Speaker 1: whether or not you're into cryptocurrencies, you've likely heard about
Speaker 1: the failure of F. T. X this past month, the
Speaker 1: abrupt downfall of what was once one of the world's
Speaker 1: largest crypto exchanges has shaken the industry calling into question
Speaker 1: financial practices at such exchanges that are used to transact
Speaker 1: cryptocurrencies by both institutional and retail investors around the world.
Speaker 1: I'm Sona Ramesh from the money
Speaker 1: team today, we're looking at the top five things you
Speaker 1: need to know about the four of F. T. X.
Speaker 1: My guest today, Eugene and co founder of Blockchain based
Speaker 1: company open Eden, Antonio Fattah's economist at and later we'll
Speaker 1: be hearing from Jim Rogers investor and author Eugene, let's
Speaker 1: start with how significant is F. T. X has collapsed
Speaker 1: to you
Speaker 2: on a scale of 1 to 10 I think nine
Speaker 2: to put things in perspective. Lehman Brothers had 600 plus
Speaker 2: billion dollars when it filed for bankruptcy. Annual Madoff defrauded
Speaker 2: 60 plus billion dollars. F. T. X. $10 billion from
Speaker 2: more than five million creditors at the sky high values
Speaker 2: of $22 billion which is white overnight. So I think
Speaker 2: this is probably the top 10 corporate scandals of all time,
Speaker 2: making one of the biggest, if not the biggest crypto
Speaker 2: scandals today. But what's more grave is that most people
Speaker 2: perceived as a trusted venue because of his mainstream advertising,
Speaker 2: big time celebrity endorsement and blue chip venture capital backers.
Speaker 2: SPF SAM, the ceo of FTS ventures and benefit owner
Speaker 2: of elemental is fun, constantly portrayed himself as a Fillon trophies.
Speaker 2: Being the second largest democrat donor who allegedly have a
Speaker 2: cozy relationship with the sec chairman
Speaker 1: Antonio. What are your thoughts?
Speaker 2: Very significant. It's not the first time that we see
Speaker 2: similar things in the crypto world, but I think the
Speaker 2: size of F. T. X. The fact that it was
Speaker 2: at some point sort of a leader in this market
Speaker 2: has created a lot more of a shock than any
Speaker 2: of the previous things. So I think it's a combination
Speaker 2: of size, but I think it's also because they had
Speaker 2: played a role in developing this market and there was
Speaker 2: a lot of trust by many that they were doing
Speaker 2: something that was right such as a surprise has been
Speaker 2: a wake up call for some people.
Speaker 1: Big names like Temasek and Sequoia Capital have announced that
Speaker 1: they're writing down millions of dollars invested in FT. X.
Speaker 1: Surely questions are going to be asked about why VCS
Speaker 1: and investors didn't notice anything fishy in its books,
Speaker 2: Institutions and venture capital have ported $1.8 billion dollars into F. T. X.
Speaker 2: Many of these stakeholders, shareholders and investors are likely going
Speaker 2: to ask questions around the due diligence processes such as
Speaker 2: the lack of
Speaker 2: independent board of directors which currently consists of some FCS
Speaker 2: employee and a lawyer. That's an amazing question. A great
Speaker 2: question and I think the answer is that we're not
Speaker 2: doing the due diligence. Obviously somebody was trusting this individual
Speaker 2: too much. So it's just trusting a little bit of
Speaker 2: personality of the entrepreneur as opposed to doing due diligence
Speaker 2: or what is behind the business. That's a big failure.
Speaker 2: Certainly of the investors that pour a lot of money
Speaker 2: into this business,
Speaker 2: but you need to make the effort of asking for
Speaker 2: the details. You cannot just stop and getting mesmerized about
Speaker 2: the charisma of the entrepreneur. I think you have to
Speaker 2: ask for the numbers and I think there's been a
Speaker 2: lot of signals in the crypto world that a lot
Speaker 2: of those business, we're not doing what they said they
Speaker 2: were doing.
