Finally regulate cryptocurrencies

TEverything was in place for the collapse, but, as so often in speculative capitalism, once disaster strikes, everyone pretends to be surprised. The bankruptcy of FTX, one of the world’s largest cryptocurrency exchanges, is only the result of a cocktail as classic as it is explosive.

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Take a young entrepreneur whose Promethean ambitions struggle to conceal a steely greed; a class of assets escaping financial regulation and whose operation remains obscure for ordinary mortals; a head office based in a notorious tax haven; a company with dubious transparency and governance, yield rates defying weightlessness, all sprinkled with prestigious names to attract gogos: the house of cards only took a few days to collapse on itself .

Valued at 32 billion dollars at the start of the year, FTX placed itself, on Friday, November 11, under the protection of American bankruptcy law. Its founder and CEO, Sam Bankman-Fried, is dragging down 130 affiliated companies and a hundred thousand investors who, consenting adults though they may be, may never get their money back.

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At the heart of the scandal, a system of misappropriation of assets. Some of the money entrusted to FTX by its clients is said to have been sucked up by the Alameda Research fund. This company, of which Bankman-Fried was the majority shareholder, allegedly used the deposited funds to make extremely risky financial bets without investors being informed. These operations were guaranteed on an equally speculative asset, since it was FFT, the house cryptocurrency, which Bankman-Fried himself regulated. The influx of redemption requests from customers worried about the fall in the FFT precipitated the liquidity crisis.

Blindness and neglect

The rout of FTX is not the result of an unfortunate set of circumstances. It is the result of a series of blindnesses, negligence and a toxic context.

First, blindness. If the traditional banking sector has been able to keep its distance, one must wonder about the lightness with which well-established investment funds such as Sequoia, the Ontario teachers’ pension fund, or the Japanese company Softbank have found involved in this affair without demanding a minimum right of inspection over the back kitchens of FTX.

Negligence, then. Central bankers have been calling for cryptocurrency regulation for months. Why does it struggle to see the light of day? A bank no longer has the right to use its customers’ money to speculate for its own account. In what capacity can a cryptocurrency platform do this, even though the strength of its assets is more casino than investment? In view of the sums brewed by this highly speculative sector, it is urgent to regulate its practices.

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Finally, the context. The rise of cryptocurrencies has been greatly encouraged by the mountains of liquidity that have been injected by central banks into the financial system. This money, created almost ex nihilo, has pushed investors to invest in increasingly risky and increasingly baroque assets to obtain ever higher returns. The return to more orthodox monetary policies has the merit of piercing the cryptocurrency bubble.

It remains to regulate them firmly. The Congress of the United States, since it is in this country that takes place most of the exchanges, and the Securities and Exchange Commission, the American policeman of the financial markets, must finally move from words to actions.

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