New cryptocurrency laws are likely coming in the U.S. whether the industry likes it or not. A salubrious outcome would be legislation that helps protect consumers without undermining, and maybe furthering, crypto’s promise of financial autonomy.

Here’s an idea.

What if Congress mandated the separation of crypto custody and crypto exchange? In other words, a company could be licensed to match, buy and sell orders between investors, or it could be allowed to store crypto on a customer’s behalf, but no firm would be permitted to do both. At most, an exchange could administer an escrow account holding funds for agreed-upon, uncompleted trades. It would never be allowed to act as a de facto bank.

Marc Hochstein is the executive editor of Consensus, CoinDesk's flagship annual event. The views expressed are his own, so please don't take it out on his colleagues. This article is part of CoinDesk’s Policy Week.

Think about it.

From the Mt. Gox debacle nearly a decade ago to FTX’s collapse last year, a lesson that crypto users keep learning over and over again is captured by the alliterative slogan, “not your keys, not your coins.” Bitcoin and its descendants and copycats are digital bearer assets, more akin to physical coins, banknotes or gold bars than to the digital money in a bank account. Once crypto is gone, it’s gone. If you hand it to a third party to hold it for you, you are trusting it to A) not get hacked and lose the funds, B) not misuse or abscond with the funds and C) give your crypto back when you ask for it.

Time and time again we’ve seen exchanges fail at one or more of these jobs. Yet, too many users continue to trust exchanges to hold their money rather than practicing self-custody (storing coins in a wallet whose cryptographic private keys only they control) or using a hybrid arrangement like a multisignature (multisig) wallet (controlled by multiple keyholders).

According to FTX attorney Andy Dietderich, the troubled cryptocurrency exchange has “recovered $5 billion in cash and liquid cryptocurrencies.” However, the exchange is still “working to rebuild transaction history,” and the total amount of customer shortfall is “still unclear.” The recovered assets do not include those seized by the Securities Commission of the Bahamas, which largely comprises the exchange’s native token, FTX Token $1.32, which has a total market capitalization of $444.7 million at the time of publication.

Speaking to a U.S. bankruptcy judge in Delaware on Jan. 11, Dietderich also stated that the company plans to sell $4.6 billion worth of non-strategic investments, including subsidiaries such as LedgerX, Embed, FTX Japan and FTX Europe. The companies are independent of FTX with segregated accounts. FTX Japan has already drafted plans to return customer funds. In addition, FTX will end its 2021–2028 sponsorship deal with popular multiplayer online battle arena game League of Legends. 

Cointelegraph previously reported that FTX had $8.8 billion in total liabilities. At the time, sources said the exchange had very little in cash and liquid digital assets, amounting to an estimated $8 billion hole in its balance sheet. At the Jan. 11 hearing, FTX received court approval to keep customers’ names secret for three months after customers raised potential identity theft concerns. 

#FTX #SamHeughan #scam

If dumping starts, FTT price will tank and with it, the collateral value held by Alameda Research.

This is how margin calls and liquidation cascades start.

#FTT price seems to get a lot of sell volume lately. 🧐

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