- About three quarters of Finder’s panel (76%) think crypto exchanges will be regulated just as much as traditional financial institutions.
- 87% think exchanges should be required to disclose proof of reserves as well as a record of liabilities.
- 42% agree the number of customers on exchanges will keep dropping to the point of driving exchanges to bankruptcy.
- 84% of the panel say cryptocurrency will survive the FTX collapse.
When and how tightly cryptocurrency exchanges will be regulated in the wake of the FTX collapse is up for debate, according to Finder’s Cryptocurrency Exchanges Predictions Report.
About three quarters (76%) of the panel agree that cryptocurrency exchanges will eventually be regulated as tightly as traditional financial institutions, but just 17% think this will come into effect by 2024. An additional 22% think regulation will be effective by 2025 and another 35% by 2030.
Meanwhile, nearly one in five panellists (19%) disagree – although 13% did say the industry may come close to being regulated as strictly as other financial institutions – and the remaining 6% are unsure.
University of Liverpool lecturer in law Matthew Shillito thinks more regulation is a good idea and believes it will come into effect by 2025.
“In the short to medium term, exchanges are of critical importance to the viability of cryptocurrencies, they offer familiarity and ease of use to those transitioning from traditional forms of finance. To that end, it is important that they are regulated in such a way as to remove bad actors, and assure those looking to invest in crypto. Longer term, other forms of storage need to be made more accessible and transparent.”
Swyftx’s head of strategy Tommy Honan agrees that tighter regulation will be in effect by 2025 and is also part of the majority (87%) who think exchanges should be required to disclose proof of reserves as well as a record of liabilities.
“Any exchanges that remain need to get with the program, proof of reserves and liabilities should be prerequisites and non-negotiable for people selecting where they trade. Exchanges also need to continue to upskill their users on self-custody and lean into new and innovative products that support it,” he said.
However 15% of the panel, including CEO of CryptoConsultz Nicole DeCicco, don’t think exchanges should be regulated as tightly as other financial institutions. Although DeCicco conceded that she thought this type of regulation would be in effect by 2024.
“…It’s imperative though we warn investors about the risks involved. At CryptoConsultz we teach our clients to think of cold storage and self custody solutions as their bank account and centralised exchanges similar to the money one might pull out of an ATM and walk around with in their pocket. You wouldn’t want to drain your savings account and risk losing cash. The same risks apply to centralised exchanges, especially in today’s market.”
According to the panel cryptocurrency exchanges could be in for a rough year with 42% agreeing the number of customers on exchanges will keep dropping to the point of driving exchanges to bankruptcy. Over a quarter (27%) expect this to happen within the year and the other 15% within five years.
The good news is that 96% of the panel say centralised exchanges will continue to exist although, 42% did say that decentralised exchanges will become more popular than their centralised counterparts.
Coinflip founder and chairman Daniel Polotsky argued centralised exchanges serve as a bridge between traditional currency and cryptocurrency and said it made sense for consumers to spread funds between both types of exchanges:
“…While they do get compromised, so do their decentralised counterparts, so likely the answer is to spread funds between centralised and decentralised exchanges. However, one advantage that decentralised exchanges have is that all of the activity is on-chain and can be verified by the public. If a centralised exchange cannot provide an audited proof of reserves and record of liabilities, it may be prudent to hold at most a small fraction of your holdings there,” he said.
Just 9% of the panel think the collapse of FTX is the ‘beginning of the end’ for crypto compared to 84% who disagree and 7% who are unsure.
Brighton University senior lecturer Paul Levy does not think the FTX collapse will significantly impact cryptocurrency exchanges in the medium term if confidence is restored.
“…This is less about exchanges per se and more about oversight of unstable and even criminal founders and owners. Confidence needs to be restored quickly through innovation and in-built oversight and governance. If not, regulation will soon follow,” he said.