The collapse of FTX has been a devastating blow, unlike anything that the cryptocurrency market has seen. Its downfall has issued a wide range of responses, with many pointing towards the need for more government interference. But regulation may not be the easy answer that the cryptocurrency industry needs.
There is not a single problem that is corrected with more government interference. However, the response of many in the media has been exactly that. Although regulation may have a place in the cryptocurrency world, it is not the saving grace that so many assume it is.
Regulation and the FTX Scandal
30-year-old crypto wunderkind, Sam Bankman-Fried, became a villain seemingly overnight. The founder of one of the biggest cryptocurrency exchange platforms on the planet, his demise was a self-destructive journey that saw him and Caroline Ellison misuse billions of customer assets.
FTX went from being a trusted and reliable haven in the cryptocurrency community — a popularized entity dedicated to widening accessibility to virtual currency — to a tragic tale. It’s a representative entity of what happens when a company goes without proper internal controls.
That is what led SEC Chair Gary Gensler to call for greater regulation amidst the collapse. The official told CNBC that investors, “need better protections in crypto.” He is campaigning for regulations to increase within the virtual currency market.
It seems fair enough for the world of cryptocurrency to turn to government intervention to protect them from the second coming of SBF. Yet, regardless of how simple it sounds, sadly, regulation is not an easy answer for blockchains and the tokens that align with them.
Regulation and Crypto’s Future
The reality is that cryptocurrency was created to eliminate the need for traditional financial institutions. So, why would they then turn to the regulatory practices that acted as the initial catalyst for creating that system? The traditional system has a hard time properly regulating itself already.
The Hill stated it nicely, “Decentralized blockchain technology provides better solutions for protecting consumers and reducing financial risk.” The story goes on to say that recent failures in the world of cryptocurrency don’t stem from decentralized exchanges, but from traditional institutions operating in the cryptocurrency sphere.
“Decentralized blockchain technology can limit or eliminate these risks in simple and transparent ways.” The story continued, “Every transaction on the blockchain is publicly viewable.”
There is present technology that is decentralized, unchangeable, and completely transparent. It is the beauty of modern technological advancements and the entire pursuit of cryptocurrency. Moreover, financial risk is lessened under the blockchain system, which has worked so well in establishing the progress that the market has seen.
Regulations have their place. Conversely, regulations are not the end-all-be-all answer that investors are searching for. The youth of cryptocurrency aligns with the market volatility that may always be present. Regulation is not going to fix the issues that are built into the free economic journey that cryptocurrency was crafted to solve.
FTX failed the industry. But the government is not the white knight set off to avenge it. There are lessons to be learned, and a course to be corrected, but the market will find the way.