Speaker 1: Now we have other crypto exchanges rushing to assure customers
Speaker 1: that they are financially sound. But already there have been
Speaker 1: some victims. Do you see this as the start of
Speaker 1: a larger crypto winter
Speaker 2: for sure you're seeing some other exch
Speaker 2: changes, stopping withdrawals over the last days. I expect that
Speaker 2: to happen even more in other exchanges over the coming days.
Speaker 2: Some exchanges, I hope. I mean I don't have all
Speaker 2: the data myself because I'm not an investor. I hope
Speaker 2: that some of the other exchanges have better balance sheets
Speaker 2: and they're not doing the type of fraud that F. T. X.
Speaker 2: Was doing. So I assume some of them are going
Speaker 2: to survive. But I have no doubt that others were
Speaker 2: doing investments and fraudulent activities that resemble what F. T. X.
Speaker 2: Was doing.
Speaker 2: Given that both elementary gets invested in 250 crypto companies.
Speaker 2: I think there'll be a butterfly effect. And what implications?
Speaker 2: Number one is F. T. X. Have dressed up as
Speaker 2: a white knight to rescue companies like block fire and Voyager.
Speaker 2: Number two is FTS. And elements have been very much
Speaker 2: invested in big ecosystems like Salon a Syrian, both FX
Speaker 2: and elemental have sizable exposure to,
Speaker 2: you know, these projects through their token holdings and I
Speaker 2: think this is going to leave a lot of questions
Speaker 2: and potential liabilities to these projects where it could potentially
Speaker 2: impact the future growth, potentially resulting from chapter 11 filings
Speaker 2: and creditors from FT. X.
Speaker 1: Let's bring in veteran investor jim Rogers. Jim you're well
Speaker 1: known for being a crypto skeptic. Do you see this
Speaker 1: as the start of the beginning of the end?
Speaker 1: Not today, it's the end, but it is the beginning
Speaker 1: of the end because several of them have already collapsed
Speaker 1: and disappeared and gone to zero. There's still many, many
Speaker 1: around Bitcoin is still around etcetera. But I suspect that
Speaker 1: there will be fewer and fewer people who will be
Speaker 1: converted to crypto money. Now,
Speaker 1: as long as they're trading vehicles, nobody really cares that
Speaker 1: much except the people who lose money or make money
Speaker 1: and some people have made money. But no, I suspect
Speaker 1: you're going to see fewer and fewer people getting involved
Speaker 1: because there's enough publicity now. A lot of people who
Speaker 1: have lost everything and that usually scares people
Speaker 1: Whenever there's some new hot idea, everybody gets excited in
Speaker 1: the ball market and computers in the late 60s it
Speaker 1: was a laundry in New York which changed its name
Speaker 1: to computer and stock was straight up,
Speaker 1: it was still a laundry but the name said computer
Speaker 1: and so everybody got crazy. I mean people markets have
Speaker 1: long histories of people been foolish things, getting excited about
Speaker 1: the wrong things and going through the roof and eventually
Speaker 1: losing a lot of money. This kind of thing has
Speaker 1: been around for hundreds of years. It will probably be
Speaker 1: around for a few 100 more years. You know if
Speaker 1: you bought a lot of wheat and it collapsed
Speaker 1: at least have some wheat, you can make bread or
Speaker 1: cellar or something. But if you've got these things,
Speaker 1: what do you have, I mean what do you have,
Speaker 1: you have something on your computer that says this? But
Speaker 1: what are you gonna do with it? Not much.
Speaker 1: Let's take stock of what we've been speaking about. F. T.
Speaker 1: X's failure could go down as one of the world's
Speaker 1: biggest corporate scandals. The crypto exchange was viewed as one
Speaker 1: that was trusted compliant and the market leader. So it's
Speaker 1: sudden downfall has shaken the industry to its core
Speaker 1: questions will be asked about why F. D. X. S.
