Will the FTX Explosion Be the Last Straw for Cryptocurrency?

While some regulators already compares The collapse of FTX on Lehman Brothers in 2008 It’s different in some ways — for starters, large financial institutions’ exposure to FTX is relatively limited, as is household exposure.

Crypto’s expansion has generally been funded by venture capital, along with large sums of individual investor money from a relatively small group of traders. When institutional investors accumulate, they’ve largely stuck to allocating single-digit percentages of their money, as was the case with pension funds They fell into a tailspin.

However, the damage to the cryptocurrency’s reputation and chances of its mainstream adoption is potentially profound, with some worrying Whether FTX’s demise will be a coup of honor for cryptocurrency remains to be seen.

Regulators waste no time getting involved. Reuters Report, citing people familiar with the matter, said the SEC, among other regulators around the world, is already investigating FTX. That should come as no surprise, since FTX said it expects to have more than 1 million creditors in its bankruptcy filing.

But cryptocurrency experts worry that regulators will squeeze the wrong parts of the industry, aiming to offer sweeping policies, when they say, instead, they should focus solely on centralized exchanges.

“It is to be hoped that regulators will derive lessons from the aftermath and support measures that could have helped distressed users,” said Igneus Terrenus, Director of Public Liaison at Davion Labs, a crypto incubator founded by crypto exchange Bybit.

Such measures could include forcing exchanges to set clear limits on customer funds held, along with subjecting their books to regular audits.

“While many in the industry lament turning to regulators to protect depositors, when it comes to centralized exchanges or entities who custody coins for others, few options, if any, remain,” said Aleph Zero’s Niemerg.

But the most likely outcome is blanket regulation targeting decentralized finance apps as well, which proponents say need less oversight because, in theory, they are managed through code.

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