Get iOS App Sign Up
January 11, 2023 | 3 Min Read

Crypto’s Big Bang? Why the FTX Collapse Is a Good Thing

Crypto’s Big Bang? Why the FTX Collapse Is a Good Thing

In a year filled with dramatic – and often painful – financial stories, it seems the biggest and most surprising was saved for last: the FTX collapse. And while many investors are hurting today, I believe the fallout will ultimately benefit us all.

No one saw it coming. Sam Bankman Fried was celebrated as a boy-genius entrepreneur who could virtually do no wrong – even more so, thanks to his pledge to give away all his money. But that image, along with the accounts of thousands of investors, came crashing down in November amid allegations of massive fraud.

So how can there be any good when thousands of people lose their money? The answer, in my view: the SEC and FINRA finally have the political capital to fix the broken crypto marketplace.

What’s changed?

For most of its existence, FTX was largely free of regulation. In their view, cryptocurrencies could be issued and traded as commodities – which are very different than securities. Following this rationale, the firm justified in the US and abroad that it should only have to comply with the relatively light commodity trading rules. But that all has since changed.

Prior to the firm’s collapse, the SEC declared the company’s token, FTT, a security. The ramifications were dramatic. The issuance and trading of this taken now had to abide by the securities rules put in place by the SEC and supervised by FINRA. The simple fact that FTX was not a broker-dealer and did not properly issue FTT meant that they violed a very large number of these rules.

Assuming FTX was a FINRA-regulated entity, here are a few examples of the rules it appeared to violate (trust me, there are a lot):

  • FINRA Rule 5130 prohibits firms and individuals from participating in any manner in the offer, sale, or distribution of an unregistered security.
  • FINRA Rule 4512 requires broker-dealers to adopt written policies and procedures regarding the safeguarding of customer assets, including cash and securities, that are in the broker-dealer’s possession or control.
  • FINRA rule 2111 requires broker-dealers to have reasonable grounds for believing that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the customer’s investment profile.

Where do we go from here?

Frankly, this list doesn’t even scratch the surface of the rules FTX likely  failed to follow or outright ignored. Likely, the firm will be sanctioned by the SEC. Add to that the criminal allegations the Justice Department is pursuing – and I believe this could be a singular event to morph the unbridled world of crypto currencies into a regulated world of securities. Big Bang events like this are often tumultuous and painful. But I think the regulation it helps create can bring meaningful protections for investors in the future.

Want to stay up to date with the latest posts from StartEngine? Sign up here:

You May Also Like

Important Message

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. INVESTMENTS ON STARTENGINE ARE SPECULATIVE, ILLIQUID, AND INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE POSSIBLE LOSS OF YOUR ENTIRE INVESTMENT.

www.StartEngine.com is a website owned and operated by StartEngine Crowdfunding, Inc. (“StartEngine”), which is neither a registered broker-dealer, investment advisor nor funding portal.

Unless indicated otherwise with respect to a particular issuer, all securities-related activity is conducted by regulated affiliates of StartEngine: StartEngine Capital, LLC, a funding portal registered here with the US Securities and Exchange Commission (SEC) and here as a member of the Financial Industry Regulatory Authority (FINRA), or StartEngine Primary, LLC, a broker-dealer registered with the SEC and FINRA / SIPC. You can review the background of our broker-dealer and our investment professionals on FINRA’s BrokerCheck here. StartEngine Secondary is an alternative trading system regulated by the SEC and operated by StartEngine Primary, LLC, a broker dealer registered with the SEC and FINRA.

Investment opportunities posted and accessible through the site are of three types:

1) Regulation A offerings (JOBS Act Title IV; known as Regulation A+), which are offered to non-accredited and accredited investors alike. These offerings are made through StartEngine Primary, LLC (unless otherwise indicated). 2) Regulation D offerings (Rule 506(c)), which are offered only to accredited investors. These offerings are made through StartEngine Primary, LLC. 3) Regulation Crowdfunding offerings (JOBS Act Title III), which are offered to non-accredited and accredited investors alike. These offerings are made through StartEngine Capital, LLC. Some of these offerings are open to the general public, however there are important differences and risks.

Any securities offered on this website have not been recommended or approved by any federal or state securities commission or regulatory authority. StartEngine and its affiliates do not provide any investment advice or recommendation and do not provide any legal or tax advice with respect to any securities. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. StartEngine does not verify the adequacy, accuracy or completeness of any information. Neither StartEngine nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, or completeness of any information on this site or the use of information on this site. See additional general disclosures here.

By accessing this site and any pages on this site, you agree to be bound by our Terms of Use and Privacy Policy, as may be amended from time to time without notice or liability.

Canadian Investors

Investment opportunities posted and accessible through the site will not be offered to Canadian resident investors.

Potential investors are strongly advised to consult their legal, tax and financial advisors before investing. The securities offered on this site are not offered in jurisdictions where public solicitation for offerings is not permitted; it is solely your responsibility to comply with the laws and regulations of your country of residence.

California Investors Only – Do Not Sell My Personal Information (800-317-2200). StartEngine does not sell personal information. For all customer inquiries, please write to contact@startengine.com.

StartEngine’s Reg A+ offering is made available through StartEngine Crowdfunding, Inc. This investment is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. For more information about this offering, please view StartEngine’s offering circular and risks associated with this offering.

Invest in StartEngine

190% YoY Growth: Invest in the leading equity crowdfunding platform.

This Reg A+ offering is made available through StartEngine Crowdfunding, Inc. This investment is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. For more information about this offering, please view StartEngine’s offering circular and risks associated with this offering.

 

Kevin O’Leary is a paid spokesperson for StartEngine. Read the 17(b) disclosure here.

Founder's Summit Application