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Following the aftermath of the FTX collapse, JPMorgan says that the event could trigger the pace of cryptocurrency regulations, although it is a major short-term setback. There’s a “silver lining to the sudden and unexpected collapse at FTX.” As per the report by the investment bank that traced the events leading to FTX’s collapse.
The exchange’s ill-management of investors’ assets that came to light recently created a need for regulators to accelerate their creation of regulations, similar to those observed following the financial crisis of 2008.
The investment bank shares the belief that although the collapse may present a short-term hurdle, it will very likely help increase the adoption of cryptocurrencies and bring them to the mainstream.
Transparency As A Key Player
Improving transparency is among the first steps to recovery from the FTX collapse as per JPMorgan. After the exchange’s questionable management of investors’ assets came to attention, it was quite justified for investors to demand a more transparent operation from the exchanges they trust their assets with.
New regulations, focusing on transparency, are likely to be put in place. Requiring regular auditing of reserves, assets and liabilities across all crypto entities such as exchanges and stablecoin issuers. Some exchanges have already started publishing their proof of reserves, while others have even gone further and published their reserves to liability ratio.
While these regulations may be new for the crypto ecosystem, they will likely be borrowed from the traditional financial system, making crypto inclined more to the old way of things.
To add to that, the bank also believes that it might take more time than previously thought for decentralized exchanges to become a norm and operate responsibly. And there are a bunch of reasons for this assertion.
Price discovery of cryptocurrencies mainly takes place on exchanges that rely on oracles to supply them with the data. However, this data comes from centralized exchanges; therefore, parting ways from them would take a lot of time.
Decentralized exchanges are supported by smart contracts that bring with them a fair chance of failure, which when it happens could expose the platform to a series of attacks. Additionally, automated liquidations that happen when the collateral drops below a certain level could also present risks that decentralized exchanges may not be equipped to handle.
Institutional investors too may not welcome decentralized exchanges since they wouldn’t suffice for large trader orders due to their slower transaction speed. And to add to that, liquidity pools on Defi exchanges may not exactly be exciting for institutional investors either.
FTX Collapse Calls For A Regulation Reform
JPMorgan stated in a report recently “While this is certainly a major short-term setback, we see the widely publicized collapse of FTX as potentially dramatically accelerating the timeline to which crypto-related regulation will be ushered in (similar to new banking regulation which followed the GFC). As a result, we see the news surrounding FTX as one step back, but one that could prove to be the catalyst to move the crypto economy two steps forward (further unlocking the utility value of blockchain).”
The European Union’s Markets in Crypto Assets (MiCA) bill could get its final approval by the year’s end and it will take up to 18 more months for it to take effect. However, the events following FTX’s collapse will likely put pressure on the transitional period, ensuring that regulations are established earlier than previously thought.
Although the US may not be at pace with Europe in establishing regulations, there have still been many regulatory initiatives in the US congress such as the Responsible Financial Innovation Act, the Digital Commodity Exchange Act, the Digital Commodities Consumer Protection Act, and these have gained more traction since the Terra crash that occurred earlier this year.
The FTX collapse, in a similar fashion, will add to the urgency of the implementation of regulations regarding the cryptocurrency ecosystem.
New regulation initiatives that will emerge consequently will focus on the custody and protection of investors’ digital assets as observed in the traditional financial system. Until then, users are more dedicated to securing their assets as best as they can, and this can be overseeded with the increased sales of the Ledger hardware wallet seen in the past two weeks.
In conclusion, JPMorgan believes the event to be a setback for the short term, but a catalyst for the improvement of the industry over the years as it tries to mature and become mainstream.
While the big players believe that it is mere a short-term setback, experts believe that there would be long-term effects. To whether the regulatory storm that crypto will likely see in future, investors must get ready to invest in presale cryptocurrencies. One of them, Dash 2 Trade, aims to deal with the exact circumstances FTX-collapse has wrought. It will equip all traders with analytics and tools necessary to navigate the volatile cryptocurrency market and make big gains. Dash 2 Trade has raised upwards of $7.5 million till now, and presents a ripe time for early movers to come in and invest.
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