FTXone of the largest cryptocurrency platforms in the world with an estimated value of 32 billion dollars, collapsed in a few days amid doubts about its solvency, which led many users to rush to withdraw their money, leaving it without liquidity and in looking for a ransom. The capital injection never came and FTX ended up declaring bankruptcy. He had used billions of dollars from his clients to finance risky bets. We talk about the earthquake that the bankruptcy has caused in the sector and what can happen now with the cryptocurrency expert Alberto Gomez Toribio.
How would you explain to a layman what happened with FTX?What happened is very similar to what we experienced in 2008 during the bankruptcy of Lehman Brothers. Companies usually take loans to grow, to carry out new business activities. When you ask for loans, a series of guarantees is required. Lehman took out a series of loans that weren’t soundly backed. The same has happened to FTX. This company guaranteed a series of lenders with its own assets, cryptocurrencies, and in an environment as volatile as the one we have been living in since November 2021, these guarantees have proven less solvent than many thought. The CEO of Binance (another rival platform) alerted investors to the fact that FTX could be receiving loans with collateral that does not hold and the market has put FTX in its place. What FTX did is take too many risks, but it must be noted that very few companies in the world would resist the withdrawal of 6,000 million in just 72 hours. Very few. The bankruptcy of FTX has to do with a level of indebtedness above normal and a very high level of demand from its clients at a specific moment that it has not been able to assume
Did FTX cheat by backing investments with its own token?All companies, in general, can create their own token. When you lend money to a company, for example, you can ask them what assets they are offering you as collateral, and they can tell you… I have real estate, but maybe we will find ourselves in a real estate crisis and the collateral is worth less than what that I have lent That has happened in Spain. It can also happen with cryptocurrencies. FTX was lent and responded with assets, it did not deceive investors, it backed it with assets that in a market crisis have had problems being solvent.
“Binance could also be compromised if the company enters a sell-off spiral”
FTX says that there may be a million creditors affected by the bankruptcy. Are there Spaniards among them?It would not surprise me at all if there were Spaniards among those affected. The company is based in the Bahamas, but could have Spanish clients. When companies of this type provide services in Spain, they must comply with a series of rules, such as registering with the Bank of Spain. FTX did not provide service in Spain, which means that it did not actively market its product here, that it did not advertise here, but if a Spanish client opens an account with FTX, they can receive service. Surely there are people with tax residence in Spain affected by this incident with FTX.
FTX was the second largest global crypto exchange platform. The first is Binance, can the same happen to you?Of course, it could happen to any ‘exchange’. Faced with the crisis and due to mistrust, many in the sector fear a bank run, that is to say: an abrupt, rapid withdrawal of money from clients. None could face the total withdrawal of the funds, since the treasury is invested in things that are more or less liquid, but in any case, these are not positions that can be undone in a few hours. So to avoid this, all the companies in the sector have published their balance sheets. None of them is free from the same thing happening to FTX, although it should be noted that FTX had debt above the market average and most of the assets in its own token. About 20-30% of Binance’s assets are in its proprietary token. So Binance has high exposure. Binance could also be compromised if the company goes into a sell-off spiral.
How many Spaniards invest in cryptocurrencies and on what platforms?We must distinguish two types of markets, the ‘exchange’ and the ‘brokers’, which are merely intermediaries. The latter buy on an ‘exchange’ too, but we use them because they buy with a better user experience. Now, what exchange can we use from Spain? Kraken is one of the most popular, like Kucoin. And also Binance. These three would be tremendously popular markets. Most of the Spaniards who buy cryptocurrencies have an account in one of these three. It works like this: you send euros to buy cryptocurrencies and you usually leave them there, so as not to run the risk of them being stolen. Seven million Spaniards have an account in a cryptocurrency service. Around 4 million Spaniards invest in the stock market. These are data from the Bank of Spain.
“7 million Spaniards have an account in a cryptocurrency service. Around 4 million Spaniards invest in the Stock Market. These are data from the Bank of Spain”
Do you consider the bankruptcy of FTX the collapse of the sector or will it remain in a self-regulation of the market?What has happened with FTX is a crisis that has to do with financial institutions that provide services with cryptocurrency and yes, there is a crisis in that sector, but not in cryptocurrencies themselves. It’s like arguing that the dollar was at risk of disappearing when the Lehman Brothers financial crisis hit. Many banks disappeared then, yes, but not the dollar. It is a crisis of the ‘exchange’, not of the cryptocurrencies, although obviously they are affected.
Alberto Gomez Toribio
-
He has been in technology for the last 15 years and in the field of cryptocurrencies since 2013. He founded an exchange platform, an ‘exchange’, together with Bankiter. Then he established the first company in bitcoins with financial capital. He has worked for the CNMV and has advised the Treasury with the European draft of the regulation for crypto issuers. He currently works at Cryptoplaza, a crypto project accelerator.
What advice would you give to bitcoin investors in the current context?First of all, they need to fully understand the risk they are assuming and assess what they demand in return. I don’t mind investing in a bank that is going to fail if the return is worth it, if the risk/return ratio is worth it. The second thing is to do your own analysis, since there are not many specialized companies, and assess the ‘exchanges’: consult the balance sheets made public these days to understand which ones are more or less solvent. But the important thing is not to use only the most solvent, but to understand that the least solvent must offer us a much higher interest rate in return. Then it is the responsibility of each investor to decide what amount of money he deposits in each of them, including the option of none.
Would more crypto regulation have prevented FTX bankruptcy?Obviously a regulation on how cryptocurrency companies can take loans would have prevented this event. Yes, it is necessary so that the same thing does not happen again, but bankruptcy is not only about indebtedness, but there are many other risks and, unfortunately, we do not know where we will fail in the future.