FTX and Celcius
- These two failed businesses are in the news again today, as trials begin, and bankruptcy proceedings make news.
- It is to me the sad story of an avoidable tragedy.
- The tragedy of the biggest business failures in cryptocurrency history brought about by the misuse of investors funds, which could have been prevented by the SEC or the U.S. Congress.
- I say this because over seven years ago the cryptocurrency world was shocked by the hack and failure of the largest centralized cryptocurrency exchange in the world at that time Mount Gox or Mt. Gox as many call it.
- And the nation of Japan enacted rules which have protected Japanese investors in Japanese regulated cryptocurrency exchanges since then.
- Ironically, this premise was proven by the fact that FTX Japanese was able to return all investors funds within 31 days after FTX collapsed and declared bankruptcy.
- While investors in FTX International, and most other country specific FTX branches, like FTX US haven’t received any of their funds and they aren’t expecting to receive but Pennie’s on the dollar of the funds they entrusted with FTX.
What was Mt. Gox and what happened?
- This was the largest centralized cryptocurrency exchange in the world, and it was hacked. Millions of Bitcoin, worth billions of dollars at todays prices were stolen. A quick trip to the Investopedia website shows this nice summary:
What Was Mt. Gox?
Mt. Gox was a Tokyo-based cryptocurrency exchange that operated between 2010 and 2014.
Mt. Gox once accounted for over 70% of all Bitcoin transactions.
In 2014, Mt. Gox was hacked and thousands of Bitcoins were stolen; the company filed for bankruptcy shortly thereafter.
In late 2021, creditors and the Tokyo District Court reached an agreement on the Mt. Gox rehabilitation plan, closing a seven and half year legal battle.
source
Japan Learned from Mount Gox, and took steps to protect cryptocurrency investors.
- My basic premise is that if the SEC had taken these same steps, billions of dollars belonging to domestic and foreign investors would probably not have been lost in Terra Luna, Celcius, BlockFi, 3Arrows Capitol and FTX cryptocurrency exchange collapses and bankruptcies. Because the Japanese reforms not only addressed the core issues underlying the failure of each of these exchanges. But the bankruptcy of the Japanese subsidiaries of these companies didn’t result in the huge losses and protracted struggles the American Company investors have experienced.
- The Japanese version of the SEC was responsible for the oversight of Mt Gox, as it was operating in Tokyo, Japan.
- The Japanese SEC counterpart took the lead and crafted laws , which the Japanese parliament passed into law in the wake of the Mt. Gox disaster.
- Other countries followed their example, but not the USA.
- American led the world in the technological revolutions of cars, planes, and the internet. But now the USA stands apart from its contemporaries, seeming trying to regulate cars with regulations originally written for horses.
- The SEC is still relying on Securities regulations created after the Great Depression of 1923, to regulate technology created in 2013.
- Sadly, the USA , known for innovation, technological development and a passion for encouraging commerce and business enterprises is strangling one of its own children in their birthing bed.
- In Japan comingling of exchange funds and investors funds is illegal.
- In Japan an exchange has to hire an outside company to act as custodian and report monthly.
- In Japan exchanges can only offer trading, no other services and any conflicts of interest.
- In Japan investors funds are not considered exchange property in case of exchange bankruptcy, and must be returned to investors within 30 days after bankruptcy declaration by an exchange.
- These four rules alone would have prevented the FTX tragedy, and helped prevent the widespread failure which followed the collapse of Terra Luna.
- Stablecoin rules could have prevented the collapse of Terraluna by preventing it from existing.
- My premise is that the SEC needs to do the hardwork of analyzing this new technology and create rules to protect the investors and by extension the country.
- I know the SEC has the brainpower and manpower, now they need the will to get the job done.
- It’s not 1923, it’s 2023, please join the world in the 21st century.
