FTX illustrated why banks need to take over cryptocurrency

FTX — the three letters on everyone’s lips in recent days. For those active in the crypto space, it has been a shattering blow as a tumultuous year for crypto nears an end. 

The repercussions are severe, with over a million people and businesses owed money following the collapse of the crypto exchange, according to bankruptcy filings. With investigations into the collapse ongoing, it will certainly push forward regulatory changes, either via lawmakers or through federal agencies.

While regulators may feel relieved that the scandal didn’t occur under their supervision, it highlights that there simply hasn’t been enough action taken yet by regulators across the globe toward crypto exchanges, many of whom would welcome clear frameworks by those in power.

Related: Bankman-Fried misguided regulators by directing them away from centralized finance

Some have argued that regulators are at fault for allowing or even encouraging FTX’s behavior and by extension, the creation of many flawed cryptocurrencies. It’s fair to say that regulators are partially to blame for this tragedy and, while not acting protects them from liability, inaction on their part is equally damaging to their reputation as they are presented as irresponsible for not doing more to protect consumers.

Ripple CEO Brad Garlinghouse tweeted on Nov. 10, “Singapore has a licensing framework, token taxonomy laid out, and much more. They can appropriately regulate crypto b/c they’ve done the work to define what ‘good’ looks like, and know all tokens aren’t securities … to protect consumers, we need regulatory guidance for companies that ensures trust and transparency.”

@SenWarren, Brian is right — to protect consumers, we need regulatory guidance for companies that ensures trust and transparency. There’s a reason why most crypto trading is offshore – companies have 0 guidance on how to comply here in the US. 1/2

— Brad Garlinghouse (@bgarlinghouse) November 10, 2022

Cryptocurrencies are a unique asset class that is only continuing to gain traction. The longer the sector goes without defined regulations, the more potential for negative events and crises. Given the novelty and international nature of crypto assets, it is no surprise that regulators are facing an unprecedented challenge that is tricky to navigate.

However, the lack of action taken by regulators is a major factor that contributed to Sam Bankman-Fried’s ability to manipulate and misuse assets for his own benefit…