Throughout the cascading cryptocurrency collapses and bankruptcies this summer, one name rose to the top: Sam Bankman-Fried, also known as SBF.

The Bahamas-based American billionaire entrepreneur heads FTX, the world’s second-largest cryptocurrency exchange. This year, he’s become a primary protagonist in the folding of crypto platforms and hedge funds like Celsius Network, Voyager and Three Arrows Capital, deploying a proverbial $1 billion parachute to scoop up failing firms, prop up those facing insolvency and flirt with acquisitions worth hundreds of millions.

He’s also become a primary player in American domestic politics, revealing he’s willing to spend up to $1 billionto fund the Democratic Party’s 2024 efforts. That will prove influential if significant cryptocurrency regulation makes its way through Congress, especially in the context of the 2022 “crypto winter.”

In 2022 alone, his companies acquired two crypto platforms, Canada-based Bitvo and the Japanese platform Liquid, bought a 30 percent stake in Anthony Scaramucci’s SkyBridge Capital, 7.6 percent of the trading platform Robinhood, and lent a whopping $400 million to BlockFi with an option to buy it outright by October 2023.

His relationship with Voyager Digital — an exchange that filed for bankruptcy in July — is a complicated one. His private equity fund, Alameda Research, is a creditor, investor and borrower. Bankruptcy documents show Alameda initially owed Voyager $370 million, but the company lent it more than $500 million in crypto in late June to cover client accounts. Later documents show Alameda likely borrowed up to $1.6 billion from Voyager in the end.

In the same period, Alameda Research also lent $12.8 million to Celsius Network, a crypto lending platform that filed for bankruptcy in July.

Celsius’ single-largest creditor, as revealed in bankruptcy filings, was Pharos USD Fund. This Cayman Islands-based investment firm was owed $81.1 million. That fund is managed and owned by Lantern Ventures, whose CEO, Tara Mac Aulay, is a co-founder of Alameda Research and a close associate and former colleague of Bankman-Fried at the Centre for Effective Altruism.

While a complete forensic account would be impossible to tabulate, we are left with a scenario where one individual — thanks to his controlling shares at multiple companies and connections to investors, debtors and creditors — has a major stake in a significant part of the broader cryptocurrency trading industry.

The various loans, swaps and leveraged trading are typical for financial institutions. Still, they represent an entirely new level of risk in the world of digital money based on open blockchains.

Owing to his newfound relationship with lawmakers and political campaigns — especially as President Biden’s biggest donor— he’ll also have significant weight in shaping the future of Democratic Party politics.

There is no doubt that SBF is one of the most successful investors of our time. But does his significant position constitute a risk for a new innovative sector of our economy?

For those of us with a significant interest in Bitcoin and other cryptocurrencies — protocols designed to be decentralized — to see so much capital and control vested in one person is a warning sign.

With so much crypto value tied up on exchanges and lending platforms rather than people’s private wallets, there are hundreds of billions of dollars at risk for consumers. As we saw with the collapse of TerraUSD, an algorithm stablecoin, it only takes one bankruptcy to send shockwaves. Can a trillion-dollar industry continue to rely on a single investor’s altruism and business acumen?

Politicians in Washington will soon set the rules for how the government classifies cryptocurrencies. They will invoke financial risk, uncertain investments and consumer protection. Bankman-Fried will inevitably have an influence on whatever the outcome will be.

It would benefit us all if future rules help bring regulatory clarity, keep shady actors at bay and provide financial transparency. The whims of a single person, however successful they may be, cannot be the guiding light for the future of decentralized digital money.

Originally published here

The notoriously volatile cryptocurrency market has seen more downs than ups, lately. But for Canadians curious about Bitcoin and cryptocurrency — which, notwithstanding the crash of earlier this year is now once again a $1 trillion global asset class — buying and selling any of these digital assets will hinge on where you live.

Quebecers or British Columbians will have an easier time, while Ontario residents will find their choices limited. Exchanges like Binance have learned the hard way, publicly battling with the Ontario Securities Commission over whether they can serve Ontario users.

