The crypto-active market is booming, with impressive results and making cryptocurrencies increasingly popular as an investment with great return prospects. However, financial scandals like FTX often shake investor confidence.
Crimes like FTX ‘s occur because of fraudulent strategies in attracting investors, wrong market valuations that lead to big losses, and criminally thought out decisions.
If this brings a positive aspect, of not being caused by security flaws in the technology used in digital currencies, it is increasingly important the need to throw visibility on the market and create regulatory mechanisms.
Can business tokens be affected? How should this niche deal with these upsets that put cryptocurrencies in check?
BLOCKBR, a web 3.0 native company, will show how digital real and tokenization can overcome this challenge!
UNDERSTANDING THE CHARACTERS OF THE FTX BANKRUPTCY
WHAT IS FTX
FTX is a cryptoactive exchange or brokerage firm, specializing in cryptocurrencies including bitcoin, ether, cardano, and FTT( FTX’scurrency to ken). It was founded in 2019 in the Bahamas and maintained operations in Antigua and Barbuda in addition to the host country.
In the month of July 2021, it reached its highest volume in users with over one million and was the third largest digital currency exchange in the world. By early 2022, the company had a daily trading volume of $10 billion.
Its CEO is the American investor Sam Bankman-Friedwho has a fortune valued at $25 billion and is listed in the Forbes 400 in 41st position and Billionaires in 60th position, both in 2022.
In addition to FTX, Bankman-Fried owned a cryptocurrency investment fund, Alameda Research, which was actually started earlier, in 2017 and plays a major role in the FTX scandal.
Digital Assets in 2022: A look at the year of investments!
THE TIMELINE OF FTX BANKRUPTCY
- FTX decided to lend money and tokens to a hedge fund in order to obtain higher gains on market operations;
- The hedge fund, in turn, has made wrong investments, due to imprudence or failure of analysis. As a result, it absorbed a large loss and the loan with FTX became unpayable;
- FTX has launched large volumes of FTT on the market as a way to raise funds to balance the cash and honor the routine of withdrawals and their payments. The devaluation of the FTT that was to follow cut off this support;
- As leverage collateral, Alameda Research used FTT. The impact was inevitable;
- Analyses of the financial statements of the two companies showed signs of insolvency;
- The CEO of Binance, one of the largest FTT holders, taking notice of Alameda’s situation, communicated that he would sell his positions if the insolvency was confirmed;
- The result was as impressive as expected: billions of FTT sold in a very short time, dramatically bringing down the price of the FTX cryptocurrency;
- Overnight, millions of investors lost essential amounts of money for their life and business projects, even though most of them are bold investors who know about the volatility of digital currencies, but do not count on being victims of crime;
- FTT holders rushed to redeem their FTX cryptocurrency positions, recording $6 billion worth of requests in 72 hours;
- The company reached a liquidity hole of $10 billion and, with no liquidity, blocked withdrawals and declared bankruptcy;
- At the end of November 2022, FTX owed about $3 billion to major creditors. Most of them are from the digital asset market, creating a domino effect of loss of liquidity, putting downward pressure on prices and causing big players to suspend deposits and withdrawals;
For the market at the end, there remains the distrust of investors, especially the small ones, who see in cryptos the chance to generate passive income more boldly by investing small amounts and over the long term.
REGULATION TO PROTECT THE CRYPTOMARKET
Cases of financial institutions, Brazilian and international, that go bankrupt due to illegal practices or bad management are unfortunately not uncommon. However, the banking system has been learning to armor itself with tougher regulation and legislation.
In the cryptomarket, it will be no different; it is necessary to establish clear limits for the actions of companies and prevention and punishment mechanisms for practices that bring losses to investors who are not within the inherent risks of digital assets.
CRYPTOCURRENCY LAW PASSED
Speaking of Brazil, the approval of the Cryptocurrency Law by the House of Representatives at the end of November 2022 is the regulatory framework for the cryptomarket that will contribute:
- A functioning crypto-active sector with legal and judicial framework;
- A crypto-market regulator and cryptoactive brokerages with clearer roles for customers;
- Mechanisms for preventing and combating illicit acts are fully known;
- Preventing players with irregular or suspicious behavior from entering.
With this, investors will have more confidence in the system, without this meaning that the transactions themselves will be controlled – regulation and decentralization are different things.
The Cryptocurrency Law goes for presidential sanction later in 2022.
TOKENIZATION ADVANCES IN 2023 DESPITE (AND BECAUSE OF) THE FTX CRISIS
In addition to marketplace tokens being cryptoactive like bitcoin and other cryptocurrencies, the vast majority of token project companies (the tokenizers) also operate with the creation and trading of digital currencies.
This is a healthy practice, which allows the gain of synergy between the developments of the two products in the same technology environment – the blockchains – and the adoption of tokenization best practices in the management of the cryptocurrency market.
On the other hand, they are entirely different cryptoactive in purpose: while cryptocurrencies are a means of payment and investment – unfortunately subject to financial crimes like FTX – the token is the centerpiece of something bigger: a structured business plan.
INVESTMENT MIGRATION
As the volume of tokenized trades grows, the trend is for investors to migrate from cryptocurrencies to buy tokens – a product that is born on the basis of institutional security for those offering and those creating the tokenization.
Investing in tokens is the same as investing in fractions of assets and rights, with numerous advantages – security, transparency, availability, liquidity, and profitability.
If tokens can be negatively impacted at first by the bad news from the digital currency market – after all, both are in the same “operational cradle” for most people – the tendency is for tokenization to be more attractive soon after.
Another aspect that will weigh heavily is the Cryptocurrency Act: regulation and defining good practices of the digital currency market will automatically transfer credibility to asset and rights tokens.
HOW THE DIGITAL REAL OVERCOMES THESE RISKS
BACEN is projecting for 2024 the official launch of the digital real, the Brazilian central bank digital currency ( CBDC ), the currency that will digitally represent money in current accounts.
But is the digital real a cryptocurrency?
Not. While digital currencies are private, have an investment profile and will continue to operate in a decentralized manner, the CBDC is a digital currency regulated by the Central Bank and supported by three premises:
- Security of the government’s private blockchain;
- Peer-to-peer payments, without middlemen and fees;
- Use for overseas payments free of charge.
With its creation, it is expected that much of the flow of holders of cryptocurrencies as a form of payment will adopt the digital real, with all the practical advantages supported by the Brazilian monetary system.
COME TOKENIZE YOUR ASSETS WITH BLOCKBR
Tokenization is putting your assets in an investment world with the greatest diversity of options, backed by businesses and assets, and using the agility, high level of security, and greater liquidity of tokenization.
Your business gains visibility and attractiveness. Do you want to monetize your assets, rights or projects faster and better?
Come meet BLOCKBR ‘s work and we will create the ideal partnership for tokenization to increase your chances of success!
BLOCKBR Digital Assets is a web 3.0 native fintech that unites technological innovation and digital knowledge to transform physical assets into digital assets, in the process of tokenizing assets.
The supply of physical assets and tokenized financial assets, both current and new, is democratic and decentralized, which makes the way of investing safe, simpler and more efficient.
We enable, structure, issue and offer tokens on our platform and beyond. Be aware that tokens depend on feasibility and regulatory factors.
Do you want to tokenize your business or part of it? Do you have a business solution and does it make sense to issue your own token ?
