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After reaching a peak market value of $3 trillion in 2021, cryptocurrencies have spent the better part of 2022 in a tailspin fueled by scandal, financial losses and a public perception crisis. This past week, crypto firm FTX’s founder Sam Bankman-Fried was indicted on a battery of fraud charges. Matthew Homer joins Geoff Bennett to discuss.
2022 has been a brutal year for cryptocurrency after reaching a peak of $3 trillion in value in 2021, cryptocurrencies have spent the better part of this year in a tailspin, fueled by financial losses, a public perception crisis and a fraud scandal. This past week, the founder of the crypto firm FTX Sam Bankman-Fried was indicted on a battery of fraud charges. Bankman-Fried has denied knowingly defrauding investors.
Sam Bankman-Fried, former CEO of FTX: Look, I screwed up like I was CEO, I was a CEO of FTX. And I mean, I'd say this again and again, that that means I had a responsibility, that means that I was responsible ultimately, frustrating to write things and I mean I — we didn't like, we mess up.
Matthew Homer joins us now. He's a former crypto regulator. And now an active investor and advisor in the crypto industry, though we should say he has no direct relationship with any of the companies we're discussing today. Thanks for being with us.
Matthew Homer, Venture Capital Investor:
Pleasure to be here, Geoff.
And Matt, you could argue that the fall of FTX has more to do with greed and fraud allegedly than it has to do with crypto. But still, you know, from where you sit, what do you see as the takeaways, the lessons learned here?
I see three big takeaways. The first is you said is that this is fraud. The risks and human foibles that exists in other parts of financial services also exist here. In so many ways, what happened wasn't about crypto at all, it was about hubris and about fraud.
The biggest second important takeaway is that this space clearly has a long way to go and it's evolution. And this is that I think will be an important one in helping it mature, helping us reduce risk, and also push the bad actors out of the system. And the third takeaway is that I think it's very clear that cryptocurrencies services offered by central intermediaries need to be regulated. And there's been a lot of consensus that has emerged around that over the past year, even within the crypto industry itself.
What about the ripple effect here, because just over the past week, customers have pulled billions of dollars' worth of assets from Binance, which is the world's largest crypto exchange. So, what does the collapse of FTX mean for the larger crypto sector moving forward?
The ripple effects continue to extend through the system. And I expect we'll continue to see those play out over the next, next few months. But risk is being pushed out the system. And I think that the industry will recover. But the big — the biggest impact I see from all of this is the loss of trust, loss of trust with consumers, loss of trust with regulators, loss of trust in Washington, and that's going to take a very long time to rebuild.
On the point of regulation, which you mentioned, lawmakers on Capitol Hill are pushing legislation right now to rein in the cryptocurrency market. Can crypto work as designed if it's subjected to federal regulation, and more transparency?
I think significant parts of the space can be regulated and should be regulated. If you are an organization that enables customers to buy or sell crypto assets on your platform and you hold those assets for their behalf in your platform, you should be regulated. And there are templates for how to do that, some regulators are already doing that, most notably, the New York State Department of Financial Services where I worked previously, has a comprehensive framework for regulating cryptocurrency, but some states do not. The federal government does not. And regulators need to be much more active in the space, looking at the financial health of these companies, ensuring consumer protection, looking at cybersecurity practices, compliance with anti-money laundering and a host of other laws. Cryptocurrency is not going away. And regulators in my opinion, have a responsibility to the public to oversee the risks, but just as importantly, to create pathways so that founders can start businesses in a regulated manner in the U.S. so that people don't feel the need to work with offshore entities.
To your point about crypto not going away, less than a year ago, we were seeing Super Bowl ads for FTX and other cryptocurrency exchanges, FTX nosedive from a $32 billion valuation to a near zero valuation in a day. So, what's your response to people who say crypto is at worst, a Ponzi scheme, and at best, it's too good to be true. You can't get rich quick?
There are a lot of good actors in this space. I think what makes people excited about this space is that if you think about the evolution of money, money becoming faster, becoming more efficient, becoming sort of more omnipresent in society but it's very difficult to differentiate between the good actors and the bad actors. And that's why it's important to regulate the space because that's one way to enable consumers to know who is safe to engage with and who's not.
Matthew Homer, thanks so much for your insights, and for your time. I appreciate it.
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