History of Crypto: The future of crypto exchanges, regulatory battles, and governance Welcome to the History of Crypto, a Cointelegraph series that brings readers back to the most significant events in the crypto space.Powered by Phemex, the timeline allows crypto community members to explore and look back at the important events that shaped the industry into what it is today.This article explores the period following November 2022, when the FTX exchange collapsed, giving rise to one of the most notorious crypto winters in the history of digital assets.The period after the collapse of the FTX exchange is known as one of the darkest times in crypto history.The downfall of FTX and its over 130 subsidiaries catalyzed a chain reaction of bankruptcies and layoffs among Web3 firms, giving rise to one of the longest crypto winters, that saw Bitcoin’s [BTCUSD](/symbols/BINANCE-BTCUSD/) price bottom out at $16,000.EXPLORE THE HISTORY OF CRYPTO Following the bankruptcy that caused a $8.9 billion loss of investor funds, regulators were forced to take action and develop more investor safety-oriented frameworks emphasizing transparency for crypto exchanges and service providers.United States regulators issued some of the most significant criminal fines in history to Binance despite no evidence of user fund misappropriation.They also fined smaller exchanges in a hawkish effort to prevent potential FTX-like meltdowns.
How did FTX collapse? The now-infamous FTX exchange collapsed nearly on and a half years ago, sending shockwaves across global crypto markets and wiping out tens of billions of value within a few days.In essence, FTX collapsed due to user fund misappropriation, which resulted in billions worth of trading losses for its sister company, Alameda Research.The quantitative trading firm used FTX customer funds that Bankman-Fried transferred without consent to fund Alameda’s trading losses, now referred to as the Alameda gap.Before getting its quantitative trading protocol from Gary Wang, Alameda lost over $500,000 every day throughout an awful month, claimed Michael Lewis in his biography about Bankman-Fried.
The user fund misappropriation started to unravel in November 2022 when it was revealed that a large portion of Alameda’s balance sheet was made up of FTX’s FTT token.The revelation led to a large sell-off, which caused the FTT token price to plummet, raising widespread concerns about the financial health of FTX and Alameda Research.This led to mass customer withdrawals of up to $6 billion within three days.FTX could not meet the withdrawals as it was forced to suspend them.
FTX filed for bankruptcy on Nov.11, 2022.Bankman-Fried was arrested in the Bahamas on Dec.12, 2022, after United States prosecutors filed criminal charges against him.
He was extradited to the U.S.in January 2023.Bankman-Fried was sentenced to 25 years in federal prison on March 28, 2024.100 Years in Jail?! SBF Trial Verdict Explained.Source: Cointelegraph Related: Alameda Research FTT token transfer from September fuels wild speculations The regulatory crackdown after the FTX collapse The collapse of the FTX exchange triggered a hawkish response from the United States Securities and Exchange Commission (SEC), which started a broader crackdown on crypto exchanges to avoid another potential FTX-like meltdown.In June 2023, the SEC sued Coinbase and Binance Exchange for alleged securities violations.
In the lawsuit against Binance, the SEC alleged that the company and its founder, Changpeng Zhao, had misappropriated billions of user funds.EXPLORE THE HISTORY OF CRYPTO Despite no evidence of user fund misappropriation, Binance was charged with violating Anti-Money Laundering laws and settled to pay one of the most significant criminal fines in history worth $4.3 billion.As for the Coinbase lawsuit, the SEC claimed that the exchange operates as an unregistered exchange, broker, and clearing agency and violated securities laws by listing 13 tokens it alleged were securities, according to the lawsuit filed in June 2023.Coinbase sought an order to drop the case, questioning the SEC’s authority over crypto exchanges.The exchange’s motion to drop the legal case was dismissed on March 27, allowing the SEC to proceed with its lawsuit against Coinbase.
