Let endangered crypto platforms fail rather than bail them out

While the crypto market is going through a difficult, but expected period, the cohort of platforms in peril further shades an already gloomy climate. It is not a question of throwing opprobrium on the whole ecosystem, as certain tenets of the traditional order do to impose murderous rules, but of wondering what to do with these important actors of the last bull run who reproduced the worst aspects inherited from the traditional financial system, taking risky bets with their clients’ funds. From this point of view, two visions clash: that of a major market player who supports their bailout and that of a pro-crypto regulator who refuses to save structures with dubious practices.

FTX in support

On the one hand, there’s Sam Bankman-Fried, the boss of FTX, who sees it as his responsibility to help crypto businesses in crisis. For him, it’s about preventing bad debt from spreading across the industry. Also, matching the action to the word, FTX provided the rather ailing crypto lender BlockFi with a $250 million revolving loan. Last week, it was the young and ambitious CEO’s trading company, Alameda Research, that came to the rescue of Canadian crypto broker Voyager Digital. At stake, a loan of 200 million in USDC and a “revolving line of credit” of 15,000 bitcoins to be used “if necessary to protect customer assets”.

Beneficial interventions? This is not necessarily the opinion of everyone and in particular of Heister Peirce, one of the commissioners of the US Securities and Exchange Commission (SEC). Known for her pro-crypto stances, she has spoken out against bailing out failing companies. From his point of view, it is better to “let these things happen” to create a more sustainable industry.

A laissez-faire SEC commissioner

Specifically, she said in an interview with Forbes that it was on the contrary an opportunity to assess the functioning of the crypto market under acute stress.

It is useful for us to see the connection points. This is a learning moment not only for market participants, but also for regulators, so that we can get a better idea of ​​how the market works.

Heister Pierce, SEC Commissioner, in Forbes

However, since the SEC is not mandated by Congress to be a regulator of systemic risk, it considers that the authority does not have to intervene to save over-indebted companies which have not applied the traditional principles of risk management.

Crypto does not have a rescue mechanism. And that was seen as one of the strengths of this market. I don’t want to come in and say we’re going to try to find a way to bail you out if we don’t have the power to do it.

Heister Pierce, SEC Commissioner, in Forbes

Education in the crypto ecosystem: an essential prerequisite

She’s also not shy about pointing fingers the responsibility of individual investors who, blinded by miraculous yields, have lost their sense of proportion.

When you have an attractive return, you must ask yourself questions about the associated risks? And if you don’t get answers, then you have to ask yourself if you want to make that investment.

Heister Pierce, SEC Commissioner, in Forbes

Education in this new ecosystem is obviously a prerequisite for any investment. A principle tirelessly repeated by the actors of the ecosystem themselves, but which is far from being adopted by new entrants.

However, this casualness or laziness in learning, which leads to tragedies such as we are currently experiencing with people who lose part or all of their savings, gives regulators the chance to impose the idea of ​​only authorizing accredited investors to engage in crypto investing. Rule that already exists in traditional finance, especially in the United States following the crash of 1929 and the “Great Depression” that followed, and that some would like to see applied in the crypto industry. Several jurisdictions have made attempts in this direction. Thailand and Hong Kong abortively, Singapore more successfully.

Regulation could take advantage of the current chaotic situation in the crypto industry to impose unfair rules

In fact, if the crypto industry is still experiencing episodes of this dark series that currently characterizes it, regulators and legislators could well adopt drastic rules going against a popular crypto by nature, i.e. made for the people and not reserved for an already wealthy elite.

In other words, under the user protection argument, the rich would have the opportunity to get even richer while the poorest would no longer have access to this possible path to financial autonomy. Also, to escape this logic of domination with, on the one hand, qualified investors credited with qualities capable of making them take informed bets, avoid scams and who can afford to lose money in the event of a malfunction, and on the other hand, the “ordinary” investors who do not know how to “do” with their money, it is necessary to take the path of independence. To know, learn to manage your famous private keys yourself (it’s easier than it seems) and stop trusting centralized structures that clear themselves of all responsibility when things go sour.

Crypto’s troubled history takes a new turn

Well, to end on a more optimistic note, note that in the young history of cryptocurrencies (13 years), this is not the first time that the ecosystem has experienced episodes of this nature. Perhaps the most resounding was the bankruptcy of the Mt Gox exchange in 2014, which left thousands of investors on the brink.

History, to a lesser extent, repeated itself every cycle with dozens of exchanges or platforms disappearing almost overnight. But no offense to those who announce the umpteenth death of Bitcoin and others, the industry has always recovered from these regrettable episodes. Except that today, we will have to deal with more or less enlightened regulators, determined to exercise control that is sometimes abusive, like the European hussar for example. The history of cryptos takes a new turn but is not over yet.

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