Speaker 1: Major backers, blue chip venture capitalists and sovereign wealth funds
Speaker 1: were not able to notice suspicious activities at the exchange
Speaker 1: and this could just be the start of a colder
Speaker 1: crypto winter with more exchange is expected to fall in
Speaker 1: the coming weeks and months, Does this mean that nowhere
Speaker 1: is safe in cryptocurrencies and what must crypto exchanges do
Speaker 1: to restore trust in the system,
Speaker 1: nowhere is a lot of places probably be something. I
Speaker 1: mean some people are just providing the markets are okay,
Speaker 1: at least as long as there is a market. But
Speaker 1: usually when things like this start disintegrating, there are fewer
Speaker 1: and fewer safe havens because everybody is skeptical and even
Speaker 1: if you're doing the right thing or even if you're
Speaker 1: not doing the wrong thing, if your customers are doing
Speaker 1: the wrong thing,
Speaker 1: you get killed. You know, F. T. X. I mean,
Speaker 1: I'm sure there are many people who didn't do anything wrong,
Speaker 1: but now suddenly since they were involved with F. T. X.
Speaker 1: They're getting ruined. I mean there are people who invested
Speaker 1: in FT. X. The only thing wrong they did was
Speaker 1: they didn't do their homework, enough homework, but you know,
Speaker 1: they didn't do anything fraudulent,
Speaker 1: but since they're investing vehicle did something wrong,
Speaker 1: they're suffering very badly. So even if you're smart and
Speaker 1: don't do the wrong things, you can get hurt by
Speaker 1: other people.
Speaker 2: One of the good things that happened from the FTS
Speaker 2: fiasco is that many exchanges are now scrambling to display
Speaker 2: their proof of reserve renewing their commitment to transparency. Many
Speaker 2: enterprising users on twitter have uncovered suspicious shuffling and shifting
Speaker 2: of funds on and before the snapshot of the reserves
Speaker 2: while proof of reserve is a good stepping stone to
Speaker 2: embracing food transparency. But he only paints a sing
Speaker 2: this side of the story. For example, if I show
Speaker 2: and tell my investors that I have a billion dollars
Speaker 2: of assets, I could, oh $2 billion of liabilities to
Speaker 2: my depositors. So that's really meaningless. I think for the
Speaker 2: industry to move forward, put the liabilities have to go
Speaker 2: alongside with reserve that showcase cold wallets, aggregated balances, asset breakdown.
Speaker 2: There's a tested and audited by third party that way
Speaker 2: you are able to win trust from the investors
Speaker 2: is such a high risk because you give your savings,
Speaker 2: your investments to someone who's not regulated in most cases
Speaker 2: they're not regulated in any way. So you have to
Speaker 2: trust that they're keeping your funds safe. But again, trusts
Speaker 2: on what
Speaker 2: the financial sector is heavily regulated for the reason because
Speaker 2: we do not want investors, we do not want individuals
Speaker 2: to lose their savings when the business behind the financial
Speaker 2: institution is not the right one. If I was an
Speaker 2: investor in this world, I would be now asking myself,
Speaker 2: I mean the risk must be very, very high, do
Speaker 2: I really want to do this?
Speaker 1: Well, we've seen this happen before. But again, a renewed
Speaker 1: call for regulation of the industry, do you see this
Speaker 1: coming and if so what kind of regulation do you
Speaker 1: think would work? No, of course, of course, every politician
Speaker 1: in the world now sees an opportunity to make a
Speaker 1: name for himself or herself.
Speaker 1: And they'll all say, oh, we need to do something,
Speaker 1: let's do something many of them will jump on and say, okay,
Speaker 1: we're going to protect you, we're going to pass rules,
Speaker 1: we're going to pass regulations, we're going to try to
Speaker 1: protect you. This is the sort of thing that politicians
Speaker 1: love and bureaucrats love.
