Following the demise of cryptocurrency exchange FTX, big changes are anticipated in the cryptocurrency market, according to a research released on Thursday by global investment bank JPMorgan.
The collapse of FTX and its sister company Alameda Research "has not only created a cascade of crypto entity collapse and suspension of withdrawals," according to global strategist Nikolaos Panigirtzoglou, but it is also "likely to increase investor and regulatory pressure on crypto entities to disclose more information about their balance sheets."
Panigirtzoglou then went on to enumerate the key adjustments JPMorgan anticipates following the FTX disaster. He firstly wrote:
“Existing regulatory initiatives already underway are likely to be brought forward.”
The Markets in Crypto Assets (MiCA) bill of the European Union, according to the JPMorgan strategist, is anticipated to be approved in its whole by the end of the year and to go into effect sometime in 2024.
He added that "regulatory proposals drew increased focus following Terra's collapse" with regard to the U.S further explaining that:
“Our guess is that there would be even more urgency following the FTX collapse.”
Panigirtzoglou continued by stating:
“A key debate among U.S. regulators centers around the classification of cryptocurrencies as either securities or commodities.”
The head of the United States Gary Gensler of the Securities and Exchange Commission (SEC) has stated that unlike the majority of other crypto tokens, bitcoin is a commodity. To make the Commodity Futures Trading Commission (CFTC) the primary regulator of crypto assets, various proposals have been presented in Congress. JPMorgan also plans to:
“New regulatory initiatives are likely to emerge focusing on custody and protection of customers’ digital assets as in the traditional financial system.”
The expert said that many retail cryptocurrency investors have already shifted to self-custody utilizing hardware wallets.
“The main beneficiaries post FTX collapse are institutional crypto custodians … Over time these trusted custodians will likely dominate over relatively smaller crypto-native custodians or crypto exchanges.”
Secondly, "New regulatory initiatives are anticipated to develop focusing on unbundling of broker, trading, lending, clearing, and custody activities as in the traditional financial system," the JPMorgan paper continues, noting:
“This unbundling will have most implications for exchanges which like FTX combined all these activities raising issues about customers’ asset protection, market manipulation, and conflicts of interest.”
The JPMorgan strategist further explained:
“New regulatory initiatives are likely to emerge focusing on transparency mandating regular reporting and auditing of reserves, assets, and liabilities across major crypto entities.”
The investment bank also noted that "Crypto derivative markets would likely see a shift into regulated venues with CME emerging as a winner" was another significant change.
Decentralized exchanges (DEX) were also covered by Panigirtzoglou, who noted that before decentralized finance (defi) becomes widely accepted, they must overcome a number of challenges. Due to slower transaction speeds or the need for trading methods and order sizes to be traceable on the blockchain, the JPMorgan strategist believed that larger institutions would not normally be able to use DEXs for their larger orders.