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What does FTX collapse tell us about today’s world of crypto?

Is the collapse of the FTX exchange a vindication of crypto’s watchdog nature or a sign of its weakness?

When the FTX crypto exchange collapsed in November over the course of 10 days, it thrust the concept of cryptocurrencies into the limelight. The collapse of FTX has had huge ramifications for its founder, Sam Bankman-Fried, and for those who plowed their cash into the exchange in the hope that it would keep their funds secure, only to be shocked when it didn’t.

But the high-profile disappearance of what was seen to be a trusted part of the crypto sphere – it was at one point called the “most regulated” crypto exchange in the world – in a flash has broader ramifications beyond those just affected.

FTX’s collapse tells us a lot about the current status of crypto and the perception in which it’s held – and the challenges it faces in winning over a skeptical population and group of politicians.

Worries about reliability

Trust is a massive element of finance, with would-be investors needing to believe that their investments are safe in whatever institution they choose to fund. The high-profile collapse of FTX, and the associated suggestions that Sam Bankman-Fried was using investors’ money to fund Alameda Research, his company’s trading arm, will have done little to instill confidence in the broader crypto sphere.

As this was just the latest big collapse of what was seen as a cornerstone of the market in recent years – following things such as the Mt Gox heist and others – it is a suggestion that all is not well in the crypto space when it comes to reliability and trust.

The fact that Bankman-Fried was seen as the poster child of the crypto space, gaining adulatory coverage from major publications as a result of his willingness to testify in Washington and to encourage regulation of the crypto space, makes his company’s collapse all the more damaging.

The case for the defense

There are, of course, differing viewpoints about the catastrophic collapse of FTX. No one is happy about the fact that many rank-and-file investors have lost their cash and that the reputation of crypto has been tarnished. But there are suggestions that the whole debacle could be seen as a good thing for the space.

Pro-crypto voices might theoretically point to the fact that FTX and Bankman-Fried were found out by those within crypto, particularly by Changpeng “CZ” Zhao, the founder of Binance, as evidence that the system is self-policing and that the crypto world is willing to call out those that could harm its potential growth.

In this retelling of the FTX parable, its collapse is – if not a good thing, at least noble evidence of the way that the crypto world is trying to clean up its image. The collapse was triggered by those within the space calling out the actions o a bad actor and saying they did not condone it, and they could not support it.

Of course, many will not look beyond the lost money and the reputations left in tatters to see the wider space. The current world of crypto is trying desperately to drag its reputation away from the early Wild West days that it faced and is entering its troubling teenaged years. How it manages to navigate that transition – and if it does it with the trust of ordinary investors intact to be able to take the central position its boosters believe it could inhabit in the financial world – is yet to be seen.

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