The FTX crash sent shockwaves throughout the crypto space, sending some crypto companies crashing and prices crashing along with it. However, the market is picking up once again and confidence is returning.
Bitcoinist met with Bitrue’s chief strategy officer, Robert Quartly-Janeiro, and shared his thoughts on how cryptocurrency exchanges have fared in the wake of the FTX decline, and how Bitrue is working to regain user trust afterward. from this.
Bitcoinist: Can you give us your take on the whole FTX debacle? Do you think this was preventable?
Robert Quartly-Janeiro: Ironically, I read the inside story in the Financial Times about the final days at FTX not too long ago. It’s grim reading, though Ryne Miller is the consummate professional. FTX was operating outside of their competition, and if you are in the path of embezzling money, as they did through the Alameda trade, then eventually you will hit a pothole.
Could it have been avoided? Yes, of course it could, and should have been, by not doing it in the first place. Sorry to the FTX users and their losses, but also to the majority of the staff who clearly had no idea what was going on, as well as what kind of implications it would have for their careers and their money.
Q: Since FTX went bankrupt, how have exchanges fared during this time?
TO: Over the past few months, we have seen companies closely tied to FTX falter, resulting in crypto price reverberations and negative media coverage. For a while, there was a lot of guesswork about ‘who’s next?’ As another major exchange tanked as its trading volumes fell and the cost of debt rose, comments were made. However, things calmed down over time. The Binance deal for SEBC (Sakura Exchange Bitcoin) arguably played a big part here, as it showed that major deals are still being struck, and FTX’s issues remain FTX’s.
While the market has recovered, many exchanges continue to operate cautiously, de-risking and being more frugal. I expect the consolidation to continue due to economies of scale, confidence and market movements.
Q: Currently, users of cryptocurrency exchanges are understandably wary of leaving their funds on CEX. Is there any way exchanges can win back this trust and what exactly is Bitrue doing to win back user trust?
TO: The caution is understandable. It is incumbent on all CEXs to be strong custodians of the funds if they want to be taken seriously, or they would lose this share of the market, in the sense that it is a matter of choice. For investors, there needs to be a distinction between crypto exposure moving in value and fiat real-time currency price fluctuations, making stop-loss trades important. Much has been said about Proof of Reserves (PoR), but I think accurate leverage ratios would be more valuable. As businesses, CEXs of significant volume, customer base, and revenue must set the tone.
Although upcoming regulations in various countries will protect investor assets in a similar way to banking or asset management, it must be financially viable. For example, registering in some countries would cost millions, which is not good, as registered exchanges will have higher cost bases and trading fees. That creates a divergent problem, as the pandemic has made us more fluid in terms of where we can live, work, and trade. Similarly, it would be interesting to see how people would look to store their crypto assets as central bank crypto wallets are created.
Total market cap crosses $1.1 trillion | Source: Crypto Total Market Cap on TradingView.com
At Bitrue, we are doing several things to win back the trust of users. First, in 2020, we established an insurance fund primarily with XRP and BTR denominated tokens to safeguard user assets in the event of a security breach. (You can find more details in this article.) Second, we conduct penetration tests on an ongoing basis to ensure the security of the wallet. Third, Bitrue has limited the amount of leverage individual investors can use. And fourth, a PoR audit will be performed by external auditors. Beyond that, there is a need to develop more infrastructure, ensure high standards, and maintain open and transparent communication.
Q: Do you see user confidence returning to what it was before the FTX crash soon?
TO: The exchanges have already regained trust to some extent. The fallout from FTX was contained and did not affect any organization except those strongly linked to it. Yes, many people got burned financially for non-market reasons, that’s not cool, but many cryptocurrency investors use more than one exchange.
With renewed confidence in the global economy, both the equity and crypto markets are rising, and trading volumes and the amount of money being put on exchanges are increasing as well.
Taking a step back, FTX was an exchange, run from what I’ve read by a dozen people who knew what was going on. Over the past year, 25-30 exchanges have closed, but there are still 250 ‘recognized’ exchanges of various sizes and quality left, which is a lot.
You see, CEXs have to manage financial risks and market movements accordingly. As the old saying goes, ‘Don’t put all your eggs in one basket’. FTX-Gemini laid out the need for better risk management, stricter margin maintenance (margin calls), and greater visibility into the correlation between market movements, companies, and exposure – all things that financial markets they haven’t been right before, during, or since 1637. Let that settle.