FTX's Fallout: Crypto Market Rebounds, States Enter, Controls Urged

The shadow of FTX continues to recede as the crypto market regains its footing, with bitcoin hovering around the $100,000 mark and U.S. government research exploring the investment potential of digital assets. However, the sector remains vulnerable to rug-pulls, hacks, and other unethical events, as seen in the recent case involving the President of Argentina. FTX serves as a cautionary tale for the damage caused by a small group of bad actors, with lessons applicable to both the private sector and state-backed crypto reserves.

As the crypto sector matures, with institutions like states, pension plans, and endowments considering investments in bitcoin and other cryptoassets, internal controls, separation of duties, and other internal workflow processes become increasingly important. The entry of states into the crypto space elevates these concerns, as investments are made with funds entrusted to fund managers. With potentially billions of dollars at stake, institutions must prioritize internal controls to protect these investments.

As large institutions, including states, enter the crypto sector, it is crucial to avoid domination of policy discussions by a small number of firms. The crypto space has an opportunity to create a regulatory environment that incorporates input and insights from a diverse range of members. Collaborative efforts and inviting more firms to collaborate with the SEC on its pro-crypto agenda will help construct better policy and prevent a single firm from dominating the conversation. State-based reserves should seek to prevent excessive influence from any one entity or institution and seek expertise from industry leaders without allowing policy to be dictated by them.

Crypto continues to gain traction in mainstream financial conversations, and FTX's former customers are finally receiving reimbursement. However, the lessons learned from FTX remain as relevant as ever, serving as a reminder of the importance of internal controls, collaboration, and preventing excessive influence in the crypto sector.