Speaker 2: Of course, the calls were already there. What happens with
Speaker 2: these exchanges is that many of them are offshore, so
Speaker 2: you can regulate the ones that come to your country,
Speaker 2: but the ones that are sitting offshore, they cannot do
Speaker 2: much about it. So, for a Singapore investor, the monetary
Speaker 2: authority of Singapore, discourage people to buy into this crypto world,
Speaker 2: but there's a lot of exchanges out there and it's
Speaker 2: very hard for any Central bank regulator to stop that
Speaker 2: flow of money that goes offshore. So, I think we're
Speaker 2: gonna have to be
Speaker 2: smart, are doing two things, trying to create possibly some
Speaker 2: regulated institutions within our countries that people can trust. But
Speaker 2: then also discourage people from going offshore, because we will
Speaker 2: never be able to regulate activities that are happening in
Speaker 2: other jurisdictions.
Speaker 2: There's been a lot of recent progress, because, as the
Speaker 2: market has grown, regulators finally have woken up and said,
Speaker 2: we need to do something about it. If I look back,
Speaker 2: I have been very critical of regulators, because I think
Speaker 2: they haven't done enough. I think they're somehow assumed that
Speaker 2: this was an activity that was going to create a
Speaker 2: lot of innovation and they did not want to constrain
Speaker 2: it too much with the traditional regulation of the other institutions.
Speaker 2: I personally always felt that was not right. I think
Speaker 2: this activity looks like the other institutions, people who put
Speaker 2: their money in crypto is the same people that put
Speaker 2: their money in a bank or they buy government bond.
Speaker 2: So I think those things should be as regulated as
Speaker 2: the traditional activities now that the market has
Speaker 2: grown now that we've seen the big surprises and some
Speaker 2: people losing a significant amount of money. I think you're
Speaker 2: gonna see obviously an increasing regulation which is gonna sort
Speaker 2: of level the playing field. And now you're gonna see
Speaker 2: regulation in this world that resembles the traditional regulation we
Speaker 2: see in regular financial institutions.
Speaker 2: I think thoughtful, meaningful balanced regulations that embraces innovation without
Speaker 2: stifling progress and building of these technologies, but really focusing
Speaker 2: on consumer protection, such as embracing more transparency from exchanges,
Speaker 2: segregation of client assets, chinese walls amongst exchange operations. K
Speaker 2: Y C A M L. I think we're in
Speaker 2: progress. I think the regulars are really laying out the
Speaker 2: framework for many of these transparency and reporting, but I
Speaker 2: think we're still a long way, there are still many
Speaker 2: countries where there are still many jurisdictions where regulators may
Speaker 2: not be very clear with the way forward for some
Speaker 2: of these crypto companies.
Speaker 1: I wonder how much you think this has set back
Speaker 1: Kryptos attempts to become a legitimate asset class?
Speaker 2: I think it's a big setback.
Speaker 2: You've already seen that in the last year when sort
Speaker 2: of the price of Bitcoin has been coming down and
Speaker 2: it has not recovered as much as those who like
Speaker 2: Bitcoin were expecting. I think this is an additional setback
Speaker 2: for a typical investor. It says do not touch this.
Speaker 2: I think that's the message that people are getting. This
Speaker 2: is a message which is very different from what we've
Speaker 2: seen two years ago when sort of everyone was buying
Speaker 2: into the hype,
Speaker 2: they were sort of assuming that at some point these
Speaker 2: things will deliver a decent or very good return. I
Speaker 2: don't think people look at this market anymore like that.
Speaker 2: So if you have a random person of the street,
Speaker 2: I don't think they're thinking or let me buy Bitcoin
Speaker 2: now because it's going to go up and let me
Speaker 2: trust an exchange. A lot of the people that put
Speaker 2: money into this world are trying to get out and
Speaker 2: you don't have a new flow of people that are
Speaker 2: gonna be the next investors in this market.
Speaker 2: You're always gonna have the big fan boys that are
Speaker 2: still buying obviously these cryptocurrencies, those will still be around,
Speaker 2: but that market is gonna be so much smaller than
Speaker 2: it was in the previous years.
