Bitrue CSO on how crypto exchanges fare after FTX collapse

The collapse of FTX sent shockwaves throughout the crypto space, triggering the downfall of some crypto firms and prices crashing along with it. However, the market is recovering and confidence is returning.

Bitcoinist caught up with Bitrue’s Chief Strategy Officer, Robert Quartly-Janeiro, and he shared his thoughts on how crypto exchanges have fared in the wake of the FTX decline, and how Bitrue is working to regain user confidence in the aftermath.

Bitcoinist: Can you tell us your thoughts on the whole FTX debacle? Do you think this could have been prevented?

Robert Quartly-Janeiro: Ironically, I read the inside story in the Financial Times on the last few days on FTX not too long ago. It makes for grim reading, even though Ryne Miller is a consummate professional. FTX was operating way outside of their responsibilities, and if you’re going to embezzle money, like they did through trading with Alameda, you’re going to bump into it eventually.

Could it have been avoided? Yes, of course, it could – and should have – by not doing it in the first place. I feel for FTX users and their loss, but also for the majority of employees who clearly had no idea what was going on and the implications it would have for their careers and money.

Q: How have the stock markets fared in the time since FTX went bankrupt?

ONE: Over the past few months, we have seen firms closely linked to FTX falter, resulting in crypto price reverberations and negative media coverage. For a while there was a lot of guessing about “who will be next?” When another top exchange went under as its trading volumes fell and the cost of debt rose, comments were made. But things calmed down over time. Binance’s deal for SEBC (Sakura Exchange Bitcoin) probably played a big role here, as it showed that big deals are still being made, and FTX’s problems remain FTX’s.

While the market has recovered, many exchanges continue to operate cautiously, reduce risk and be more frugal. I expect consolidation to continue due to economies of scale, confidence and market movements.

Q: Currently, users of crypto exchanges are understandably wary of leaving their money on CEXs. Is there a way that exchanges can regain this trust, and what is Bitrue doing to win back user trust?

ONE: The caution is understandable. It behooves all CEXs to be strong stewards of funds if they want to be taken seriously, otherwise they will lose this part of the market – in a sense it is a matter of choice. For investors, there must be a distinction between crypto exposure that moves in value and fluctuations in fiat real-time currency rates, which emphasizes stop-loss trades. Much has been said about Proof of Reserves (PoR), but I think accurate leverage ratios will be more valuable. As businesses, CEXs with significant volume, customer base and revenue must set the tone.

Although upcoming regulations in various countries will protect investors’ assets in a way that is not dissimilar to banking or asset management, it must be economically viable. For example, registration in some countries will cost millions, which is not good, since registered exchanges will have higher cost bases and trading fees. That creates a divergent problem, as the pandemic made us more fluid in terms of where we can live, work and shop. Similarly, it would be interesting to see how people would look to store their crypto assets when central bank crypto wallets are created.

Total market cap crosses $1.1 trillion | Source: Crypto Total Market Cap on TradingView.com

At Bitrue, we do several things to win back user trust. First, in 2020, we established an insurance fund with mainly XRP- and BTR-denominated tokens to protect users’ assets in the event of a security breach. (You will find more details in this article.) Second, we conduct penetration testing continuously to ensure wallet security. Third, Bitrue has limited the amount of leverage individual investors can use. And fourthly, a PoR audit will be carried out by external auditors. Beyond that, there is a need to develop more infrastructure, ensure high standards and maintain open communication and transparency.

Q: Do you see user confidence returning to pre-FTX decline anytime soon?

ONE: The stock exchanges have already regained confidence to a certain extent. The fallout from FTX was contained and affected no organizations except those strongly associated with it. Yes, many people were financially burned for reasons outside of the market – that’s not good – but many crypto investors use more than one exchange.

With renewed confidence in the global economy, both the stock and crypto markets are rising, and trading volumes and the amount of money being deposited into exchanges are also increasing.

Going back, FTX was one exchange, led from what I’ve read by a dozen people who knew what was going on. In the past year, 25 to 30 other exchanges have closed, but there remain 250 “reputable” exchanges of varying size and quality, which is a lot.

You see, CEXs have to manage financial risk and market movements accordingly. As the old saying goes, ‘Don’t put all your eggs in one basket.’ FTX-Gemini revealed the need for better risk management, tighter margin maintenance (margin calls) and greater visibility of how strongly market movements, firms and exposure are correlated: all these aspects financial markets have not gotten right before, during or since 1637. Let that sink in.