The crypto industry has experienced several unfortunate events in 2022. The downtrend of the overall markets caused many liquidations and millions of dollars worth of losses. It affected many Canadians as well.
A notable collapse was Terra’s stablecoin UST and its sister token LUNA. Celsius was another victim, which halted customer withdrawals after its liabilities grew too much. Unfortunately, many investors lost everything they had.
The latest fiasco involved FTX, the world’s second-largest crypto exchange behind Binance. FTX and its FTT token dominated the crypto industry with celebrity investors such as NFL star Tom Brady, and 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 customers. However, the dream was short lived and in November 2022, FTX declared bankruptcy.
According to Coindesk, FTX CEO’s research trading firm Alameda had most of its assets in FTX’s own FTT token. This revelation showed that much of Alameda’s foundation was made up of an invented token not a fiat currency or another crypto.
While there is nothing wrong with this per se, it is incredibly risky to hold assets in a made-up token. Additionally, the link between Alameda and FTX might have been a regulatory oversight in which the two companies possibly could have had an unfair market advantage.
Due to lack of assets, large liabilities, regulatory oversight and dubious activity, FTX unraveled quickly. Within days of Binance CEO, CZ, announcing Binance was going to sell its FTT tokens, the price of FTT came crashing down and FTX’s dubious activities were found out and the news spread all over the world.
The question is, how could FTX get away with such activities for so long? How could the world’s second-largest crypto exchange collapse within just three days?
Many people love bitcoin for its decentralized nature, but when private companies start to get involved in crypto, people have to trust that they know what they’re doing. Without proper regulation and full transparency, companies like FTX can get away with eyebrow-raising activities.
In response to the events surrounding FTX, Canadian crypto exchange Newton issued a statement.
They said, “we have a simple rule: don’t take risks with customer assets. Every dollar that customers hold with us, we hold as CAD in a Canadian financial institution. Every satoshi or other crypto-asset is held with Coinbase Custody or Fireblocks. We maintain insurance coverage on both.
“We don’t lend out customer assets. We don’t do anything with them at all unless you instruct us to do it. We’ve never issued our own token and we don’t intend to. We don’t even take risks with our own treasury because that money is earmarked for product development.”
The crypto industry needs full transparency for investors to trust it. If the world’s second largest exchange, an institution with well-known and respected investors and stakeholders can fool people for years, then cryptocurrency will never be mainstream.
Regulation, while unfavourable to some, is necessary for crypto adoption and for preventing similar events in the future.
What Does It Mean For Canadians?
FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) is Canada’s financial regulator. It monitors crypto transactions to prevent money laundering and financing of terrorist organizations. FINTRAC reports to the Minister of Finance within the Canadian government.
When signing up to a Canadian crypto exchange you will have to provide several pieces of identification and answer a financial questionnaire. The point is for FINTRAC to protect crypto exchanges and its customers from illegal activities.
FINTRAC researches and analyzes data and information received from Canadian crypto exchanges to ensure no nefarious activity. They also perform audits of financial institutions.
Canadian crypto exchanges are therefore kept under a watchful eye. They are carefully monitored and must comply with information requests, which makes it almost impossible for Canadian crypto exchanges to partake in activities similar to FTX, which caused its collapse.
We recommend Canadians use Canadian crypto exchange to trade due to the peace of mind they offer being regulated and monitored by FINTRAC.
Once you have bought cryptocurrency, we do, however, suggest you move your assets to private wallets. While we believe most Canadian crypto exchanges are safe when it comes to the exchange’s own activities, hacks and theft is still possible.
We recommend you keep your crypto assets in private wallets for safekeeping. You can read all about the best crypto wallets in our previous article.
