OPINION:
Over the past few months, cryptocurrency has taken a serious hit, with major firms going under and popular currencies like Bitcoin and Ethereum losing more than half their value.
While crypto holds great promise as a store of value, now is an opportune moment to establish robust protections from bad actors which contributed to this crash, made these currencies less resilient, and hold back crypto from the solid rebound we have witnessed with equities. A glance at the recent crisis speaks volumes about the need to recognize bad actors in this space and protect consumers with proper safeguards and rules.
When a USD-backed cryptocurrency named Terra or UST began to depeg from the dollar and lose value, companies began to sink. One of the earliest firms to go down was Three Arrows Capital, a major crypto lender that collapsed and eventually declared bankruptcy.
Celsius — another “crypto bank” and lender — also suffered from this market crash. As investors sensed a “winter” coming in the market, they began massive selloffs of their holdings, leading to more tokens like stETH and Bitcoin to fall. With the value of their assets dropping, Celsius declared chapter 11 bankruptcy.
3AC and Celsius were no small potatoes. They managed more than 100,000 users and billions of dollars in transactions, currently owing more than $10 billion to investors. Unsurprisingly, retail crypto users were the ones most hurt. Many of them lost their life savings, frozen in these platforms’ accounts, and some of them confessed to suffering mental health and suicidal issues as a result.
There is one figure people have looked to in this crisis. Sam Bankman-Fried, the head of crypto exchange FTX and trading firm Alameda Research, has portrayed himself as a “white knight” in this space, but evidence suggests that trust in Mr. Bankman-Fried and his businesses is worth reconsidering.
FTX is the world’s second-largest crypto-trading platform, valued at $32 billion in January 2022. Mr. Bankman-Fried also founded and owns Alameda Research, a trading firm that buys and sells over $2.5 billion worth of crypto to provide liquidity in the market.
Just the fact that Mr. Bankman-Fried heads both FTX and Alameda Research at the same time is problematic — for both the industry and consumers.
An exchange and a trading firm joined at the hip inherently pose the risk of them front-running investors, as the exchange will have access to all the nonpublic market data on transactions. In the case of FTX and Alameda, the exchange can potentially share private user information to the partner trading firm to make profit.
In other words, Mr. Bankman-Fried controlling both Alameda and FTX gives them an unfair advantage over retail traders and consumers and allows the trading firm to profit at the expense of FTX’s own users.
A similar partnership between Robinhood — a popular stock trading platform — and Citadel, an asset management firm, caused controversy. Fueled by rage from investors that the two firms were front-running them, Congress launched an investigation on whether Citadel had an unfair advantage of trading on Robinhood.
These allegations, if proven, could suggest market manipulation and insider trading. If insider trading is heavily scrutinized for traditional equities, the same should be the case for crypto, FTX and Alameda. The speed of cryptocurrency’s rise and its lack of regulatory framework should not be an excuse to endanger consumers.
Mr. Bankman-Fried’s public profile is equally deceptive. His self-portrayal as an “effective altruist” — who seeks …….
Source: https://www.washingtontimes.com/news/2022/aug/23/cryptocurrency-must-be-made-safe-from-bad-actors/