It is also important to be clear about why this happened and what needs to change to prevent it from happening again.
FTX's downfall appears to be the result of risky and unethical business practices, including conflicts of interest between deeply intertwined entities and decisions to lend out client assets without permission. It is worth noting that these activities occur in traditional financial markets as well, and in fact, blockchain technology will make them easier to track and prosecute over time.
This week's events have already led to calls for stronger regulation of the crypto industry, including tighter restrictions on access and innovation. The problem is that U.S. regulators have so far refused to provide clear and sensible regulation of cryptocurrencies to protect consumers.
Cryptocurrency regulation in the United States is difficult to navigate, and regulators have so far failed to provide a viable framework for providing these services in a secure and transparent manner. This means that a range of crypto-based financial products, including loans, margin trading, short selling, and other tools that are perfectly legal and regulated in traditional financial markets, are largely illegal in the United States. Entrepreneurial teams building new decentralized products are afraid of building them. I left the United States due to fear of lawsuits. They don't want to break the rules, but they don't know what the rules are at the moment.
As a result, American consumers and advanced traders alike have become involved in risky offshore platforms that are outside the jurisdiction and protection of American regulators. Currently, more than 95% of his cryptocurrency trading activity takes place on overseas exchanges.
One of the reasons FTX was able to conduct this activity is because it operates in the Bahamas, a small island nation with little regulatory oversight or ability to oversee its financial services operations. Did regulators force FTX to take such action? no. But it created a situation where FTX could take dangerous risks with no repercussions.
Instead of establishing clear guidelines regarding cryptocurrencies, US regulators are focusing on regulation through enforcement, without actually establishing what the rules are, and are based in the US that do not follow the rules. We are pursuing companies that have Coinbase itself fell victim to this practice earlier this year when the SEC accused the company of listing unregistered securities, a charge we strongly deny. That's bad for America's competitiveness, and it's bad for Americans who stand to lose when foreign companies go bankrupt.
All of this helps explain why stronger regulation will only exacerbate the problem of crypto companies and crypto user outmigration. What you need instead is smarter This is a regulation that protects consumers and makes the United States a more attractive place for crypto companies.
Despite the general belief that crypto companies don't want to be regulated, many, if not most, have been working with policymakers for years. Those of us who care about the future of cryptocurrencies want to create sensible regulations for centralized exchanges and custodians in the U.S. and elsewhere.
In the long term, the cryptocurrency industry has an opportunity to build better systems using decentralized finance and self-custodial wallets that do not rely on trusted third parties like exchanges. Instead, customers will be able to trust the code and math, and everything will be publicly auditable on the blockchain. But until then, regulators need to establish clear rules to bring cryptocurrencies home, foster innovation, and protect consumers.
The United States has always prided itself on being a pioneer in new technologies and industries. The age of cryptocurrencies has arrived, as more than 200 million crypto users and countries around the world begin piloting digital currency programs and accepting Bitcoin as legal tender.
The United States now has a choice. Take the lead by providing clear business-forward regulation, or risk losing an important driver of innovation and economic equality.
Brian Armstrong is the CEO and co-founder of Coinbase.
