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Luna, 3AC, Celsius, FTX; does crypto need immediate regulation?

Crypto

TL;DR Breakdown

  • After the FTX-Binance saga, investors have raised a need for crypto industries regulations
  • FTX’s insolvency has sent the crypto market into a harsh bear market
  • Crypto regulations are inbound; it is just a matter of time

At this rate, crypto investors need a ton dose of therapy. This year has been terrible, horrible, and dreadful for the crypto market. Tragedy after tragedy, the crypto winter has become a norm for the DeFi and Web3 markets.  How did the market get here? The Terra Luna ecosystem established a precedent for the past few months’ events. However, no one anticipated the devastation FTX would unleash upon the market.

FTX has been the crypto white knight for a long time. It is arguably one of the finest exchanges on the DeFi market. During the most draining winter and recessions, FTX came in and saved insolvent cryptocurrency entities. 

At this particular moment, the saviour needs rescuing. The present FTX scandal has captured the attention of financial watchdogs and regulators. For such an economic juggernaut to implode in a couple of hours, restrictions are unquestionably on the horizon. Simply a matter of time

Crypto markets; terrible, horrible, very bad year

According to an old saying, when it rains, it pours. The current condition of the decentralised financial market is a perfect illustration of this adage. Cryptocurrency regulators are closing in on the troubled financial market. FTX has not helped the case considering it was a donor in the ongoing U.S. elections. 

According to CoinGecko, FTX was the fourth-largest exchange by volume as of this morning. Sam Bankman-Fried was a major donor during midterm elections and a prominent advocate for certain policies. He may still be, but the fact that his company went from “OK” to signing a letter of intent with Binance in two days may have long-term consequences.

If you have been involved with the DeFi market for any time, you are familiar with the controversy surrounding insolvency exchanges and currencies. The crash of Terra Luna has had a significant detrimental effect on the DeFi industry. Over $2 trillion has been wiped out from the total market capitalisation.

In actuality, the DeFi market fall may have more to do with shifting global market dynamics and the failure of a top-10 blockchain. Highly disorganised crypto firms and leverage may have exacerbated the decline.

Four prominent cryptocurrencies have emerged as the “Horses of the Cryptopocalypse” as a result of the convergence of the aforementioned variables, which have dramatically rendered the crypto market’s decline. They coincide with some of the lowest lows this asset class has witnessed since January 2021, and they signal the end of the fourth bull run for cryptocurrencies.

The first black horseman, the collapse of Terra Luna and USDT signalled the start of the crypto death. The only question remaining was, “Who’s next?” The second horseman was Celsius, which halted withdrawals and caused waves of panic through the DeFi market.

Shortly after, the makings of a third meltdown were taking place as Celsius’s star was falling. In contrast, the third horseman was the multibillion-dollar Three Arrows Capital, not “dumb money.” Following this was Voyager digital. However, there is usually a period of calm preceding a storm. FTX is the sixth horseman of DeFi’s black doom.

The need for crypto regulation solidifies

In the current cycle, it is difficult to determine with certainty if the worst has passed. However, the industry has been rocked, and it is probable that both operators and regulators have taken note. Regulators view their unexpected failures as a virus, a domino effect. Here, weak and failing crypto groups band together to defeat larger, unprepared ones.

It could be months or years before crypto regains its footing; alternatively, it may never rebound to the 14-year-old industry’s all-time highs. However, a definitive conclusion can be drawn from each of these cycles and the preceding months: retail investors are the first to lose.

It is a strong case for increased regulation of centralised corporations. Investor protection requires that all centralised businesses, whether hedge funds like Three Arrows Capital or Alameda Research or controlled exchanges like FTX and Binance that are not publicly traded, have proof of reserves.

This year, a string of crypto insolvencies has raised issues regarding the viability of unsecured lending in the young and unpredictable digital asset sector. When an unsecured loan defaults, creditors can seize no immediate assets. The protocols only partially compensate the creditors, so they must restructure their debt or file a lawsuit to reclaim their money.

Concerns about whether the transaction would violate antitrust laws have already been raised. Globally, regulators have the authority to stop significant mergers if they suspect they may impede market competition, and anti-competitive conduct is strictly prohibited by law.

For such a long period, the demand for crypto regulations has been minimised for such a long period. The decentralised market was intended to be independent of government authority, but the present collapse of giant DeFi organisations needs investor protection legislation. Stringent regulations are coming- it is just a matter of time.

Florence Muchai

Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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