‘We’ll prove them all wrong.’ Crypto backers defend sector in the wake of FTX crash

FTX—among the world’s largest cryptocurrency exchanges that was once valued at $32 billion—filed for bankruptcy last week after reports that founder and CEO Sam Bankman-Fried had mishandled customer funds. Most of FTX’s assets were liquidated in the space of days. The collapse has eroded trust in the industry, and is a blow to investment firms, celebrity endorsers, and many of the 5 million users who stored their digital assets with FTX. 

“A lot of consumer confidence is shaken, and I think basically we’ve been set back a few years,” Changpeng Zhao, the CEO of rival exchange Binance who is also known as CZ, said last week. He added that comparing the FTX crash to the 2008 financial crisis was “probably an accurate analogy.”

But despite depleted faith in the sector, several of its high-profile backers argue that FTX’s collapse does not mark the end of the line for crypto overall, even if it shows that the industry has a lot of growing up to do.

“We will prove all the naysayers—and there are many of these right now on Twitter over the last couple of days—we will prove them all wrong with our actions,” Kris Marszalek, CEO of exchange Crypto.com, said during a live Q&A session on YouTube on Monday. 

Crypto’s backers

The FTX meltdown has been compared to the bursting of a market bubble, one that had been built on consumer belief but little substance, and that risks wide-reaching implications for the broader crypto industry.

But many long-standing supporters continue to be hopeful for crypto, despite acknowledging that more regulation is needed to avoid another collapse like FTX. Last week, for example, Binance’s CZ said that the market is likely to “heal itself,” but will need to become a much “healthier” industry through more regulation.

“Now regulators will rightfully scrutinize this industry much, much harder, which is probably a good thing, to be honest,” he said.

During his Q&A, Marszalek tried to differentiate Crypto.com from FTX by describing it as safe. He said it never engaged in any “irresponsible lending practices,” referring to the allegations levied against FTX and Bankman-Fried that they used customer funds to finance the investment operations of sister company Alameda Research.

“It’s not only important to look at how a certain company behaves during times of such stress, I think it’s important to look at how we have behaved over the past couple of years and what actions we have taken as a company,” Marszalek said. He described Crypto.com as the “single most regulated company in the space,” citing licenses the company has recently obtained to operate in France, the U.K., and Canada.

Yet while praising Crypto.com’s safety, the company came under fire over the weekend when the CEO disclosed mistakenly sending Ethereum worth over $400 million to a wrong account three weeks ago. In a Twitter post, Marszalek wrote that the funds had been returned—just the latest in a series of snafus that also included mistakenly sending a woman $10.5 million instead of a $100 refund and only realizing it seven months later. 

Many people have criticized U.S. regulators—primarily Securities and Exchange Commission Chair Gary Gensler—for failing to clamp down early enough on cryptocurrency companies. They say the lax oversight allowed for FTX’s implosion and the high-profile failures of a number of other crypto companies, including lenders Celsius and Voyager Digital.

Crypto’s growing pains

“The industry needs to grow up, and the regulators are coming into this space,” Michael Saylor, founder and current executive chairman of software company Microstrategy and long-time cryptocurrency defender, told CNBC on Thursday.

When asked about what the FTX collapse meant for the crypto industry, Saylor said the future of digital assets is still promising, but only if regulators step in to steer the industry and protect users. “The marketplace is waiting for the regulators to say: ‘This is how you register a digital currency. This is how you register a digital commodity,’” he said. 

Saylor also said that cryptocurrency is transitioning from its early “Wild West” stage dominated by small companies and start-ups to an “institutional digital asset stage” during which regulators and traditional banks are the leaders. 

“We’re all just going to grow up, and the world is going to benefit from that,” he said.

Saylor—a major investor in Bitcoin, the largest cryptocurrency by market capitalization—argued that the poor track record of some digital currencies and crypto companies is tarnishing the rest. Those bad actors, he emphasized, do not reflect the industry as a whole.

“Speaking for all the Bitcoiners, we feel like we are trapped in a dysfunctional relationship with crypto, and we want out,” he said. 

Saylor resigned as Microstrategy’s CEO after hit bets on bitcoin led the company to lose over $900 million in one quarter.

Bitcoin, in 2009, was among the first decentralized cryptocurrencies to debut, and is also considered to be one of the more conservative and predictable digital assets. Last month, before the FTX chaos, Bitcoin’s volatility level—a metric of daily price changes—fell below that of the S&P 500 and Nasdaq for the first time in two years.

El Salvador President Nayib Bukele has also continued to back Bitcoin amid the current market downturn. Bukele made international headlines last year when he made Bitcoin legal tender in his country, the first nation ever to do so. Although the experiment has had mixed results, his enthusiasm for Bitcoin over other cryptocurrencies is still strong despite FTX’s crash.

“FTX is the opposite of Bitcoin,” Bukele wrote on Twitter Sunday. “Bitcoin’s protocol was created precisely to prevent Ponzi schemes, bank runs, Enron’s, WorldCom’s, Bernie Madoff’s, Sam Bankman-Fried’s.”

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