And the repercussions continue to mount following the catastrophic collapse of the Bahamas-based cryptocurrency exchange FTX, spreading chaos across the crypto-verse.
Treasury Secretary Janet Yellen, who has been pressing for stricter government control of cryptocurrencies, compared the situation at FTX to the collapse of Lehman Brothers in 2008, the largest bankruptcy filing in US history, during The New York Times DealBook Summit.
Yellen stated that crypto is a sector that desperately requires sufficient regulation, which it now lacks.
Sam Bankman-Fried, the founder of FTX, was also present, making his first public appearance since his Bahamas-based enterprise crashed on November 11. He admitted to making “a lot of mistakes.”
“I didn’t ever try to commit fraud on anyone,” he said via Zoom. “I saw it as a thriving business, and I was shocked by what happened this month.”
According to court documents, FTX’s top 50 creditors are suing the corporation for at least $3 billion.
Crypto lender BlockFi recently filed for Chapter 11 bankruptcy, too, following in the footsteps of Voyager Digital and Celsius Network.
Before this year’s events, BlockFi had collected $1 billion in venture capital from investors such as Tiger Global and Bain Capital Ventures.
As a result, Bitcoin fell marginally to $17,015.98 on December 1, according to analytics firm CoinGecko. Ether, the native currency of the Ethereum network, slightly increased to $1,273.91, while Dogecoin increased 0.5% to 0.102806.
Winston Ma, a managing partner of CloudTree Ventures and author of “Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse,” stated that when the FTX death spiral spreads to other crypto organizations like BlockFi, the lack of investor capital security in the crypto markets becomes an even bigger issue.
According to Ma, a governmental crackdown on the cryptocurrency sector is inescapable, and the protection of consumer funds would most likely be a major priority. According to him, the US Securities and Exchange Commission and all connected agencies may tighten custodian regulations for crypto assets.
James Edwards, a crypto specialist with Finder, believes that the major news for everyone from this situation is that BlockFi is owed around $1 billion by FTX and its sister enterprise Alameda Research, which its bankruptcy lawyer claims will attempt to claw back from the collapsed firms, adding that BlockFi’s plan to file for Chapter 11 bankruptcy should not surprise anyone anymore.
According to James, this discovery also has generated theories that FTX acquired both BlockFi and Voyager early this year to conceal its bad debt and postpone any repayments. This situation is a major setback for the sector, as no primary crypto lender is left in the United States.
However, Bankman-Fried is not the only one who should be concerned about the future, according to David Lesperance, managing partner of immigration and tax consultancy Lesperance & Associates.
He states that, whether they like it or not, all FTX customers in the United States will be publicly named as creditors at the time of bankruptcy. Those who “forgot” to indicate on their IRS 1040 tax filings that they “acquired, sold, swapped, or otherwise disposed of any financial interest in any virtual currency” will be exposed.
Lesperance also added that anyone who got their crypto out of FTX before the gates closed is not out of the woods, as there will undoubtedly be a full financial audit of all transactions FTX made.
David also claimed that it is time to make a voluntary disclosure before the IRS comes. Lesperance has stated that this problem also involves Celsius holders and other cryptocurrency businesses that have or will go bankrupt.