The cryptocurrency industry has experienced several unfortunate events in 2022. The downward trend in all markets resulted in many liquidations and multi-million losses. Many Canadians were also affected.
The fall was noteworthy Terra UST stablecoin and its sister token LUNA. Another casualty was Celsius, which halted customer withdrawals when their liabilities increased too much. Unfortunately, many investors lost everything they had.
The latest fiasco involved FTX, the world’s second largest cryptocurrency exchange after Binance. FTX and its token FTT have dominated the crypto industry thanks to celebrity investors like NFL star Tom Bradyand institutional investors including Sequoia Capital, BlackRock, and even Binance itself.
In February 2022, FTX was valued at $32 billion and announced that it would soon offer stock trading to its clients. However, the dream did not last long and in November 2022, FTX filed for bankruptcy.
According to Coindesk, Alameda, the research trading company owned by FTX’s CEO, had most of its assets in FTX’s FTT token. This discovery showed that most of Alameda’s foundations consisted of an invented token, rather than fiat currency or another cryptocurrency.
While there is nothing wrong with this in itself, holding assets in a made-up token is extremely risky. Furthermore, the relationship between Alameda and FTX may have resulted from a regulatory oversight that could have given both companies an unfair market advantage.
Due to a lack of assets, large liabilities, regulatory oversight, and questionable business, FTX quickly fell apart. Within days of Binance CEO CZ’s announcement, Binance intended to sell his FTT tokensPTF’s price plummeted and FTX’s questionable activities were discovered and the news spread around the world.
The question is: How could FTX avoid such actions for so long? How could the world’s second largest cryptocurrency exchange collapse in just three days?
Many people love Bitcoin because of its decentralized nature, but when private companies start getting involved in cryptocurrencies, people need to trust that they know what they are doing. Without proper regulation and full transparency, companies like FTX can get away with eyebrow-raising activities.
In response to the events surrounding FTX, the Canadian cryptocurrency exchange Newton issued a statement.
They said, “We have a simple rule: do not risk the client’s property. We hold every dollar that customers keep with us as CAD with a Canadian financial institution. Each satoshi or other cryptocurrency is stored in Coinbase Custody or Fireblocks. In both cases we maintain insurance.
“We do not lend clients’ assets. We don’t do anything with them at all unless you instruct us to do so. We have never issued our own token and have no intention of doing so. We don’t even risk our own money because we spend this money on product development.”
The cryptocurrency industry needs full transparency so that investors can trust it. If the second largest stock exchange in the world, an institution with well-known and respected investors and stakeholders, is able to deceive people for years, cryptocurrency will never become mainstream.
Regulations, although unfavorable to some, are necessary for the adoption of cryptocurrencies and preventing similar events in the future.
What does this mean for Canadians?
FINTRAC (Financial Transactions and Reporting Analysis Center of Canada) is the Canadian financial regulator. Monitors cryptocurrency transactions to prevent money laundering and financing of terrorist organizations. FINTRAC reports to Minister of Finance in the Canadian government.
When registering with a Canadian cryptocurrency exchange, you will need to provide some identification documents and answer a financial questionnaire. The idea is for FINTRAC to protect cryptocurrency exchanges and their customers from illegal activities.
FINTRAC investigates and analyzes data and information received from Canadian cryptocurrency exchanges to prevent nefarious activity. They also perform audits of financial institutions.
That’s why Canadian cryptocurrency exchanges are kept under a watchful eye. They are closely monitored and must comply with requests for information, making it almost impossible for Canadian cryptocurrency exchanges to take part in activities similar to FTX, which caused its collapse.
We recommend Canadians use a Canadian cryptocurrency exchange to trade because of the peace of mind they offer by being regulated and monitored by FINTRAC.
However, after purchasing cryptocurrency, we suggest transferring your assets to private wallets. While we believe that most Canadian cryptocurrency exchanges are safe, when it comes to the exchange’s own operations, hacks and theft are still possible.
We recommend keeping your crypto assets in private wallets for safekeeping. You can read all about the best cryptocurrency wallets in our previous article.
What does the FTX drop mean for Canadian customers and Canadian cryptocurrency exchanges? – Financeify
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