Is this the end of crypto?
19th December 2022
The recent collapse of FTX has caused a shockwave to the cryptocurrency markets. Over 1 million creditors and billions of losses will Crypto ever be trusted.
Cryptocurrency is a decentralised digital currency that uses a peer-to-peer database ledger known as blockchain technology. People have a choice to either hold their cryptocurrencies in a “hot” or “cold” wallet. A hot wallet is an online wallet that allows users to easily access and trade their tokens and coins. A cold wallet is when you use an offline private key to store your crypto assets.
FTX collapse wasn’t due to cryptocurrency issues but rather exchange platforms being an unregulated market open to malpractice. Lack of regulation allowed £6.5 Billion of assets to go missing on the balance sheet, consisting of customer deposits. This led to account withdrawals being frozen. New CEO John Ray, a high-profile bankruptcy lawyer, has said “Conceal the misuse of customer funds” was taking place and that he could not trust the financial statements produced.
Binance announced a rescue deal on November 6th with a clause that they could pull the agreement anytime. As a result of corporate due diligence, Binance stopped the deal. Rescue deals for smaller firms are common within the crypto industry, with FTX only earlier in the year bailing out Voyager Digital and BlockFi.
Generally, crypto assets are not regulated and are susceptible to fraud and financial crime. The FCA currently has oversight to check crypto asset firms have effective anti-money laundering procedures but have stated both exchanges and utility tokens are outside its regulatory perimeter. However, the FCA has taken legal action against crypto exchanges before. In 2021 they banned Binance from operating within the UK. Bangladesh, China, Turkey and many more countries have banned cryptocurrencies altogether. Countries that experience economic instability has turned to Crypto, such as Nigeria, which has experienced double-digit inflation.
Crypto has been championed for being decentralised, but this is the very issue with it. Without government/central control, it opens up opportunities for corporations to not be transparent with their transactions. The Bank of England has begun discussions of creating a crypto asset of its own.
Despite the FTX collapsed global payments company, MasterCard, is looking at this as an opportunity to enter this space to provide a secured and trusted platform. Organisations such as MasterCard will be able to scale up and gain users’ trust through its 56 years of business in 210 countries and territories. Banks such as HSBC, NatWest, and Barclays might cause problems for this to be rolled out as they are either restricting or banning transactions of this nature.
When thinking about Crypto, Bitcoin is the first to come to mind. With a value of a single coin being worth around £14,000 and 19,225,106.25 BTC in existence. However, the European Central Bank has classed Bitcoin as an unsuitable currency.
Local crypto accounting firm MYNA has made strides in this field by providing tax compliance, advisory and growth services for cryptocurrencies and Non-Fungible Tokens. Showing accounting firms realise the potential to disrupt industries and help clients with the changing world of finance.
When more regulation and legislation are produced, institutions will be more accepting of crypto assets, and so will their customers. Predictions that 20% of large enterprises will use digital currencies by 2024, and by 2031 physical cash will only make up 6% of UK payments. Whether Crypto is a currency or financial vehicle, it is here to stay but for how long only time will tell.
By, Taylor Loveridge