Why the Crypto World Remains Relatively Unshaken by the Fall of FTX

Joe Lee of DefiDive and Yusho Liu of Coinhako weigh in on the FTX crash and why they think the future remains bright despite it

Just when you thought the world of cryptocurrency couldn't have a tougher year, it does. In less than eight months, the space has seen a dramatic fall in prices, the collapse of popular stablecoin project Terra and the bankruptcy of poster child Three Arrows Capital, a hedge fund co-founded by prominent investors Su Zhu and Kyle Davies.

Then, just a few weeks ago, we saw the implosion of FTX—and all of the drama that unfolded around its collapse and its 30-year-old founder, Sam Bankman-Fried. The exchange was once the third-largest digital-asset exchange by volume in the world, with backers such as Singapore's Temasek, which invested some US$275 million into the company. With FTX's downfall, Temasek has announced that it will write down the loss and initiate an internal review of the deal. Reports are also alleging that FTX had used up to US$10 billion worth of customer deposits to loan to Bankman-Fried's trading firm Alameda Research.

Despite all this, many crypto players remain confident of crypto's potential positive impact on the future. Although, there remains a level of uncertainty about whether other entities could fall due to their exposure to FTX.

To find out more about the state of cryptocurrency right now and what its future may look like, we speak to two crypto enthusiasts—DefiDive's Joe Lee and Coinhako's Yusho Liu.

What has been the impact of FTX's collapse on the cryptocurrency market?

Joe Lee (JL): The fallout will be far and wide because many crypto users used FTX as their broker, exchange, wallet and trading platform. I don't think FTX's fall will result in the collapse of all cryptocurrencies as the merits and strengths of the decentralised currencies remain strong.

But as more people use cryptocurrency, I expect that there will be more regulation in the space.

How do you expect cryptocurrencies to be more tightly regulated?

JL: The unfortunate consequence of the FTX crash has made running a cryptocurrency company in 2022 and beyond more challenging. On the one hand, regulation is required to protect the public from financial fraud and to weed out bad actors. We'll probably see a slowdown in crypto-related innovations for a year or two as regulators figure out what to do. In the meantime, I'd say it's a great time to invest in crypto because prices have fallen.

All of this will blow over eventually. Cryptocurrency's fundamentals are still solid and will continue to survive. But in the short term, the market will de-leverage all speculative deals as people refocus on less risky bets, which can be a good thing for crypto's future.

Yusho, you run a crypto exchange yourself. How has the FTX saga impacted your business?

Yusho Liu (YL): The industry is going through a mini-reset, but it will continue to progress. We are currently taking a measured approach by observing market gaps and identifying opportunities. The fundamentals of crypto have not changed and we remain steadfast in our commitment to providing ease of access to crypto to our users.

As more people use cryptocurrency, I expect that there will be more regulation in the space

- Joe Lee -

What do you think are the biggest lessons to gain from this unfortunate event?

JL: It's vital that crypto investors know that using a crypto exchange carries a degree of risk. When you depend on an exchange to manage your tokens, you are not the custodian of your wealth.

Whenever I introduce new people to cryptocurrencies, I educate them on the merits of setting up a self-custodian wallet such as Trust Wallet. The fundamental concept is that if you're holding the keys to your wallet, you are in control of your money. This method isn't perfect, as you can still lose your password and lock yourself out, but at the very least, you manage your own risk.

Economies worldwide will be more turbulent next year. Do you foresee a slowdown in crypto investments?

YL: Over the past two years, we’ve recorded strong indications of interest from institutional and accredited investors to have exposure in the crypto market. In identifying these opportunities, our company expanded its focus and ventured into the global institutional market with the launch of Coinhako Treasures.

While headwinds in the global economy are likely to persist, we believe that adapting to the growing needs of the industry and creating purposeful products and services while maintaining best-in-class practices can help crypto companies tide over these challenging times.

What have been your biggest takeaways from the events that have happened so far this year? And how will they inform your business decisions in 2023?

YL: The biggest takeaway, for me, is the need for a business to have adaptability and tenacity. [Which is why,] throughout the year, we have continuously reviewed and refined our processes and operations to achieve higher levels of optimisation and efficiency.

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The collapse of FTX and what crypto's future may look like