Some worry that FTX’s collapse will shake the relationship between institutions and cryptocurrencies. Institutional investors like JP Morgan believe, however, that the debacle will entice financial institutions to adopt crypto.
Deutsche Bank’s senior economist and macro strategist Marion Laboure, notes that corporate mismanagement is the root of the recent downfalls in the crypto sector.
He thinks, “Insufficient reserves, conflict of interest, a lack of regulation and transparency, and unreliable data,” form a problematic structure that leads to major catastrophes.
The FTX Washout
The market is washing out in the wake of a sudden exchange collapse. Bitcoin, the world’s biggest cryptocurrency, struggles to bounce back its November peak when the coin reached the $65,000 mark.
The giant is now trading around $16,000, signaling an extended crypto winter while red waves seem to be rather solid across altcoins’ performance.
But Laboure believes, “this second crypto winter,” spots an opportunity for institutional adoption as it will be a driving force for the establishment of regulatory frameworks.
The FTX’s case will result in greater market concentration and Binance obviously has the upper hand, as noted by the bank economist.
One of the leading crypto empires has failed and the ecosystem bleeds. The loss of confidence, in more positive perspectives, will drive more observations.
The German bank said that the value of crypto assets required the faith of crypto investors, in other words, it’s tied to the number of people who believe it is worth it.
The status quo still thinks that crypto remains a nascent industry full of high risks and scams. The role of regulators is therefore exclusively important.
The Deutsche strategist calls for urgent crypto regulatory enforcement to safeguard users and rule out illicit activities.
SBF Blew It
From being a respected figure in the crypto industry, Sam Bankman-Fried is now a traitor in the eyes of the community members.
In addition to the loss of his entire fortune of more than $16 billion, the exposure pushes the company once worth $32 billion to bankruptcy. The exchange was under internal attack shortly after a series of news.
The former billionaire is being investigated by the Department of Justice in the United States and the Securities and Exchange Commission.
A handful of investors have withdrawn as a consequence of the confidence crisis and significant losses.
But the paths forward are not completely blocked. JP Morgan’s senior equity analyst Steven Alexopoulos shares a similar point of view, saying that it’s far from being the death knell for the relationship between cryptos and institutional investors.
Regulations Are Coming
Pain is real but the situation will open the door to massive adoption from financial institutions. Institutional investors will still gear up to expand their crypto trading offerings.
The establishment of a regulatory framework will fuel their adoption of crypto, according to the JPMorgan crypto analyst.
Beyond that, JP Morgan stressed that the recent bankruptcies in crypto are closely tied to centralized platforms.
The bank commented,
“Moreover, while the news of the collapse of FTX is empowering crypto skeptics, we would point out that all of the recent collapses in the crypto ecosystem have been from centralized players and not from decentralized protocols.”
The task of establishing a framework is entrusted to regulators, who arrive with their share of new rules to govern crypto. But the intervention is placed in doubt due to its capability of stiffing crypto innovation.
However, there is a wave of arguments that points out that lawmakers and regulators need to implement an appropriate regulatory system. Regulators are called to rapidly respond to the well-known ecosystem’s vulnerability.
One of the latest developments is the MiCA crypto legislation introduced earlier this summer.
The first-ever licensing regime for crypto wallets and exchanges creates a solid protection framework, demanding trading platforms take responsibility for providing misinformation.
Governments and central bankers are also accelerating research and development of central bank digital currencies (CBDCs) – the concept is expected by them to bring more benefits to consumers, compared to cryptocurrencies.