Dec 7, 2022

The solution to what happened at FTX and a path toward better markets.

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The solution to what happened at FTX and a path toward better markets

The Problem: Unregulated Markets.

It turns out, FTX was not only a crypto exchange, but also functioned like a hedge fund, a market maker, an issuer, a lobbying firm, a charity, and their own regulator all at once. The dramatic events that are unfolding in front of our eyes regarding the FTX scandal seem to be far worse than most could have predicted. The derivative markets including FTX customer borrowings appear to have created nearly $80 trillion, or 4 times the GDP of the United States, of global financial exposure according to the Bank of International Settlements.

Unregulated use of the “crypto assets” allegedly purchased through the FTX model has begun a domino effect and the harmful effects of this have not yet been fully realized. All this stems from a complete lack of regulatory oversight. 

While investors claim to have seen financial statements from FTX, they also claim that these statements showed something very different from what things turned out to be. While information is still coming out and we don’t know for sure what happened, it appears, the now infamous Sam Bankman-Fried used FTX as a personal bank account and used worthless collateral and worthless tokens to loan himself outrageously large amounts of real investor money. 

FTX was a completely unregulated private business with no real reporting obligations. While any lie told by the management of FTX to its customers and investors should be investigated and followed with lawsuits, is anyone surprised that an unregulated company dealing unregulated assets might have lied to their investors? Apparently, the answer is yes.

what happened at ftx
Sam Bankman-Fried of FTX
The Solution: Regulated Markets:

The fallout from FTX has left many investors with empty pockets and an anxious stomach at the thought of new markets, and in some cases, investing in general. Auction markets, overseen by licensed stock exchanges, regulated by government agencies, which have worked for hundreds of years, may suffer from the bad actions of FTX and others in the Crypto industry. Everyone in America wants truth and trustworthiness in financial markets, not an overreaction toward investment markets generally. 

For example, Dream Exchange has been a strong advocate for the Main Street Growth Act from the very beginning of its inception because we see this as a solution to schemes like FTX. A regulated stock exchange marketplace for small-cap companies will enhance investor protections and nip problems like SBF/FTX in the bud. 

Capital formation in a regulated marketplace is responsible for the wealth, prosperity, and lifestyle we enjoy today. This has been so for over 200 years and will continue to be so. Regulated stock exchange markets work and help form capital while keeping investors safe. We need a marketplace for small business capital formation to minimize the effects from the COVID pandemic to help our economy. We will need this marketplace even more so as the ripple effects of the FTX scandal start to materialize in our global economy. 

John F. Kennedy, once said, “We are not afraid to entrust the American people with unpleasant facts, foreign ideas, alien philosophies, and competitive values. For a nation that is afraid to let its people judge the truth and falsehood in an open market is a nation that is afraid of its people.” The Dream Exchange believes that small businesses deserve the opportunity to have their ideas fearlessly available to the American people. 

If we are to let people judge truth and falsehood in an open market, we need to start by assuring that investment markets have a fair playing field. Time tested market rules allow good companies, with innovative ideas, to be rewarded without being mixed in with scam artists and con men. Investors are entitled to transparency and truth, so they may choose unaffected by lies and fear.