The collapse of FTX sent shockwaves throughout the crypto space, leading to the downfall of several crypto companies and prices collapsing at the same time. However, the market rebounded and confidence returned.
Bitcoinist caught up with Bitrue’s Chief Strategy Officer, Robert Quartly-Janeiro and he shared his thoughts on how crypto exchanges have fared after the FTX decline, and how Bitrue is trying to regain user trust after this.
Bitcoinist: Can you tell us about the whole FTX debacle? Do you think this could have been prevented?
Robert Quartly-Janeiro: Ironically, I read an insider’s story in the Financial Times on the last days of FTX not long ago. It makes for grim reading, even though Ryne Miller is a consummate professional. FTX operates outside of remit, and if you’re stealing money, like you did through Alameda trading, then, eventually, you’ll crash.
Can it be avoided? Yes, of course, you can – and should – by not doing it in the first place. I feel for FTX users and their losses, but also for the majority of staff who clearly do not understand what is happening, as well as what implications it will have for their careers and money.
Q: Since FTX went bankrupt, what about the exchange at this time?
A: Over the past month, we’ve seen FTX-related companies falter, which has led to crypto price reverberations and negative media coverage. For a while, there was a lot of guesswork about ‘who will be next?’ While other top exchanges fell as trading volumes fell and borrowing costs rose, comments were made. However, things calmed down over time. Arguably, the Binance deal for SEBC (Sakura Exchange Bitcoin) played a big role here, as it shows that the main deal is still in progress, and the FTX issue remains FTX.
While the market has recovered, many exchanges have remained cautious, risk-averse, and more frugal in their operations. I expect consolidation to continue due to economies of scale, trust, and market movements.
Q: Currently, crypto exchange users are understandably cautious about leaving their funds on CEX. Is there any way that exchanges can earn this trust, and what is Bitrue doing to win back the trust of users?
A: Caution is understandable. It is true that all CEXs need to be strong fund custodians if they want to be taken seriously, or they will lose this market share – because it is optional. For investors, there should be a distinction between crypto exposures that move in value and real-time fiat FX price fluctuations, which gives importance to stop-loss trades. A lot has been said about Proof of Reserve (PoR), but I think an accurate leverage ratio would be more valuable. As a business, CEX with its significant volume, customer base, and profits should set the tone.
Although the upcoming regulations in various countries will protect investors’ assets in a way that is not different from banking or asset management, it must be financially viable. For example, registering in some countries will cost millions, which is not good, because the registered exchange will have a higher cost base and trading fees. That creates a different problem, as the pandemic makes us more fluid about where we can live, work, and trade. In addition, it will be interesting to see how people will look to store crypto assets as a central bank crypto wallet is created.
Total market cap crosses $1.1 trillion | Source: Crypto Total Market Cap on TradingView.com
At Bitrue, we are doing several things to regain the trust of our users. First, in 2020, we created an insurance fund with tokens denominated XRP and BTR mainly to protect users’ assets in the event of a security breach. (You can find more details here article.) Second, we do penetration testing on the basis to ensure the security of the wallet. Third, Bitrue has limited the amount of individual leverage that investors can use. And fourth, the PoR audit will be conducted by an external auditor. In addition, it is necessary to develop more infrastructure, ensure high standards, and maintain open communication and transparency.
Q: Do you see user confidence returning to where it was before FTX went down?
A: The exchange has gained trust to some extent. The fallout from FTX is already there and doesn’t affect any organization, but the ones it’s affiliated with. Yes, many people get burned financially for reasons of over-marketing – that’s fine – but many crypto investors use more than one exchange.
With the new confidence in the global economy, the equity and crypto markets are increasing, and the volume of trading and the amount of money put into the exchange is also increasing.
Back then, FTX was one exchange, led from what I read by a dozen or so people who knew what was going on. Over the past year, another 25 to 30 exchanges have closed, but 250 ‘recognized’ exchanges of various sizes and quality remain, which is a lot.
You see, CEX has to manage financial risks and market movements accordingly. As the old saying goes, ‘Don’t put all your eggs in one basket.’ FTX-Gemini exposes the need for better risk management, stricter margin maintenance (margin calls), and greater visibility of market movements, companies, and related exposures: all these aspects the financial market has not achieved before, during, or since 1637. Let’s sink in.