This week, millions of institutional and retail cryptocurrency traders suffered losses. The second-largest centralized cryptocurrency exchange in the world, FTX, has shut down due to a series of unsuccessful withdrawals.
Elizabeth Warren, a senator who opposes cryptocurrency, exploded on Twitter on November 10. While advocating for "more vigorous enforcement," she claimed that most of the cryptocurrency sector "appears to be smoke and mirrors."
Brian Armstrong, the CEO of Coinbase, responded by pointing out that FTX dot com was an overseas exchange not subject to SEC regulation. He continued by saying that the SEC had failed to clarify American regulations. As a result, 95% of trading activity and many American investors moved abroad.
“Punishing US companies for this makes no sense,” Armstrong added.
Regulatory Reforms are Coming
The U.S. cryptocurrency industry accounts for less than 5% of the whole market by volume, according to Vishal K. Gupta, head of the Coinbase exchange. He stated that "lack of clear and fair regulation has forced cryptocurrency trading offshore."
Robert Leshner, the founder of Compound Finance, noted that Sam Bankman-Fried, the founder of FTX, had pushed for stricter rules on DeFi.
“SBF spent months lobbying to kill DeFi, because he knew that transparent autonomous protocols were a threat to 'trust me assets are fine' finance.”
Zack Voell, a crypto specialist, pointed out the irony and concurred.
“The man who spent countless hours in DC lobbying for stricter DeFi regulation was simultaneously fisting his clients with CeFi products.”
The FTX fall, according to Changpeng 'CZ' Zhao, CEO of Binance, has "severely undermined" investor confidence in the cryptocurrency sector. He continued by saying that this would lead to stricter regulation.
No Winners Produced During the FTX Fallout
Since this occurrence has given international regulators the justification they need to crack down severely on the business, everyone will lose out as a result. CZ told his employees:
“Regulators will scrutinize exchanges even more. Licenses around the globe will be harder to get."
On November 9, Binance backed out of the agreement to supply liquidity to aid the troubled exchange FTX. As justification for withdrawing, the business claimed "recent press reports regarding mishandled customer monies and purported US agency investigations."
Binance has once more raised its Secure Asset Fund for Users (SAFU) to $1 billion in reaction to the FTX debacle.
In the meantime, crypto markets have plunged to a new low for the bear cycle. Since more than $100 billion was flushed out in less than 24 hours, the market capitalization as a whole has decreased by 10%. As a result, the amount is now close to $850 billion, a 72% decrease from its peak at this time last year.