whether or not you're into cryptocurrencies, you've likely heard about the failure of F. T. X this past month, the abrupt downfall of what was once one of the world's largest crypto exchanges has shaken the industry calling into question financial practices at such exchanges that are used to transact cryptocurrencies by both institutional and retail investors around the world.
I'm Sona Ramesh from the money team today, we're looking at the top five things you need to know about the four of F. T. X. My guest today, Eugene and co founder of Blockchain based company open Eden, Antonio Fattah's economist at and later we'll be hearing from Jim Rogers investor and author Eugene, let's start with how significant is F. T. X has collapsed to you
on a scale of 1 to 10 I think nine to put things in perspective. Lehman Brothers had 600 plus billion dollars when it filed for bankruptcy. Annual Madoff defrauded 60 plus billion dollars. F. T. X. $10 billion from more than five million creditors at the sky high values of $22 billion which is white overnight. So I think this is probably the top 10 corporate scandals of all time, making one of the biggest, if not the biggest crypto
scandals today. But what's more grave is that most people perceived as a trusted venue because of his mainstream advertising, big time celebrity endorsement and blue chip venture capital backers. SPF SAM, the ceo of FTS ventures and benefit owner of elemental is fun, constantly portrayed himself as a Fillon trophies. Being the second largest democrat donor who allegedly have a cozy relationship with the sec chairman
Antonio. What are your thoughts?
Very significant. It's not the first time that we see similar things in the crypto world, but I think the size of F. T. X. The fact that it was at some point sort of a leader in this market has created a lot more of a shock than any
of the previous things. So I think it's a combination of size, but I think it's also because they had played a role in developing this market and there was a lot of trust by many that they were doing something that was right such as a surprise has been a wake up call for some people.
Big names like Temasek and Sequoia Capital have announced that they're writing down millions of dollars invested in FT. X. Surely questions are going to be asked about why VCS and investors didn't notice anything fishy in its books,
Institutions and venture capital have ported $1.8 billion dollars into F. T. X. Many of these stakeholders, shareholders and investors are likely going to ask questions around the due diligence processes such as the lack of independent board of directors which currently consists of some FCS employee and a lawyer. That's an amazing question. A great question and I think the answer is that we're not doing the due diligence. Obviously somebody was trusting this individual
too much. So it's just trusting a little bit of personality of the entrepreneur as opposed to doing due diligence or what is behind the business. That's a big failure. Certainly of the investors that pour a lot of money into this business, but you need to make the effort of asking for the details. You cannot just stop and getting mesmerized about
the charisma of the entrepreneur. I think you have to ask for the numbers and I think there's been a lot of signals in the crypto world that a lot of those business, we're not doing what they said they were doing.
Now we have other crypto exchanges rushing to assure customers that they are financially sound. But already there have been some victims. Do you see this as the start of a larger crypto winter
for sure you're seeing some other exch changes, stopping withdrawals over the last days. I expect that to happen even more in other exchanges over the coming days. Some exchanges, I hope. I mean I don't have all the data myself because I'm not an investor. I hope that some of the other exchanges have better balance sheets and they're not doing the type of fraud that F. T. X. Was doing. So I assume some of them are going
to survive. But I have no doubt that others were doing investments and fraudulent activities that resemble what F. T. X. Was doing. Given that both elementary gets invested in 250 crypto companies. I think there'll be a butterfly effect. And what implications? Number one is F. T. X. Have dressed up as a white knight to rescue companies like block fire and Voyager.
Number two is FTS. And elements have been very much invested in big ecosystems like Salon a Syrian, both FX and elemental have sizable exposure to, you know, these projects through their token holdings and I think this is going to leave a lot of questions and potential liabilities to these projects where it could potentially impact the future growth, potentially resulting from chapter 11 filings and creditors from FT. X.
