A US Senate committee is conducting the first of several congressional investigations Thursday into what led cryptocurrency giant FTX to its demise, a spectacular failure reminiscent of the 2001 Enron collapse costing investors and companies billions of dollars.
Experts point out that, like Enron, FTX and related company Alameda Research didn't just cost investors billions of dollars through shady deals and gross miscalculations. FTX's fall has underscored concerns from authorities about a lack of transparency in the cryptocurrency market and exposed regulatory gaps that Congress and federal authorities must fill.
Picking up the remains of FTX will be a Herculean task.
Robert K. RasmussenUSC Gould
“Picking up the remains of FTX will be a Herculean task. Determining which assets are actually available to clients is no easy task for a company that does not keep detailed records of client accounts," he said. Robert K. Rasmussenthe J. Thomas McCarthy Trustee Chair in Law and Political Science at the USC Gould School of Law.
Rasmussen warns that it will be years before things are straightened out.
“It appears that a substantial amount of assets have left FTX over the years,” he said. “Some of these assets went to clients, some to politicians, and some to charities. All those who received these assets should expect the new FTX management to try to get these assets back."
Cryptosecurity: a domino effect
While these core elements may prevail in the long term, experts predict turbulent times ahead. Digital currencies and cryptocurrency exchanges like FTX are now under scrutiny by Congress. Crypto-linked companies are now in the red and may face bankruptcy as markets falter.
Questions about value and transparency have continued to overshadow cryptocurrencies, even before FTX fell apart, he noted. michael simkovicprofessor of law and accounting at USC Gould and expert in financial regulation.
“Unlike gold, wheat or oil, cryptocurrencies have no obvious use for businesses or consumers,” Simkovic said. “Cryptocurrencies are illiquid and volatile assets with high transaction costs and a lack of truly transparent pricing. Their valuations are speculative and, due to a lack of regulation, susceptible to manipulation and deception.”
We may soon discover that many cryptocurrencies have little or no value.
michael simkovicUSC Gould
Simkovic predicts that companies facing bankruptcy will try to auction off large volumes of cryptocurrency and other forms of businesses that rely on blockchain technology. Bankruptcy proceedings can also reveal the true value of cryptocurrencies.
“We may soon discover that many cryptocurrencies have little or no value, and many companies funded through tokenization are unable to generate enough profits and cash flows to justify their pre-bankruptcy speculative valuations,” Simkovic said.
Simkovic mentioned that crypto may have served another purpose for those who benefit from it, tax evasion, which could also be exposed through investigations.
Is FTX signaling the end of cryptocurrencies?
Although the market has clearly cooled off and skepticism is high, digital asset expert james healy in the USC Marshall School of Business believes that cryptocurrencies have a future.
In the long term, the digital asset market will reflect the value that technology and the people in the industry bring to the economy and society, said Healy, who is also president of Digital Disbursements, a digital payments provider and founder of the firm. investment JFH. Capital.
“My underlying belief in the power of blockchain primitives like smart contracts, digital ownership, distributed consensus, and more remains as strong as ever,” he said.
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