Sam Bankman-Fried and the FTX collapse has not brought about the end for crypto, market players suggest, as they look to 2023 with optimism that things will turn around for the industry.
During the coronavirus pandemic, values in cryptocurrencies such as bitcoin soared to record levels. Regulators too appeared willing to be pragmatic around the growing buzz of crypto, announcing plans to introduce legislation such as the EU’s Markets In Crypto Assets (MiCA) regulation to accommodate the fast-moving market.
In recent months, however, there has been rolling news coverage surrounding the FTX scandal. Bankman-Fried, the founder and chief executive who once shared platforms with the likes of Tony Blair and Bill Clinton, now awaits a lengthy trial to decide his fate.
The crypto world has had its reputation savaged, with destroyed user confidence leading to wider questioning about its long-term future.
European Central Bank (ECB) board member Fabio Panetta said in a blog post recently that: “Last year marked the unravelling of the crypto market as investors moved from the fear of missing out to the fear of not getting out.”
Yet, among the crypto world, there is optimism that this year will see a turnaround.
“It is not even close to over for the crypto industry,” insisted Carl Sachs, co-founder of Finterest, the crypto lending platform. “Saying FTX ruined crypto is similar to saying Bernie Madoff ruined cash.”
Madoff was the mastermind behind one of the largest Ponzi schemes in US history.
Sachs continued that there were bad players in the space. “They are being weeded out and it is paving the way for a better crypto ecosystem.”
"This will be a big year for crypto. I'm hearing a lot about whether crypto is dead. I disagree entirely, it will just take a different form,” said Felix Shipkevich, a New York-based fintech attorney and professor at Hofstra University.
“On the payments side, crypto will flourish,” he predicted. “Q4 had a negative impact with the likes of Genesis and FTX but we will see crypto payments continue to flourish.”
Tokens as a means of exchange, for example, have taken a positive form, he suggested. “That should wash away the negativity that has been created thanks to some unregulated crypto exchange platforms."
"We are likely to see other exchanges collapsing, and it will take a couple of years before we see the industry's reputation turn around,” he speculated. “But, I believe that ultimately crypto will come out of the other side."
Fraser Matthews, president of Canadian crypto exchange Netcoins, acknowledged that the scandal has “certainly caused some damage”.
However, he said that the cryptocurrency market is still extremely resilient and the technology behind it is still growing and improving.
“The ecosystem is becoming more secure and reliable,” said Matthews. “The industry is making significant advancements in blockchain technology, smart contracts, and decentralised finance (DeFi) products.”
DeFi in particular, he insisted, has the potential to revolutionise the financial system. “As the industry continues to mature, it is likely that the long-term outlook remains positive.”
In spite of the positivity, there is a recognition that the FTX backlash could go on for some time.
For a long time, the crypto industry has dealt with concerns over financial crime, and the FTX scandal only added fuel to the fire.
“FTX’s leadership never cared about the tenets of crypto,” said Sachs.
Sachs continued to point out that Bankman-Fried was “trying to make as much money as possible while disregarding everything that crypto stands for."
“This is the antithesis of everything that DeFi stands for,” he said.
“The amount of damage that FTX has done is difficult to quantify. The company has been accused of manipulating the market and misleading customers, resulting in significant losses for traders who had invested with the exchange,” said Matthews.
“This has caused a great deal of distrust in the crypto industry and has led to some investors withdrawing from the market entirely.”
In terms of how long this backlash could last, Matthews said that it is impossible to determine.
“The crypto industry can take steps to move on by improving transparency and introducing measures to protect customers from any kind of market manipulation,” he suggested.
“Implementing strict KYC [know your customer] and AML [anti-money laundering] measures, and introducing regulatory frameworks will ensure exchanges are compliant with industry standards.”