Let's bring in veteran investor jim Rogers. Jim you're well known for being a crypto skeptic. Do you see this as the start of the beginning of the end? Not today, it's the end, but it is the beginning of the end because several of them have already collapsed and disappeared and gone to zero. There's still many, many around Bitcoin is still around etcetera. But I suspect that there will be fewer and fewer people who will be
converted to crypto money. Now, as long as they're trading vehicles, nobody really cares that much except the people who lose money or make money and some people have made money. But no, I suspect you're going to see fewer and fewer people getting involved
because there's enough publicity now. A lot of people who have lost everything and that usually scares people Whenever there's some new hot idea, everybody gets excited in the ball market and computers in the late 60s it was a laundry in New York which changed its name to computer and stock was straight up, it was still a laundry but the name said computer
and so everybody got crazy. I mean people markets have long histories of people been foolish things, getting excited about the wrong things and going through the roof and eventually losing a lot of money. This kind of thing has been around for hundreds of years. It will probably be around for a few 100 more years. You know if you bought a lot of wheat and it collapsed at least have some wheat, you can make bread or
cellar or something. But if you've got these things, what do you have, I mean what do you have, you have something on your computer that says this? But what are you gonna do with it? Not much. Let's take stock of what we've been speaking about. F. T. X's failure could go down as one of the world's biggest corporate scandals. The crypto exchange was viewed as one
that was trusted compliant and the market leader. So it's sudden downfall has shaken the industry to its core questions will be asked about why F. D. X. S. Major backers, blue chip venture capitalists and sovereign wealth funds were not able to notice suspicious activities at the exchange and this could just be the start of a colder crypto winter with more exchange is expected to fall in the coming weeks and months, Does this mean that nowhere
is safe in cryptocurrencies and what must crypto exchanges do to restore trust in the system, nowhere is a lot of places probably be something. I mean some people are just providing the markets are okay, at least as long as there is a market. But usually when things like this start disintegrating, there are fewer and fewer safe havens because everybody is skeptical and even if you're doing the right thing or even if you're not doing the wrong thing, if your customers are doing the wrong thing,
you get killed. You know, F. T. X. I mean, I'm sure there are many people who didn't do anything wrong, but now suddenly since they were involved with F. T. X. They're getting ruined. I mean there are people who invested in FT. X. The only thing wrong they did was they didn't do their homework, enough homework, but you know, they didn't do anything fraudulent, but since they're investing vehicle did something wrong,
they're suffering very badly. So even if you're smart and don't do the wrong things, you can get hurt by other people.
One of the good things that happened from the FTS fiasco is that many exchanges are now scrambling to display their proof of reserve renewing their commitment to transparency. Many enterprising users on twitter have uncovered suspicious shuffling and shifting of funds on and before the snapshot of the reserves while proof of reserve is a good stepping stone to embracing food transparency. But he only paints a sing
this side of the story. For example, if I show and tell my investors that I have a billion dollars of assets, I could, oh $2 billion of liabilities to my depositors. So that's really meaningless. I think for the industry to move forward, put the liabilities have to go alongside with reserve that showcase cold wallets, aggregated balances, asset breakdown.
There's a tested and audited by third party that way you are able to win trust from the investors is such a high risk because you give your savings, your investments to someone who's not regulated in most cases they're not regulated in any way. So you have to
trust that they're keeping your funds safe. But again, trusts on what the financial sector is heavily regulated for the reason because we do not want investors, we do not want individuals to lose their savings when the business behind the financial institution is not the right one. If I was an investor in this world, I would be now asking myself, I mean the risk must be very, very high, do I really want to do this?
Well, we've seen this happen before. But again, a renewed call for regulation of the industry, do you see this coming and if so what kind of regulation do you think would work? No, of course, of course, every politician in the world now sees an opportunity to make a name for himself or herself.
And they'll all say, oh, we need to do something, let's do something many of them will jump on and say, okay, we're going to protect you, we're going to pass rules, we're going to pass regulations, we're going to try to protect you. This is the sort of thing that politicians love and bureaucrats love.
Of course, the calls were already there. What happens with these exchanges is that many of them are offshore, so you can regulate the ones that come to your country, but the ones that are sitting offshore, they cannot do much about it. So, for a Singapore investor, the monetary authority of Singapore, discourage people to buy into this crypto world, but there's a lot of exchanges out there and it's very hard for any Central bank regulator to stop that
flow of money that goes offshore. So, I think we're gonna have to be smart, are doing two things, trying to create possibly some regulated institutions within our countries that people can trust. But then also discourage people from going offshore, because we will never be able to regulate activities that are happening in other jurisdictions. There's been a lot of recent progress, because, as the market has grown, regulators finally have woken up and said,
we need to do something about it. If I look back, I have been very critical of regulators, because I think they haven't done enough. I think they're somehow assumed that this was an activity that was going to create a lot of innovation and they did not want to constrain it too much with the traditional regulation of the other institutions.
