Make Kitco Your Homepage

Crypto needs a lender of last resort and more regulation, as crypto winter intensifies - Ben Samaroo

Kitco News

(Kitco News) - Sam Bankman-Fried's cryptocurrency exchange FTX has bailed out crypto lender BlockFi with a $680 million deal. The move comes amidst challenges for the crypto industry, with firms like Three Arrows Capital and Voyager facing bankruptcy, and others such as Celsius and Babel Finance freezing withdrawals and transfers.

These developments mean we need better crypto regulation and lender of last resort facilities, said Ben Samaroo, CEO and Co-Founder of WonderFi, a Canadian DeFi company.

"It all feeds back into the need for regulation in this space," said Samaroo. "We need to know who's behind [these crypto firms], how their operating policies and procedures work, all that stuff."

Samaroo spoke with David Lin, Anchor and Producer at Kitco News.

Regulation of Crypto Lending

During bull markets, investors detest regulations, while during bear markets, investors demand more regulations to protect their troubled assets, said Samaroo.

"It's the crowd mentality," he explained. "Warren Buffett calls it the lemming effect. When things are hot, people are just following suit and not thinking about the risks, the repercussions, and they're not clamoring for regulation. It's all focused on growth, how to make more money."

Crypto lending platforms, like Celsius, offer customers a yield on their deposits of Bitcoin, Ethereum, and other cryptocurrencies.

Samaroo said that regulators will now be looking at "how platforms are offering interest to their customers on deposits, and what's happening behind the scenes" in terms of leverage and controls on lending.

'Gold hasn't changed, the price of gold has changed'; What the gold price reveals about the macro-economy - Axel Merk

Crypto Exchanges

The Securities and Exchange Commission recently rejected Grayscale's application for a Bitcoin spot ETF. Samaroo suggested that regulators are being cautious and risk-averse, due to bearish trends in the crypto industry.

"The regulators care the most about the end user, the customer, the investor," he said. "We're definitely going to see a trough in the crypto market, which ties into how regulators approach things. It's going to give an opportunity for the higher-risk, unregulated platforms to get weeded out. And then regulators are going to take their time getting comfortable with things like a Bitcoin ETF."

He pointed to the QuadrigaCX scandal, which involved a crypto CEO who allegedly gambled away his client's cryptocurrencies and stole passwords to offline cold wallets.

"We've seen this story before with the Quadriga debacle that happened in 2017, and then we didn't see the first regulated crypto exchange until 2021," said Samaroo. "That's four years. So, [regulators] move slowly, but it is generally the right direction despite all the pain and suffering that is happening along the way."

To find out how long Samaroo believes the Crypto Winter will last, watch the above video.

Follow David Lin on Twitter: @davidlin_TV

Follow Kitco News on Twitter: @KitcoNewsNOW

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.