Speaker 1: Eugene, you've worked for crypto exchanges and now you work
Speaker 1: with three technologies. Are you less pessimistic about the outlook?
Speaker 2: I've never been more optimistic about the future of Blockchain
Speaker 2: technologies that embraces trust lys on chain transparency and decentralization.
Speaker 2: The embodies. What we believe as early crypto adopter, what
Speaker 2: will transpire in the coming months would be best practices,
Speaker 2: more regulations and more show less tell ie transparency
Speaker 2: despite headlines and what some would like to paint this
Speaker 2: as a wild West. We have never been more convinced
Speaker 2: that the underlying technology embraces technologies that reduces these black
Speaker 2: actors that allows to trust one another through smart contracts
Speaker 2: and quotes.
Speaker 1: And what's your advice for investors who still want to
Speaker 1: get into the Cryptocurrency space?
Speaker 2: I think it may not be a great idea. Just
Speaker 2: focus on red flags like the recently employed F. T. X.
Speaker 2: It was good and it's not I think that to
Speaker 2: risk mitigation steps, any investor should take number one, D. Y. O. R.
Speaker 2: Do your research and number two. It's learn self custody,
Speaker 2: but it means is ownership of your own digital assets.
Speaker 2: Remember saying not your keys, not your coins.
Speaker 2: The first advice, I would not go there. But if
Speaker 2: they really want to go there, what I would say
Speaker 2: is that only invest in exchanges which are clearly regulated
Speaker 2: by your national activities and do a lot of due
Speaker 2: diligence and spend a lot of time trying to understand.
Speaker 2: Is there any
Speaker 2: anything that looks even rescuing this exchange. So I think
Speaker 2: you have to do that homework because these are not
Speaker 2: regular financial institutions and even those that are regulated in
Speaker 2: some countries, it's sort of a new business. So I
Speaker 2: would put a lot of these trust or mistrust in
Speaker 2: many of these institutions.
Speaker 1: Unfortunately, many investors doesn't matter whether retail or institutional
Speaker 1: when something new comes along. Many of them get excited
Speaker 1: and they think it's wonderful and they listen to the
Speaker 1: story and the story has a lot of good points
Speaker 1: and when they ask questions, there's some good answers. It's
Speaker 1: only when the flaws start falling apart that people find out,
Speaker 1: oh wait a minute, why didn't we think of that?
Speaker 1: Uh And so yes, many, many more people now will
Speaker 1: see the emperor has no clothes,
Speaker 1: but everybody has to make their own decisions and do
Speaker 1: their own research. If you have done a lot of
Speaker 1: research and you really know what you're doing, maybe you'll
Speaker 1: make money. But I've seen this rodeo before and usually
Speaker 1: in the end nearly everybody loses a lot of money.
Speaker 1: A reality check there as investors take stock after the
Speaker 1: collapse of one of the biggest names in the crypto world.
Speaker 1: The fall of F. DX has hit the wider crypto
Speaker 1: market with the prices of other cryptocurrencies falling and the
Speaker 1: total market cap of the sector dropping to a low
Speaker 1: of under 800 billion U. S. Dollars.
Speaker 1: So it could be the start of a colder crypto winter.
Speaker 1: But it's also a wake up call for greater transparency
Speaker 1: in the crypto sphere amid calls for more regulation. It's
Speaker 1: likely that new rules will level the playing field for
Speaker 1: traditional and alternative financial players. Now, all of this is
Speaker 1: likely to be a setback for the development of crypto
Speaker 1: as an asset class. But there's also optimism in the
Speaker 1: future of the underlying Blockchain technology.
Speaker 1: That's the top five things you need to know about
Speaker 1: the fallout from FT X. My thanks to my guest today,
Speaker 1: Eugene lang went three developer and investor and co founder
Speaker 1: of open Eden antonia fattah's economists at and jim Rogers,
Speaker 1: investor and author money mind as every saturday at 10
Speaker 1: 30 PM on media cop cny. You can also find
Speaker 1: us on sienna dot asia and on youtube.