FTX collapse fails to scare Terry Duffy and futures exchanges away from cryptocurrency

Regulators are probing whether Sam Bankman-Fried and his associates misused customer funds

The FTX Arena, home of the Miami Heat. The arena will soon have a new name after the NBA team and Miami-Dade County terminated their relationship with FTX. AP

Even as some of Wall Street’s old guard have an “I told you so” moment after the collapse of Sam Bankman-Fried’s FTX, futures exchanges are not giving up on crypto.

CME Group chief executive Terry Duffy, who has been one of Mr Bankman-Fried’s fiercest critics, said he would not stop cryptocurrency futures trading because of “one bad actor”.

Cboe Global Markets, another Chicago exchange, and software provider Trading Technologies also recommitted to digital assets despite the FTX meltdown.

“I am not prepared to say I would delist it,” Mr Duffy, 64, said in an interview this week, in which he recalled his spat with Mr Bankman-Fried at an industry event in March.

“We have been at the cutting edge of innovative products, but what we don’t do is do it in a reckless manner.”

Executives at futures exchanges had expressed concerns about FTX’s business model before the collapse.

The bankruptcy of FTX potentially caused billions of dollars in losses for millions of account holders and resulted in investigations into allegations of wrongdoing.

It has also ensnared one of the biggest lenders in the cryptocurrency industry, Genesis, as well as Gemini, which halted redemptions, and BlockFi — a lender previously bailed out by FTX.

“These events reinforce our strategy,” said Chris Isaacson, chief operating officer and chair of Cboe’s digital board, on Friday.

“If there is ever a time where trust in markets needs to be built and reinforced in digital assets, it is now. That is what we are committed to doing.”

Mr Isaacson said Cboe will continue with cryptocurrency futures trading.

Jason Shaffer, executive vice president of product management at Trading Technologies, said his company would stay the course as well, and that customers want to engage in cryptocurrency in the same way they trade other currencies.

At a Futures Industry Association event this week, conference goers compared FTX’s collapsed to energy trader Enron, which went under in 2001 and became a symbol of corporate fraud.

And Christy Goldsmith Romero of the Commodity Futures Trading Commission went as far as to draw parallels to the worldwide financial crisis.

“Opaque, complex, leveraged, unregulated products, highly interconnected market, concerns about the quality of underlying assets, high potential for contagion risk,” she said. “These are the types of things that existed in 2008 that I see parallels with now.”

Mr Bankman-Fried was a driving force behind a failed campaign to penetrate traditional finance. He proposed handling every step in a cryptocurrency derivative transaction — clearing trades and eliminating the middlemen that in many cases help spread the risk.

If approved by the CFTC, the plan could have increased risks for the traditional industry and disrupted business models such as CME’s that have been around since the late 1800s.

The plan drew attacks from Wall Street businesses and heightened calls for more oversight of Mr Bankman-Fried’s company and its rivals.

The idea was “rubbish from Day 1”, Mr Duffy said. “I’m surprised so many people were enamoured by his nonsense.”

Another critic of the plan was ICE’s founder and chief executive Jeff Sprecher. At the FIA event in Chicago on Tuesday, he said, “Generally speaking, you can’t have an exchange, a market maker and a clearing settlement organisation under one roof.”

The crypto market, which includes currencies such as Bitcoin, pictured, has lost $2 trillion of its value in six months. Unsplash

The price of Ethereum, the second largest cryptocurrency by market size, has fallen by 70 per cent this year. Investors and analysts are watching to see if it will dip below $1,000. Unsplash

Dogecoin, supported by Elon Musk, is about 90 per cent down from May last year, yet it is outperforming Bitcoin and Ethereum in the current crash. Unsplash

The government of El Salvador has invested $105 million in Bitcoin. President Nayib Bukele's embrace of the cryptocurrency as legal tender is being questioned as the market crashes. Getty

Changpeng Zhao, founder of crypto exchange giant Binance, has compared the current market turmoil to the dotcom bubble of the early 2000s. Still, the company is aggressively pursuing licensing in international jurisdictions and introducing new products. Getty

Tether is the biggest issuer of stablecoins, a type of cryptocurrency pegged to a traditionally stable asset like the US dollar. Most stablecoins are meant to maintain a constant price of $1 and are backed by real reserve funds, making it easy to convert crypto investments into cash. But Tether's financial statements show that may not be true, leaving the issuer and its investors vulnerable. Unsplash

The recent crypto crash can in part be attributed to the collapse of TerraUSD, a stablecoin pegged to the US dollar through algorithms and linked to a "sister" cryptocurrency named Luna. When the price of Luna plummeted, TerraUSD also fell, creating a “death spiral” to practically zero for both coins. Unsplash

On June 12 crypto lender Celsius Network said it had paused customer withdrawals, saying it needed “to stabilise liquidity and operations”. Investors are still waiting, with no signs that the current meltdown will let up. Getty

Mr Bankman-Fried, 30, has been a key donor to the Democratic party. He gave about $40 million to candidates in the past two years, nearly all to Democrats, and has visited legislators in an effort to affect developing cryptocurrency regulations.

Mr Duffy said he hoped politicians who received the donations from Mr Bankman-Fried would return them.

“I never bought into the whole thing,” he said.

Politicians who accepted his money will be quick to show “they are not influenced by that”, Mr Sprecher said.

Regulators are probing whether Mr Bankman-Fried and his associates misused customer funds, and his company’s collapse is adding urgency to a Washington push to transform the CFTC into a top cryptocurrency watchdog, the agency’s chairman Rostin Behnam said at the FIA event.

While the industry may take a breather for now, it will come back when confidence is restored, said Ram Vittal, North America chief executive at Marex Group, a futures and options broker that has a partnership with Coinbase.

“What is the ingredient that will be the spark? The proper regulatory framework that allows everybody a lot more conviction so that some of these FTX-like things don’t happen,” Mr Vittal said.

Rob Creamer, chief executive of Chicago-based proprietary trader Geneva Trading and chairman of FIA’s Principal Traders Group, said there may also be opportunities ahead.

“It is dangerous to say there is no value in crypto or the underlying technology because Sam did X, Y or Z,” he said.

“Seeing what happened post-Enron, there may be a lot of opportunity for a reputable company with strong governance to pick up the pieces of FTX.”