New details on FTX's finances ahead of its bankruptcy filing
It's been a wild week in the crypto market following the collapse of exchange platform FTX, but an industry insider says that while the situation is probably one of the most unfortunate events in the history of the asset class, it's not the end for the sector.
Crypto prices sank dramatically after rival exchange platform Binance pulled out of a deal to purchase FTX earlier this week, citing significant concerns around reports of mishandled funds and regulatory investigations.
And on Friday, FTX filed for bankruptcy and CEO Sam Bankman-Fried stepped down.
FTX was valued earlier this year at US$32 billion.
Brian Mosoff, chief executive at Ether Capital, a Toronto-based firm that provides investors access to the cryptocurrency ethereum, said even though retail investors are on edge due to uncertainty around the worth of crypto assets, those that understand the technology that underpins cryptocurrencies -- blockchain -- likely believe that the sector still has potential.
"I don't think that people are thinking that the space goes away. I do think investors recognize that the sector is here to stay," he said "What it looks like and who the players are, those are different questions."
This year hasn't been particularly great for the crypto market in general, with the price of bitcoin tumbling significantly after reaching an all-time high of over US$68,000 in November of last year.
The digital asset industry saw nearly US$2 trillion in market value wiped out in the first few months of the year -- a staggering US$300 billion during the week of May 9 alone.
Bitcoin was trading at US$16,790.40 on Friday afternoon. The cryptocurrency is down more than 19 per cent over the past five days.
Mosoff said this year will wash out "a lot of the scam and hype assets" that came about in 2020 and 2021.
He said investors will likely become more conservative in their exposure to the space, choosing to hold just a little bit of bitcoin and a little bit of ether, the two most common crypto assets.
Mosoff added that the events of this year will force other crypto trading platforms to be more transparent.
It's not just your individual investors who have put money into crypto; major funds have also been taking a chance on the space.
In a statement released Thursday, the Ontario Teachers' Pension Plan said it invested US$95 million into both FTX International and the U.S. entity.
Teachers' said any financial loss on its investment in FTX will have limited impact on the pension plan because the investment represents less than 0.05 per cent of its total net assets.
The FTX incident highlights why regulatory oversight of the crypto industry is critical and reinforces the importance of clear regulation, Mosoff explained.
"I think this will be a marker where it's time now for the U.S. and Canada to clarify a lot of the regulatory rules to allow the businesses that want to be more compliant and more transparent to act in a responsible way," he said.
"The question is, what is an appropriate framework for regulation? Who are the appropriate players and the right level of transparency? Do investors want to use these third-party siloed, you know, custodians or exchanges to facilitate all their activities? Or does the space go back a little bit more to its roots?"