FTX collapse will slow down crypto regulations, analyst warns

The collapse of multi-billion cryptocurrency exchange FTX will slow down the introduction of new regulations to police the digital assets market, analyst warns.

Up until its sudden self-immolation last month, FTX was viewed as the crypto darling of Washington D.C.. The company’s CEO Sam Bankman-Fried, or SBF as he was more commonly called, not only backed lawmakers with million-dollar donations, but his inpur also played a pivotal part in the drafting of the Digital Commodities Consumer Protection Act (DCCPA).

SBF’s ability to woo not just regulators but also investors had given him a halo of sorts, anointing him the grown-up in a sea of petulant crypto children.

Then, a CoinDesk report revealed that FTX was built on a house of cards that would crumble as soon as people started to look a little bit too closely at its finances. The report revealed the key balance sheet details of SBF’s Alameda Research trading firm. The numbers showed that the firm had invested heavily in the FTX exchange’s FTT token.

The news caused a solvency crisis at FTX. A few weeks later, FTX had filed for bankruptcy and SBF could now be facing years in prison – if the US ever gets around to arresting him.

What will the collapse of FTX mean for crypto regulations?

It’s against this background that analysts now warn that the collapse of FTX could hold back the introduction of meaningful regulations for the cryptocurrency industry.

“The collapse of FTX has really put a spanner in the works,” Suneet Muru, analyst at GlobalData, says in a new podcast from the research firm.

Muru states that the alleged shoddy behaviour of SBF has now put the future of the DCCPA in doubt. The bill would have defined digital assets like bitcoin as commodities, meaning it would fall under the purview of the US Commodity Futures Trading Commission (CFTC).

While that would’ve provided the industry with some much-needed regulatory clarity, it would also irk Gary Gensler, the chair of the Securities and Exchange Commission (SEC). He and the SEC have argued that cryptocurrencies should be seen as securities, not commodities.

That would mean the SEC and not the CFTC would get to police the industry. That was one of the reasons why the SEC launched an investigation against crypto exchange Coinbase earlier this year, arguing that some of the digital assets traded on the platform should be seen as securities.

However, the turf war between the two market watchdogs won’t be solved any time soon.

“Whilst we could see Congress vote on that at some point in 2023, the bill itself is largely up in the air,” Muru argues, adding that he believes regulators will be investigating the industry more closely in the future, following the collapse of FTX.

GlobalData is the parent company of Verdict and its sister publications.