Blog: Protecting cryptocurrency investors –

If there is one lesson that can be lifted from the “$16 billion to zero” meltdown of the FTX Cryptocurrency Exchange last week, it is the need for tighter oversight by regulatory agencies in the conduct of companies dealing with cryptocurrencies.

Thirteen years since the first decentralized cryptocurrency Bitcoin was released, regulatory agencies continue to grapple with the workings of digital currencies that have grown in complexity and value, estimated at over $1 trillion in August of over 9,000 different cryptocurrencies.

A crypto is regarded a “currency” that operates with no central authority or bank arising from a distributed ledger technology, usually a blockchain.

Bitcoin, for example, started in 2009 with a value of $0, and over time, through its blockchain supply system, with subsequent demand and speculation, reached an all-time high of $64,000 in the first half of 2021.

These days, in the midst of FTX’s filing of bankruptcy, a Bitcoin still carries about $16,000 in value. Bitcoins continue to be considered the most valuable crypto today, widely sought after despite its price fluctuations.

While cryptocurrencies are not considered legal tender in most countries, exchanges that deal with cryptos are recognized, and regulatory agencies often consider them as money transmitters premised on the belief that cryptocurrency tokens can substitute for currency.

FTX, which was founded in 2019, had risen to become one of the biggest crypto exchanges in the world after securing support from big investors, including Softbank and Sequoia Capital. In 2021, it raised $900 million in new capital on a valuation of $18 billion.


Unfortunately, a news report by CoinDesk published on Nov. 2 this year, exposed that Almeda Research held close to $6 billion in FTTs, the exchange token issued by FTX. Almeda is an FTX affiliated trading firm. The Wall Street Journal later last week reported that FTX lent Almeda about $10 billion worth of customer assets, which were in turn used to fund risky ventures.

This relationship of FTX and Almeda, which would have been prohibited under normal regulatory rules of traditional equity markets, started FTX’s implosion. Binance, another crypto exchange and by far the biggest to date, which used to own a large stake of FTX, started to liquidate all its FTTs. This led to the “bank run” and the eventual bankruptcy filing.

The collapse of FTX is now being equated to the 2001 Enron corporate fraud scandal that led to bankruptcy of the American energy company, as well as to the 2008 Lehman Brothers subprime mortgage scandal, which eventually triggered a global financial crisis.

Uncertainty abounds now on how the cryptocurrency market will end up, with holders of cryptos particularly fearful of the new jolt that has further depreciated their investment. Bitcoin and Ether, two of the most-held cryptos, are now about 20 percent lower and other cryptos are similarly going through a shock.

Cryptocurrency exchanges, for sure, will be subjected to tighter scrutiny given the growing number of people who now subscribe to owning digital assets that consequently fuels the rising value of the whole industry.

Regulatory catch-up mode

Still in its infancy, regulation of the crypto market is pretty much evolving depending on a country’s appetite and risk. Globally, international financial regulatory institutions are on a catch-up mode when dealing with the fast-changing cryptocurrency environment.

The International Monetary Fund (IMF) has called for cooperation among nations to work on a standard regulatory framework that will bring order to the markets, thus laying down an environment where useful innovation will continue to instill consumer confidence.

Rightly so, the current value and size of the crypto ecosystem represents growing risks for the world’s financial system, and differing regulatory strategies of nations represent another stumbling block to dealing with any emerging crisis.

The IMF is seeing more emerging markets and developing economies, particularly in sub-Saharan Africa, seriously exploring the adoption and use of digital currencies at a time when established financial regulatory tools will not be able to manage these new capital flows, much more, money-laundering schemes.

Managing cryptocurrency flows in more advanced economies like the United States has been a challenge, even with the legalization of crypto exchanges. Treating cryptocurrencies has gotten a much more varied view, depending on the regulatory agency.

The US Securities and Exchange Commission, for example, views cryptocurrencies as securities, subjecting them to stringent securities laws. On the other hand, the Commodities Futures Trading Commission has a more relaxed view when trading cryptocurrency derivatives.

Not yet a threat

The Philippines, which generally patterns its cryptocurrency policies on US financial regulations, takes a more conservative approach, being more mindful of illegal activities like money laundering, terrorism, cybercrime, and other transactions dealing with digital assets.

Our central bank recognizes cryptocurrencies as legal tender, although its current popularity with the population is still at a level that is not considered a threat to the traditional financial system, even if the number of number of crypto exchanges has exploded in numbers in recent times.

Many Filipinos still have a limited appreciation of cryptocurrencies, mainly because of the exhibited volatility in prices. This does not preclude, of course, the fact that there are already those who have become deeply involved in cryptos, and subsequently, been burned by wild downward swings.

Once in awhile, though, there are stories of a cryptocurrency player who has lost his shirt after having waded too deeply into a volatile market. As cryptocurrencies and their derivatives gain more popularity, our financial regulators must strive to be one step ahead to protect people and the whole system.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit

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