I personally always felt that was not right. I think this activity looks like the other institutions, people who put their money in crypto is the same people that put their money in a bank or they buy government bond. So I think those things should be as regulated as the traditional activities now that the market has grown now that we've seen the big surprises and some people losing a significant amount of money. I think you're gonna see obviously an increasing regulation which is gonna sort
of level the playing field. And now you're gonna see regulation in this world that resembles the traditional regulation we see in regular financial institutions. I think thoughtful, meaningful balanced regulations that embraces innovation without stifling progress and building of these technologies, but really focusing on consumer protection, such as embracing more transparency from exchanges, segregation of client assets, chinese walls amongst exchange operations. K Y C A M L. I think we're in
progress. I think the regulars are really laying out the framework for many of these transparency and reporting, but I think we're still a long way, there are still many countries where there are still many jurisdictions where regulators may not be very clear with the way forward for some of these crypto companies.
I wonder how much you think this has set back Kryptos attempts to become a legitimate asset class?
I think it's a big setback. You've already seen that in the last year when sort of the price of Bitcoin has been coming down and it has not recovered as much as those who like Bitcoin were expecting. I think this is an additional setback for a typical investor. It says do not touch this.
I think that's the message that people are getting. This is a message which is very different from what we've seen two years ago when sort of everyone was buying into the hype, they were sort of assuming that at some point these things will deliver a decent or very good return. I don't think people look at this market anymore like that. So if you have a random person of the street, I don't think they're thinking or let me buy Bitcoin now because it's going to go up and let me
trust an exchange. A lot of the people that put money into this world are trying to get out and you don't have a new flow of people that are gonna be the next investors in this market. You're always gonna have the big fan boys that are still buying obviously these cryptocurrencies, those will still be around, but that market is gonna be so much smaller than it was in the previous years.
Eugene, you've worked for crypto exchanges and now you work with three technologies. Are you less pessimistic about the outlook?
I've never been more optimistic about the future of Blockchain technologies that embraces trust lys on chain transparency and decentralization. The embodies. What we believe as early crypto adopter, what will transpire in the coming months would be best practices, more regulations and more show less tell ie transparency despite headlines and what some would like to paint this
as a wild West. We have never been more convinced that the underlying technology embraces technologies that reduces these black actors that allows to trust one another through smart contracts and quotes.
And what's your advice for investors who still want to get into the Cryptocurrency space?
I think it may not be a great idea. Just focus on red flags like the recently employed F. T. X. It was good and it's not I think that to risk mitigation steps, any investor should take number one, D. Y. O. R. Do your research and number two. It's learn self custody, but it means is ownership of your own digital assets. Remember saying not your keys, not your coins.
The first advice, I would not go there. But if they really want to go there, what I would say is that only invest in exchanges which are clearly regulated by your national activities and do a lot of due diligence and spend a lot of time trying to understand. Is there any anything that looks even rescuing this exchange. So I think you have to do that homework because these are not regular financial institutions and even those that are regulated in
some countries, it's sort of a new business. So I would put a lot of these trust or mistrust in many of these institutions.
Unfortunately, many investors doesn't matter whether retail or institutional when something new comes along. Many of them get excited and they think it's wonderful and they listen to the story and the story has a lot of good points and when they ask questions, there's some good answers. It's only when the flaws start falling apart that people find out, oh wait a minute, why didn't we think of that?
Uh And so yes, many, many more people now will see the emperor has no clothes, but everybody has to make their own decisions and do their own research. If you have done a lot of research and you really know what you're doing, maybe you'll make money. But I've seen this rodeo before and usually in the end nearly everybody loses a lot of money. A reality check there as investors take stock after the collapse of one of the biggest names in the crypto world.
The fall of F. DX has hit the wider crypto market with the prices of other cryptocurrencies falling and the total market cap of the sector dropping to a low of under 800 billion U. S. Dollars. So it could be the start of a colder crypto winter. But it's also a wake up call for greater transparency in the crypto sphere amid calls for more regulation. It's likely that new rules will level the playing field for
traditional and alternative financial players. Now, all of this is likely to be a setback for the development of crypto as an asset class. But there's also optimism in the future of the underlying Blockchain technology. That's the top five things you need to know about the fallout from FT X. My thanks to my guest today, Eugene lang went three developer and investor and co founder of open Eden antonia fattah's economists at and jim Rogers, investor and author money mind as every saturday at 10
30 PM on media cop cny. You can also find us on sienna dot asia and on youtube.