How the U.S.SEC is waging an undeclared war on crypto.Source: Cointelegraph The immediate regulatory response focused on prosecutions and enforcement rather than implementing blockchain-specific regulations, according to Ashar Burney, the legal head of TDeFi, who told Cointelegraph: Burney added that the FTX collapse was primarily a “case of criminal fraud,” not a lack of regulatory frameworks.Related: Paradigm leads $225M funding round for new ‘Solana killer’ L1 How the regulatory landscape evolved post-FTX Following the FTX collapse, crypto exchanges have started striving for more transparency, spearheaded by Binance, the world’s largest exchange.By the end of November 2022, Binance launched its Proof-of-Reserves (PoR) system, which shows the amount of underlying assets the exchange holds on behalf of users.This third-party audit aims to show users that the exchange can meet any potential withdrawal requests.
Binance’s main assets were overcollateralized by at least 102% as of April 12, according to its PoR page.Following Binance’s push for transparency, other top exchanges have followed suit, including Coinbase, OKX, Crypto.com, Kraken, and Bybit.How CZ built Binance and became the richest person in crypto | Crypto Stories Ep.16.
Source: Cointelegraph Despite the new PoR audit systems, investors still need to conduct due diligence as FTX had also performed numerous financial audits that didn’t uncover the fraud, according to TDeFi’s legal head, Burney, who told Cointelegraph: Beyond the transparency efforts of crypto exchanges, governments worldwide have also taken a more collaborative approach to regulating the nascent crypto industry, according to James Wo, the founder and CEO of DFG, who told Cointelegraph: In May 2023, the European Council adopted the first comprehensive legal framework for the crypto industry.The Markets in Crypto Assets (MiCA) framework aims to protect investors through more rigorous transparency standards and AML rules.
EXPLORE THE HISTORY OF CRYPTO Thanks to the new MiCA bill, crypto exchanges will become fully regulated entities from the end of 2024, Vyara Savova, senior policy lead at the European Crypto Initiative, told Cointelegraph: While MiCA is a significant step for the global regulatory landscape and investor safety, its efficiency will depend on the member state implementations for each country, explained Savova: Hong Kong and Dubai have also introduced crypto regulations that favor innovation in an effort to become known as global crypto hubs.Yet, the most regulatory sign came in January 2024, with the approval of the spot Bitcoin exchange-traded funds (ETFs).Related: TradFi Wall Street firms pushing for Ether ETF approval, says former Binance Labs head Bitcoin ETFs signal an innovation-friendly approach, but investors are not necessarily safer After months of regulatory battles, the ten spot Bitcoin ETFs were approved by the United States SEC on Jan.10, enabling traditional investors to gain exposure to BTC through publicly-traded funds.The approval of the ETFs is a positive development signaling that signals an innovation-friendly approach from U.S.regulators for the future, according to DFG’s Wo, who told Cointelegraph: The U.S.
ETF approval has also inspired other jurisdictions to follow suit.The Securities Regulatory Commission (SFC) of Hong Kong could approve the first four spot Bitcoin ETF applications by April 15, after the financial regulator has reportedly accelerated the approval process for the first ETFs.Spot Bitcoin ETF Approved: Impact on Investments with Mark Yusko.Source: Cointelegraph Related: Hong Kong regulator fast-tracks Bitcoin spot ETF approvals Despite significant global regulatory developments like ETFs and more regulations around crypto exchanges, investors aren’t necessarily shielded from another FTX-like meltdown, according to DFG’s Wo: Related: FTX moves to offload 8% stake in Anthropic Looking ahead to 2024 and beyond The FTX collapse inspired widespread collaboration between global regulators to prevent another high-profile meltdown.Some of the world’s leading economies have developed new regulations for crypto exchanges, while Europe passed the first comprehensive framework for the crypto industry, setting the benchmark for other regulators.
The European MiCA framework is still a work in progress.The next major part of the bill will set a marketing communication standard for crypto exchanges, which could impact crypto service providers in Europe, according to the European Crypto Initiative’s senior policy lead, Savova, who told Cointelegraph: The second consultation package for reverse solicitation guidelines under MiCA is set to end on April 29.The outcome of the consultation will be influential for MiCA’s final implementation in December, according to Savova: According to TDeFi’s Burney, crypto service providers could still see more regulatory scrutiny, including more stringent disclosure and compliance requirements, leading to a more mature industry.Burney said: Crypto Bull Market Phase 2: What to Expect.
Source: Cointelegraph Related: Binance Labs shifts investment focus to Bitcoin DeFi.
