The recent collapse of cryptocurrency exchange FTX has reinforced traditional banks' distrust of the sector. They are calling for greater regulation of these activities, for enhanced protection of invested funds.
The bankruptcy of cryptocurrency platform FTX
As of November 11, the FTX platform, considered the second largest cryptocurrency exchange platform in the world after Binance, has declared itself bankrupt. Founded in 2019 and until recently valued at $32 billion, the FTX platform enabled 1.2 million users to buy cryptocurrencies and carry out transactions online.
Press Release pic.twitter.com/rgxq3QSBqm- FTX (@FTX_Official) November 11, 2022
On November 2, founder Sam Bankman-Fried found himself in turmoil: Alameda Research, his investment fund, turns out to be largely fueled by cryptoactives issued by the FTX platform, FTX Token (FTT).
The revelation of this conflict of interest in the press then led its main competitor, Binance, which had been one of the first to invest in the FTX platform, to announce the sale of all its FTT assets. Immediately, the price of FTT plummeted and many FTX users in turn unloaded their cryptoassets.
On November 8, after announcing its intention to buy Sam Bankman-Fried's platform, Binance retracted its offer following an audit revealing mismanagement of FTX users' funds. 3 days later, Sam Bankman-Fried announced his resignation from the FTX platform, which was declared bankrupt.
FTX's bankruptcy is destabilizing the entire cryptocurrency sector. According to many analysts, the consequences of the platform's demise are comparable to those seen during the subprime crisis when Lehman Brothers bank failed in 2008.
In just one week, the FTX bankruptcy caused the cryptocurrency market to contract by $200 billion. The bitcoin price fell by over 20% over the same period, before regaining some ground over the weekend.
Traditional banks point the finger at FTX's rout
Still unenthusiastic about cryptocurrencies today, banks see the collapse of the FTX platform as yet another reason to be wary of them.
The French Banking Federation, interviewed by the daily newspaper Les Echos, called for better regulation of these activities, stressing the importance of ensuring that "the security of funds invested by customers, transparency in the management practiced by these new players, and control of their practices by regulators are guaranteed ".
According to an unnamed French bank, while cryptoactives can be considered " an investment instrument ", they should not be seen as a currency, particularly in the absence of sufficiently protective regulations.
Despite growing demand from some of their customers wishing to invest in cryptoassets, traditional banks continue to exercise great caution. However, some institutions are beginning to take an interest, and are considering, for example, playing a role in cryptoasset custody, believing themselves legitimate to vouch for their security or provide advice to their customers wishing to invest.
In July, BNP Paribas forged a partnership between its securities custody subsidiary and 2 fintechs specializing in cryptoactives, Metaco and Fireblocks. A neobank, meanwhile, has established a partnership with Coinhouse, the first French cryptocurrency platform to be registered with the Autorité des marchés financiers (AMF).
For the time being, only a few small banks have dared to take the plunge, following the example of French bank Delubac & Cie, which offers its customers a service for buying, selling and holding cryptoactives. For its part, the Franco-German bank Oddo BHF participated in the fundraising of the Coinhouse platform in June 2022.