Though Binance is registered through Canada’s FINTRAC as a money service business, it must comply with Ontario’s securities rules before it can legally accept users in Ontario. That has left millions of Ontarians blocked from Binance and other platforms.

Plenty of Canadians complain about Quebec’s unique status on other matters of regulation, but Ontario is the outlier when it comes to securities.

Canada’s decentralized system gives each province autonomy in the regulation of securities and investor protection. The two most important, due to population, are the Ontario Securities Commission and Quebec’s Autorité des marchés financiers. 

However, Quebec has an advantage as a signatory to a 2004 memorandum of understanding between securities regulators that acts as a “passport” to allow licenses to be accepted in other provinces. Every province and territory has accepted this passport system and works to foster more integrated rules across the country. All except Ontario.

Though the Ontario regulator is fairly busy, it has so far avoided joining hands with other provinces.

In 2020, Canadian Securities Administrators, the umbrella organization of other provinces’ securities regulators, chastised Ontario for not including the passport rule in their highly-praised taskforce to modernize capital markets.

These piecemeal licenses and exemptions, as well as the lack of any significant cryptocurrency rules at the federal level, mean Canadians who want to use these services are forced to adopt creative —if not technically illegal — methods of bypassing restrictions.

Using the second-largest global crypto exchange FTX, for example, is out of bounds. But if you fire up a Virtual Private Network (VPN) and set it to a U.S. IP address, you can easily log in, provide some information, and get to trading.

While FTX is registered with the federal government through FINTRAC, it still does not have the license necessary to offer its services to residents in Ontario. Recent acquisitions by FTX and other firms may change that, but only if the OSC accepts the new license. 

Considering dozens of other shady offshore crypto exchanges are all too happy to accept Canadians without following financial regulations or disclosures, this system is obviously broken and full of risk. Without smart rules, entrepreneurs and consumers have no other options, setting them up for a world of pain.

Dozens of liquidations and so-called “rug pulls” are cascading in the current bear market, putting millions of Canadian investments at risk. This includes Quebec’s major pension fund, which participated in a $400 million round in Celsius Network, a crypto lending and staking platform close to bankruptcy and default.

We already know that Canada, while a wealthy and free country, does not have interprovincial free trade, as we’re all too reminded in political campaigns and frequent cases before the Supreme Court. It’s no different with cryptocurrency rules.

While we await the unlocking of provincial trade barriers, there is something we can do to provide better clarity and security for Canadians who want in on the crypto economy.

Considering the billions of dollars from both institutions and Canadian investors at risk in the cryptocurrency space, it is true that there is currently no clear regulatory oversight or remedies apart from those we would traditionally apply to banking institutions. 

The current Capital Adequacy Requirements for banks in Canada can range up to 8 percent depending on the institution and holdings, usually owing to a level of risk exposure. This is a convoluted and complicated formula and keeps the number of banks in Canada quite low when compared to other industrialized and financialized countries.

While it may seem attractive to automatically lump cryptocurrency projects and protocols into Canadian banking rules and requirements, we recognize that virtual currencies are different than traditional investments and thus should also have their own set of rules. 

Disclosures, protections against fraud, and legal certainty, however, are key principles that would prove very beneficial to Canadian crypto consumers, as we have proposed elsewhere. But what can be done today?

First, Ontario should sign the memorandum to adopt the passport rule and other securities rules, like all other Canadian provinces. Second, if Ontario refuses to budge and there’s no appetite for a federal securities regulator, Canada should at least pass a law granting reciprocity of provincial securities licenses. Third, and most importantly, Ottawa should embrace smart cryptocurrency regulations that promote innovation, competition, and legally allow Canadians to buy and trade cryptocurrencies if they choose.

There are many advantages to being Canadian. We have a robust economy with plenty of opportunities that help raise our standard of living to punch above our weight. We must ensure that our rules reflect that, no matter our postal code and provincial flag. It’s time for our political leaders to follow through.

Originally published here