Lack of Regulatory Framework Led to “FTX Failure”, Says Experts

    TheMorningCrypto Desk
    TheMorningCrypto Desk
    Published on November 15, 2022 12:33 PM

    Updated on January 9, 2023 12:50 PM

    FTX had extensively pushed in support of the bill introduced by Boozman and Senate Agriculture Committee Chair Debbie Stabenow.
    Lack of Regulatory Framework Led to “FTX Failure”, Says Experts
    Source: unsplash

    The failure of the crypto exchange platform FTX has put Washington's regulatory strategy for digital currencies into disarray — and highlighted how little visibility policymakers have in the field.

    FTX and its former CEO Sam Bankman-Fried had been driving most of the argument in Washington, equipped with political contributions, a staff lined with former federal bureaucrats, and a seemingly noble desire for tighter control of the largely unregulated industry. Legislators were working on legislation that would have paved the way for Bankman-Fried's continuous ascension into the financial cosmos.

    Last week's spectacular collapse, which threatens not just FTX customers but also crypto startups and investment businesses linked to the company, is forcing lawmakers and regulators who believed in the idea to reconsider.

    Crypto as the "Wild West of financial markets"

    Guangzhi Shang, an associate professor at Florida State University, described the cryptocurrency business as the "Wild West of financial markets."

    “And I think it’s going to remain this way for at least three to five years,” he further alluded.

    Shang believes that several circumstances contributed to FTX's bankruptcy, which followed the downfall of other cryptocurrencies such as Bitcoin and Solana

    He cited a lack of government regulation as one of the issues.

    I think the general idea from policymakers is that they want to be light-handed and see what this crypto space can do for the broader society,” Shang stated. 

    “So, they want innovation to happen first, and if you want to be light-handed, then it’s inevitable that in the process of development of this new financial technology, there will be failure stories.”

    Nothing Could Be Done with FTX: CFTC

    However, the regulators hesitate to take the whole blame for the failure. They alleged that because FTX's parent firm is located in another country, they had no recourse. On Monday, the chair of the Commodity Futures Trading Commission said Congress needed to enact legislation to empower his agency.

    “We don’t have the luxury of time anymore,” CFTC Chair Rostin Behnam stated. “If we wait, we’re just going to be waiting for the next crisis.”

    The situation, which includes charges of potential fraud, misused user accounts, and, according to Bankman-Fried, poor internal accounting standards, threatens to derail legislation backed by startups in the digital asset business.

    Recently, the White House also intervened in the matter and called the authorities for greater regulations and transparency in the crypto space. California regulatory officials are soon to launch a probe to investigate FTX.