The FTX downfall has caused the regulators to act quickly and effectively. Senators are asking for the SEC to implement regulations as soon as possible. This was evident in a tweet by Elizabeth Warren, the U.S Senator Massachusetts.
Elizabeth tweeted,
"The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors. We need more aggressive enforcement and I'm going to keep pushing @SECGov to enforce the law to protect consumers and financial stability."
Ethereum put a target on its back for the regulators when it switched to proof-of-stake.
If a firm passes the Howey test, the SEC consideres it a security. The Howey test is:
"1. Investment of money
2. In a common enterprise
3. Expectation of profits
4. Derived from efforts of other."
According to Gary Gensler, Ethereum passed the test; therefore it is a security. “In my opinion, Ethereum passed the Howey Test and that means that it would be considered a security," said Gary Gensler. Bitcoin on the other hand, is not a security as announced by the SEC chair, Gensler. This is because according to him, bitcoin is well decentralised.
Even though people see Ethereum as a commodity, the SEC fails to do so and might not allow it to happen. So if the SEC is uncertain about Ethereum being a commodity, therefore other proof-of-stake cryptos might not be.
What Happens to Crypto when FTX Collapses?
FTX is still struggling to cover the liquidity shortfall of $8 billion plus. Moreover, it is unlikely that FTX CEO Sam Bankman-Fried will find supporters after Binance walked out of a deal with the firm.
Co founder and chairman of Coin Metrics and general partner at Castle Island Ventures, Nic Carter, told Fortune’s Leo Schwartz on Thursday that,
“Sam needs to abandon his delusions of cobbling together some deal. There’s no one on earth that’s going to bail FTX out, unless the Fed is inclined to do it. It’s just not going to happen.”
If FTX collapses, the venture capital community, individual investors, supporters, and other cryptocurrency businesses might be greatly affected. Like Carter said, " There are going to be big victims here." Besides, the company had a huge institutional focus, which attracted several startups more so in emerging markets to custody their funds in FTX.
Carter said that
“There will be a lot of innocent victims, not just individuals but also other firms like fintech firms, crypto firms that were providing access to end users. There is going to be some extremely tough knock-on effects.”
In relation, cryptocurrencies such as Ethereum might be affected with FTX's issue.
Users used FTX for various purposes such as buying and selling cryptocurrencies, ETFs, Stocks, Options, futures, and leverage tokens as well as NFTs. However, there are no safeguards for crypto investors using the FTX platform; therefore, there is no guarantee for the safety of users' assets at the moment. Even international and U.S regulators have their hands tied on the matter.
As the crypto billionaire and chairman of the Bitcoin Foundation,Brock Pierce, told Fortune,“At this time, it is not clear what protections FTX has in place for its customers in case the company goes out of business.”
Comments