Once again financial regulators have dropped the ball. Crypto may have been a new currency, but by all accounts it was good old-fashioned embezzlement. The law enforcement officers who eventually tracked down Mr. Bankman-Fried are to be applauded as individuals, but the situation begs the question, how did he get away with it for so long?
The fraud committed by FTX comes amid a series of warning signs in crypto currencies, most notably their sudden devaluation. Investors have lost big, and many did not go into their investment with their eyes wide open. As investors were losing, many inside the industry were warning that crypto was a new form of commerce that presented a new set of challenges for regulators and law enforcement; and that the people who needed to most weren’t paying enough attention.
That isn’t to say crypto is bad. However, like all financial innovations there is a lot of initial hype about what crypto can and cannot do. Regulators have a responsibility to begin wading through what the real benefits of crypto are, and what risks are unique to it as a financial innovation. In particular, regulators should bear in mind that crypto only recently evolved into an investment, and was designed to be purely transactional. What investors, and the world, need right now is for the government to step in and start evaluating the risks of crypto currencies and communicating what those risks are to investors. Then, investors can make informed decisions.
Crypto has promise. There is strong evidence that it could revolutionize the way money is raised. And, it may have the potential to make more mundane things a lot easier. Crypto may very well live up to its promise of being the money of the future. It may be that crypto allows us to do things in the future that are difficult or impossible now. But every new technology presents problems. In life, the more powerful a tool for good something is, the more potential for evil it has. Regulating crypto will mean coming to terms with both its overall potential and its potential to be abused.
In the meantime, federal monetary regulators have a responsibility to get ahead of the curve. If this was old-fashioned embezzlement why was it not discovered until 8 billion dollars and been stolen? Had there never been what was essentially a run on the bank, the fraud at FTX theoretically could have continued far into the future. In many ways it was other crypto currency companies, not regulators or law enforcement, that discovered the fraud.
The way this situation unfolded really shows just how little protection federal regulators were affording small time, inexperienced investors. Changes need to be made now. It isn’t good enough to just prosecute one man reasoning he is one bad apple. This incident was a failure at many levels. Let us hope that regulators begin the process of ensuring that old-fashioned embezzlement doesn’t continue to occur with the world’s newest financial technology.
Progressive Without Apology 