We have to adapt to these consequences

The processing and the consequences of the FTX collapse are not yet complete and will keep us busy in the coming months. Nevertheless, one can already draw some conclusions from the scandal.

FTX collapse: The third Lehman Brothers in a year

Basically, the entire crypto sector has suffered as a result of the enormous loss of trust. That confidence was already crushed by the collapses of Celsius and Terra Luna. With FTX, we’ve had a Lehman Brothers moment for the third time this year. For this reason, it is above all the companies that are likely to gain market share that are considered the safest from the customer’s point of view. Foreign crypto exchanges, which may still be incorporated in the Seychelles or Bahamas, are losing out to regional providers that have higher regulatory standards. Specifically, this means that a crypto investor from the DACH region will try to get his deposits from local providers.

Bitpanda, Bison and Trade Republic instead of Crypto.com, Kucoin and Bybit

Crypto exchanges such as Bitpanda or Boerse Stuttgart (Bison) will gain relatively in the current market phase compared to a Kucoin or Crypto.com. Coinbase, which is listed on the NASDAQ and has a crypto custody license from BaFin, could also benefit from inflows of funds from exchanges with less transparent and trustworthy images.

Binance plays a special role in this context. On the one hand, Binance is considered the largest and financially strongest player, which is good in times of crisis. On the other hand, despite the efforts of the last few months, Binance’s image is still unbalanced. The historically lacking regional anchoring and the huge range of services make Binance an opaque giant.

The current situation is reminiscent of the financial crisis of 2008, in which savings banks and Volksbanks in particular were able to benefit from new customers and their deposits. Due to the fear at the time that private and foreign institutions in particular could collapse, many bank customers tried to get their deposits from the institutions mentioned.

Self-custody is experiencing a revival

In addition to the transfer to other, more secure crypto providers, self-custody is the best way to avoid the third-party risk. Finally, unlike our bank money, cryptocurrencies are not subject to any deposit insurance. The principle of special assets, as we know it from equity funds, for example, does not apply either.

As a result, some investors may decide to move more of their cryptocurrencies to non-custodial wallets. We were already able to observe this development ourselves at BTC-ECHO, since the number of visitors to our wallet comparison from our review or advice area increased significantly.

DeFi more than ever

The FTX incident has shown the dangers that centralized finance (CeFi) offerings can pose. It is therefore reasonable to assume that decentralized exchanges such as Uniswap will benefit in relative terms. However, it must be noted here that the DeFi area has also been badly hit by protocol errors or hacks in the past. The effect should therefore be quite small for the time being.

Hardliners are empowered in anti-crypto-populism

Unfortunately, events such as the FTX collapse also prompt crypto opponents, who are taking advantage of the moment to call for the toughest possible crackdown on the crypto sector. Of course, financial service providers that manage customer deposits also need to be supervised and controlled.

However, it would be simply nonsense to now demand tougher requirements and regulations from exchanges and service providers from the DACH region. The regulatory standards are already very high. After all, we are not in the Seychelles or any other deregulated offshore financial center. A case like FTX would be unthinkable in this country, even if criminal behavior, see Wirecard, can never be completely ruled out. According to current knowledge, what happened under FTX CEO Sam Bankman-Fried is downright criminal. It would therefore be wrong to put European crypto service providers under increased pressure now. Especially since the MiCA regulation will set uniform standards across Europe in the future.

This is what FTX founder Sam Bankman-Fried’s luxury penthouse looks like

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outdoor swimming pool

The penthouse has a large outdoor area with pool.

jacuzzi

The FTX founder could also have rested in this whirlpool from time to time.

Fireplace

Further outside there is a fire pit overlooking the sea.

terrace

Most of the rooms in the penthouse have access to the terrace that encloses the top floor apartment. Here with a view of the marina.

living room

The spacious living room should not only have accommodated the FTX founder himself, but also numerous of his friends, employees and colleagues.

bathroom 1

There is also a large paneled bathroom with sea views on the property.

corridor

In addition to corridors paneled with wood, there is of course also a walk-in closet.

bedroom 1

One of the many bedrooms in the penthouse.

bathroom 2

Despite the pool and the sea, a bathtub should not be missing in this additional bathroom.

bedroom 2

Another spacious bedroom with flat screen and workspace.

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FTX: not an isolated case, but an expression of systemic errors

The Causa FTX reveals systemic or structural problems that are buried in the crypto sector. These include, among other things, the sometimes far too great dependence on founder personalities such as Sam Bankman-Fried, dangerous incentive systems for exchange tokens such as FTT, CRO or KCS, and a lack of control and standards in offshore jurisdictions such as the Seychelles or Bahamas. In the last three years, crypto exchanges that are systemically relevant for the crypto sector have emerged, which deal irresponsibly with customer funds and take enormous risks. It is precisely these structures that have to be broken in order for something to change in the long term.

Investment: outlook for the crypto market

Finally, the question arises as to the impact of the FTX incident on prices in the crypto market. It should be noted here that the loss of confidence in the sector is so great that it has a lasting fundamental impact on the valuation levels of cryptocurrencies. The fear of further collapses at other service providers and especially crypto exchanges remains. This uncertainty undermines hopes, for example, that a significant recovery, even a Christmas rally, could occur in the near future.

FTX was a big player, especially with institutional customers. Many who had flirted with entering the crypto sector in the past will put this intention on hold for the time being. Potential billions in inflows have thus moved further into the future. The year 2023 could therefore become a “reconstruction year” in which the primary aim is to overcome the three major collapses (Terra Luna, Celsius and now FTX), regain trust and build more resilient structures.