Customer deposits in the volume of ten billion dollars (9.61 billion euros) were secretly transferred to the FTX crypto exchange. Until last Friday. When the balance sheet tricks became known, there was a rush of customer withdrawals, which led to the bankruptcy of the financial center.
Once again, the crypto world has grabbed the headlines. Does this mean that trust has finally been lost? No, say the three Austrian crypto pioneers Paul Pöltner, Andreas Freitag and Jonas Jiinger and explain their reasons in an interview:
“Vienna Journal:” Crypto exchange FTX went bankrupt spectacularly. How could this have happened?
Paul Polter: Much is still in the dark. One thing is certain: the crypto assets themselves are not to blame, but always look at the specific case. It’s like at Lehman Brothers in 2008 when the bankers went wild or in the case of Bernard Madoff who cheated on a massive scale with stocks. They were all criminal cases, as FTX is now.
The crypto industry is now calling for more security and regulation. This is unusual for an industry where regulation was once a red rag.
Andrew on Friday: But in the contrary. For us, it can’t happen fast enough that things are properly regulated. The crypto market needs more security. Sooner or later, a structure reminiscent of a conventional financial system will emerge.
These are completely new tones. . .
Friday: We have to distinguish between what is happening internationally and what is happening in Austria. Austrian companies are already licensed and inspected, and great importance is attached to meeting the requirements.
Disciples of Jonah: Our very first step as a company led us to the regulator, the financial market supervisory authority. We were registered and got permission. We live up to those regulators and that’s what we want. The laws make sense, they apply to the banks as well as to us and we respect them, there is no doubt.
The financial market regulator is very skeptical about cryptocurrencies. How could acceptance be increased?
Poller: Cryptocurrencies enable new forms of collaboration. This is programmable money, a further development of previous monetary transactions. The big advantage is that transfers are tied to conditions. You invest in a company, for example, but the money is paid out only if the sum x is reached. If the sum is not reached, it is automatically reversed. Cryptocurrencies are unstoppable.
Younger: The European Central Bank is also considering how blockchain can be used to digitize the euro. It shows that technology is incredibly exciting.
In the first quarter, the new MiCA (Markets in Crypto Assets) regulation is to be adopted at EU level. How do you feel about this?
Poller: There is no unregulated zone in Europe, whatever you do you are always regulated. If I sell a product, I am covered by product liability, etc. MiCA is on the way and that’s a good thing. We have to make sure in Europe that we don’t fall behind. Otherwise we depend on the countries where it is possible. Regulation also helps to create a certain basis of trust. However, there must not be more opportunities to build and try new business models.
How far should regulation go?
Younger: It would be important to us that everyone in the market plays by the same rules. MiCA is therefore great because it sets European standards. We can’t get the settlement to come fast enough. It’s good for the whole market.
Cryptocurrencies are often used for criminal purposes such as money laundering. Why is the industry so vulnerable?
Poller: Most money laundering occurs in fiat currencies, i.e. euros, dollars, etc. The blockchain offers 100% transparency. Every transaction that takes place can be traced. It is not because there is a new technical possibility that it is only used for the informal economy. We still have to differentiate.
Younger: For us as a crypto provider, the same standards apply as for any bank. We behave in accordance with the law on money laundering in the financial markets, the monitoring of transactions is important to us. Our customers should not be exposed to any risk.
You should also not lose your password, then access to the account will be lost.
Friday: Each cryptocurrency works with public and private keys. A keybar is generated, which is a long number sausage. And you have to watch out for them. If you lose them, you no longer have access to your cryptocurrencies, and no new password can be generated. The key is generated by entering 12 words in a specific combination. It is very difficult for an individual, because the numbers must be entered correctly. But there are commercial exchanges where you can create an account, just like in a conventional bank. They also take care of access. Customers must be authenticated, but unlike banks, it doesn’t matter how much you earn.
Poller: I see an app like cash. You may have a few hundred dollars in your pocket, but I wouldn’t put large sums on the app. A lot of things can go wrong there. It may be a software bug, you won’t find the keys with the next update.
Friday: This is a private risk assessment, some people have a lot of cash in a safe in the basement, some people like me are already nervous when 1000 euros are lying around at home.
Is there deposit insurance for cryptocurrencies?
Younger: The Deposit Protection Act does not apply to cryptocurrencies. We resolve this through an external insurance company and not through the state.
Poller: The question is also why there is deposit insurance. Banks get money and reinvest it. If the business does not work, there is deposit insurance, which replaces part of the money.
Bitcoin, Ethereum and Co are subject to significant fluctuations. Money can lose much of its value overnight. What do you think?
Younger: High-risk investments like cryptocurrencies should only be a small portion of the portfolio, perhaps five or ten percent at most for the vast majority of investors. And with this type of asset, you really only have to invest if you want and are able to invest for the long term. Invest for the long term, don’t speculate.
What lessons do you draw from the FTX crash for the future?
Poller: There are two realizations for me. On the one hand, in a new emerging market, you have to take a good look at the players and how they have set up their business. On the other hand, most European companies are subject to higher requirements than in the global market. For the customer, this is sometimes combined with more complex check-in processes. You also have much more security. Technology will prevail, even if the market is adjusting.