FTX collapse: Full impact has yet to be seen—Bloomberg

Anybody following the digital currency industry will know that the FTX exchange has collapsed. In this special, Bloomberg covered what’s going on with FTX, talking to experts from rival exchanges and SEC Commissioner Hester Peirce about what happens next.

A quick recap on market impact

Bloomberg hosts Kailey Leinz and Matt Miller begin with a quick recap of what’s going on in the markets due to the chaos unleashed by FTX. At the time of recording, token prices had bounced, including the FTT token price. Tether had also unpegged once again.

Speaking about Sam Bankman-Fried personally, the hosts outlined how his personal fortune had plummeted by billions in a single day. They play various clips of ‘SBF’ reassuring them that the company is profitable, that the balance sheet is strong, and that he wants to do good with his money. Now, he’s seeking a $9.4 billion bailout, something we now know did not come through, causing FTX to file for Chapter 11 bankruptcy.

Matt Levine chimes in

Levine is a well-known industry commentator for Bloomberg. He once sat down with Sam Bankman-Fried personally. He shares his view on what’s going on.

“I’m sad for him,” Levine says, emphasizing that he thinks Bankman-Fried was a good actor and had true intentions. Miller asks him if he thinks it’s a Lehman Brothers moment for the industry, to which he responds, “I think so,” emphasizing that a firm that was pro-regulation imploding is bad for business.

What if FTX doesn’t get a rescue package? Leinz asks. “Probably customers will lose a fair amount of money. I don’t know what the odds of a rescue are.” He points out that FTX was previously the lender to help others. Now it’s gone, and so is the chance of it getting a bailout from Binance.

What are the legal ramifications? Is Bankman-Fried going to go to prison? Levine isn’t sure, but it looks like Alameda borrowed money from FTX, which is a gray area at best.

In general, Levine thinks it is terrible for confidence in the industry. He says that the lack of transparency, in general, isn’t good. He thinks Coinbase (NASDAQ: COIN) is slightly different, given that it’s regulated in the USA, but he says that if he were a customer, he’d be worried about any exchange.

Anthony Trenchev from Nexo

“It’s a very serious situation,” Trenchev says, correctly predicting that any rescue package for FTX would be tough. He notes that the financial hole is getting bigger, and few companies have $8 billion to spare to fill such a hole.

Would Nexo participate in a potential bailout? Not likely, Trenchev says. He’s concerned about the information that’s out there regarding FTX lending Alameda customer funds and the ramifications of that.

What’s happening with Nexo? “It’s business as usual,” Trenchev says. They have no exposure to FTX and have made efforts to secure things, including installing real-time auditing software to prove their assets exceed their liabilities at all times. “Finally, people are talking about proof of reserves,” he says, saying this is one way out of the current mess.

What about wider contagion? Trenchev states it is hard to say right now. However, he thinks we still need to see the full second-order effects. He believes many companies in the industry have FTX accounts, and they may lose at least some of their money.

Hester Peirce from the U.S. Securities Exchange Commission

Turning to the topic of regulation, Bloomberg talks to SEC Commissioner Hester Peirce.

Miller begins with a jurisdictional question: if FTT is deemed a security, would the SEC be able to step into a business outside the borders of the USA? “I’m not going to speculate about whether or not we have jurisdiction,” she replies, saying that questions about the lack of clarity are the SEC’s fault.

Leinz asks why regulation can’t come faster. Peirce says the SEC has been unwilling to work with many in the industry to craft new regulations, preferring to take an enforcement route, and she doesn’t think this is a good way to approach things. She says it would be helpful if Congress would rule on who should be crafting regulations. She says she has been “disappointed” with how the SEC has handled things so far.

Asking about charges Jamie Dimon and others have made about Bitcoin being a giant Ponzi scheme. Peirce says markets are about markets working things out. As a regulator, the SEC should be allowing the markets to work.

Could the relationship between the industry and regulators become more hostile as a result of what’s happened? Peirce sees an opportunity to use this moment to work closer, taking a more productive approach.

Perianne Boring from the Chamber of Digital Commerce

Boring says she has always felt the conversations Bankman-Fried has brought forward in Washington to be “a little bit odd.” She says FTX wasn’t even established when the Chamber of Digital Commerce launched, and she remembers them coming on aggressively about their suggestions for regulation.

Has trust been lost? Boring says that we need to remember FTX is an overseas entity. Many such entities moved overseas because of the lack of regulatory clarity in the United States. Therefore, one solution is to create proper regulations in the country.

Was Binance involved in taking down FTX deliberately? Clearly, there were some ‘crypto politics’ involved, and it’s possible that this played a role in what happened this week, she says.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.