Crypto Education Matters More Than Ever According to FTX – Forbes | Team Cansler

As the FTX scandal continues to unfold, the importance of crypto education and awareness has never been more important. Whether for investors, policymakers, regulators and/or financial professionals, the aftermath of the $32 billion collapse of FTX and its 100+ affiliates has clearly shown that between what is understood about the sector and the level one There is a gap in the knowledge needed to hopefully prevent bad actors from causing such economic and reputational damage in the future.

First things first, it’s worth noting that based on the evidence that has come to light after FTX and its affiliates filed for bankruptcy, this exchange’s failure is not so much a failure of a specific crypto asset as it is is more of a failure of more traditional origins. A complete lack of internal controls, a virtual non-existence of corporate governance policies, and a lack of reliable financial statements have been cited multiple times as the main causes of organizational failure. Add to the mix the numerous questions surrounding FTT, the internally created token worth billions on the balance sheets of FTX and Alameda Research, and the recipe for a meltdown was clear to all.

However, the question remains as to which types of information should be focused on more frequently in order to 1) prevent further sudden collapses in the sector and 2) mitigate the risks of contagion that inevitably result from such a large and sudden collapse.

Investors need to understand financial reports. Many of the most ardent advocates and adopters of cryptoassets may rightly believe that blockchain and cryptoassets represent an entirely new paradigm of wealth creation, control and ownership. That’s true to an extent, but that’s no excuse for ignoring basic accounting and financial reporting laws. Also, given the uniqueness of cryptoassets and other blockchain-based transactions, the fundamentals of financial accounting and reporting shouldn’t – and won’t – change.

Accounting, not always a glamorous subject, comes back into focus as the extent of FTX’s failure becomes clear.

The revelations about the complete lack of internal controls and the almost complete lack of reliable financial information should be seen as a lesson for the future. Financial reporting and reliable financial data are the lifeblood of functioning capital markets; Crypto firms wishing to operate in this space must adhere to the same standard as any other firm. Obviously, financial reports and better disclosures won’t prevent unethical and/or potentially fraudulent activity, but they will be much easier to spot.

Reserves must be addressed. Again and again, the lack of understanding and transparency about what reserves actually mean for crypto companies proves to be the downfall of various organizations. If the investor community lacks confidence in the financial data reported to the market by these firms, which is not an unreasonable possibility according to FTX, the industry must begin to regain trust from creditors, investors and regulators through proactive measures and transparent solutions.

With the tide of outages that have occurred in 2022 – Celsius
CEL
, Terraform Labs, FTX (among others) – there was a common theme; Investors who question business fundamentals and the companies concerned are unable to successfully address them. Not to mention the ongoing saga surrounding Tether
USDT
which has been under constant scrutiny for the reserves allegedly underpinning its stablecoins.

Blockchain promises transparency and traceability; Institutions operating in this field must adopt similar characteristics in order to evolve and evolve.

Cryptoassets are financial instruments. The reality is that, barring the adamant belief (of some) of a bitcoin-based global economy operating entirely on bitcoin as a global medium of exchange, crypto assets are financial instruments. Something that can be forgotten in the sometimes breathless discussions about the future of blockchain and crypto — many of which are valid conversations — is that investor education and disclosure must remain paramount for now. Just as (most) investors wouldn’t buy a stock or any other financial product solely based on internet recommendations, influencers commenting on them, or anonymous forums, the same care and common sense should be applied to crypto.

Even if some investors fall victim to this type of scam, there are structures and insurance options to help offset losses. To date, crypto investing has had very limited opportunities to help investors get healthy.

Given that regulators so far appear to be attempting to regulate through lawsuits and closed meetings, the responsibility for investor protection remains with the investors and institutions operating in this space. With this in mind, 1) unrealistically promised returns should be subjected to rigorous questioning, 2) crypto firms should be held to a higher standard of disclosure in the face of past failures, and 3) investors should actively work to educate themselves about both the specifics of the asset itself, as well as the Organization issuing this certificate.

Education and proactive learning are always important and even more so for crypto investors, organizations and regulators as a volatile 2022 draws to a close

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