What's Next? The Future of Crypto…

4 min readJan 1, 2023

In November 2022, $32 billion evaporated overnight due to the mistakes of a 30 year old MIT graduate. While it may appear to have occurred as a result of a single error in judgment by Sam Bankman-Fried, it actually happened due to years of risky business practices.

FTX, also known as the Futures Exchange, was co-founded in May of 2019 by Bankman-Fried, and was the 3rd largest cryptocurrency exchange by volume at its peak. Based in the Bahamas, FTX was a centralized cryptocurrency exchange that allowed for its customers to trade digital currencies with others. However, it should be noted that many of their trading practices were not legal here in the United States which forced them to create a subsidiary called FTX US. That being said, their illegal practices in the US haven’t prevented them from spending millions of dollars lobbying for US legislators to institute crypto-friendly regulation. Perhaps this was done as an effort at not only making the United States more crypto friendly, but to make a better environment for FTX to conduct business in. However, instead of spending money and time on friendly regulation, maybe they should have focused that energy on keeping their business afloat.

On November 2, 2022, CoinDesk, a cryptocurrency publication had leaked a balance sheet used by Alameda Research, which showed that they had an unusually large amount of FTT tokens. For some insight, Alameda Research was also co-founded by Sam Bankman-Fried in 2017 and is a trading firm. However around 2019, the firm needed funds to run the business and FTX was created which resulted in the two entities being codependent. In this process, FTX started trading and their main token was the FTT token which allowed for a reduction in trading fees. Fast forward to spring of 2022, with crypto prices down, both companies were heavily impacted. As a result, they needed external help.

Binance, the largest cryptocurrency trading platform in respect to trading volume, was set to buy FTX in an attempt to keep their company alive. Binance, which previously had owned FTT tokens, had said that they would sell FTT tokens on November 6, which prompted other people to do the same. Within a couple of days, around $6 billion worth of FTT tokens had been requested to be withdrawn. However, FTX lacked the money to fulfill these requests which forced them to enter a liquidity crunch. Shortly after, Binance backed out of the deal to purchase FTX due to multiple errors, including the mishandling of customer funds. This prompted investigations from numerous government agencies and led to Bankman-Fried stepping down as CEO on November 11, 2022. Subsequently, Bankman-Fried was arrested on December 12th, where he will be held in the Bahamas, facing an eighth-count federal indictment that could sentence him up to 115 years in prison.

With the spectacular collapse of one of the largest cryptocurrency exchanges, which resulted in the elimination of around $30 billion overnight, the future of cryptocurrency as a whole hangs in the balance. From the perspective of the U.S. government, cryptocurrency is a gray area in terms of what regulations are in place, since the Federal Reserve traditionally is focused on the regulation of the US dollar and the banks within the U.S. In place of the Fed, other agencies may have to implement more regulations. As of now, the SEC (the Securities and Exchange Commision) regulates only securitized investments as well as the stock market. While some argue that cryptocurrencies fall under the securitized investments category, there still aren’t that many rules or regulations set in place. However, this is expected to change very soon, as Gary Gensler, who is the SEC Chair, has repeatedly made it clear that they will be the lead regulator of the U.S. crypto market.

In order to make changes, there have been several bills focused on tightening the control over the industry that have been pending. However, in light of FTX’s collapse, we can only assume that these bills will be passed with more urgency, in addition to the introduction of other bills as FTX’s collapse unfolds. Furthermore, lawmakers have been given ample reason to be even more skeptical and cautious with cryptocurrency, which sets the industry back. With that being said, the outcome of the Bankman-Frieds trial, starting on January 3, 2023, may not change how crypto as a whole functions, but it will serve as a wake-up call for the industry leaders as well as the regulatory bodies. The collapse of FTX proves moreover that regulation for this industry needs to catch up to where cryptocurrency currently is as it is becoming a more integral part of our society.

Works cited and For Further Reading —

Written by Sriman Katragadda

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