Following the collapse of TerraUSD, a crisis of similar magnitude was caused by high-volume cryptocurrency exchange FTX. Now, SEC chairman Gary Gensler says regulations need to be tighter than ever.
FTX bankruptcy also undermines corporate demand
The cryptocurrency market has lost more than two-thirds of its value since November. After TerraUSD, the Celsius and Three Arrows Capital bankruptcies damaged the fundamentals of the market a few more. The FTX crisis in November poses a whole new set of problems for institutional and individual investors. According to crypto research platform Messari, both Bitcoin and Ethereum fell more than 74% from ATH levels due to the news. Some have described the catastrophic sequence of events as crypto’s “Lehman Moment.” All of this has undermined the entry of major markets like Wall Street into crypto.
FTX’s bankruptcy and its impact on cryptocurrency regulations
The cryptocurrency market now has to overcome some serious regulatory hurdles before it can go mainstream. After the bankruptcy of FTX, the pressures on cryptocurrencies are increasing. Prominent government officials quickly spoke out against the crypto platform last week. Maxine Waters, chair of the House Financial Services Committee, said in a statement:
It is clear that cryptocurrencies operating without strong federal oversight and protections for customers have significant ramifications.
According to reports, the Department of Justice (DOJ) and the SEC are investigating FTX for potential civil and criminal violations of securities laws. “Investors need better protection in this area,” SEC chairman Gary Gensler told CNBC on Thursday.
Before FTX, Gensler expressed the need for strict regulations on cryptocurrencies. As a sign of pressure, the SEC fined Kim Kardashian for providing insufficient information while promoting the EMAX token on her Instagram account. Gensler says the SEC’s aggressive stance on cryptocurrencies is an effort to protect investors. He also thinks it will encourage more crypto adoption.
SEC chief separates crypto and traditional markets
In part of an interview with CNBC, Gensler said:
The cryptocurrency market is not like the New York Stock Exchange or the Nasdaq. These platforms are intermingled. This is also another toxic combination that people get their money from, borrow against it.
Gensler also stated that regulations will gain momentum in the coming periods:
We will make our voices heard clearly about risks, speculative risk and actors that appear to be largely incompatible. We will continue to work with the industry to properly register these.
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