Understanding the Impact of Recent Insolvencies
As rumors swirl around the insolvency of major crypto firms like Celsius and Three Arrows Capital, investors are left scratching their heads and asking, “Where did all our money go?” The reality is that some crypto companies made the questionable choice to engage in leveraged trading with customer deposits to deliver enticingly high annual percentage yields (APYs) on their products. Everything was fine and dandy when the crypto market was booming, but as asset prices took a nosedive, it all went downhill faster than a cat on a slick floor.
The Consequences of Leveraged Trading
When token prices began their steep decline, these firms found themselves in a precarious position. Suddenly, withdrawal requests shot up as investors scrambled to secure their dwindling capital. This surge in sell-offs created an avalanche effect that further drove down coin prices, potentially wiping out investors’ initial investments.
Here’s a thought: when you offer returns that sound too good to be true, maybe just check if you’ve signed up for a rollercoaster ride instead of a solid investment journey!
Custody Practices: A Mixed Bag
It’s important to note that not all asset custodians took reckless risks with clients’ funds during the heady bull market. At the recent European Blockchain Convention in Barcelona, Cointelegraph’s own Aaron Wood had a heart-to-heart with Leslie Hsu from Bit.com. Hsu remarked,
“At Bit.com, we actually use a third-party custody service. Once assets are in custody, the exchange doesn’t play fast and loose with your money.”
But wait, there’s a catch! Hsu also pointed out that regulatory arbitrage complicates accountability, as different countries have different rules—or lack thereof—when it comes to digital assets. It’s like a game of whack-a-mole, where new regulations pop up and disappear before you can catch them!
The Need for Regulation
Next on the panel was Michael Lau from the regulated crypto exchange, Bullish. Lau emphasized trust, stating,
“From our perspective, we decided we would be regulated day one. This leads to accountability as someone is auditing our practices to ensure we keep our promises.”
That sounds reassuring, but let’s face it, who wouldn’t want someone keeping an eye on those suspiciously high returns?
Emerging Retail Investors in the Crypto Sphere
Interestingly, Lau found the high level of retail involvement in crypto astonishing. Coming from a traditional finance background, he recalled that institutions made up only a small fraction of the market. In fact, he noted,
“The New York Stock Exchange has about 20% retail participation, while crypto is like a carnival game where it’s all retail and hardly any institutions.”
But there’s a silver lining, as Lau sees growing demand for regulation in the crypto sphere. Investors are stepping up and saying, “We want to be protected, and we want to make sure our assets are segregated properly!”
