few years have already lost most of their money. Extinction is admitting that they have lost everything.

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