Largely due to the FTX scandal, the crypto market is currently facing a crypto winter with unexpected lows. Recently, much focus has been on the negatives— the crypto market shrinking by $1.4 trillion, Bitcoin losing 60% of its value, and investor security unraveling to name a few. Undeniably, the FTX case of greed stands, and will stand, as a landmark case in the industry. However, while everything in the future is uncertain, particularly as we continue to wait for the SEC to firmly distinguish among digital assets (whether they are commodities or securities), the collapse of FTX may very well propel long-awaited regulatory guidance and management standards in the crypto sphere. 

From an overarching perspective, the FTX case may push forward two lurking questions inhibiting the crypto industry: (1) the regulatory ambiguity surrounding whether a digital asset is a security or commodity and (2) the managerial power grab between regulatory bodies (e.g., SEC and CFTC) amidst the arms race for legal authority and decision-making. Through a close-up lens, the multi-billion dollar implosion of the FTX crypto empire will undoubtably make sure platforms prioritize the protection of client money—it must be kept safe moving forward. Regulation must exist with respect to how client funds are kept and secured (e.g., no commingling of assets). Similarly, though separate, management must ensure such protection of funds exists and a framework with floors and ceilings setting forth the amount each capital exchange must keep ought to be established and drilled into place. 

But with every fall comes the opportunity to come back stronger. Here, an optimistic lens would focus on Web3 artists using the blockchain to monetize their works and secure rights and on the blockchain as a solution to many problems with traditional fiat currencies (e.g., accessibility and liquidity, protection from inflation, autonomous control over investments and independence from central authorities as cryptocurrencies are mainly decentralized). 

One seemingly overlooked player in the crypto ecosystem is the Ethereum blockchain, specifically with the Ethereum “Merge” back in September. Put simply, the Merge was an overhaul of Ethereum’s consensus mechanism, transitioning the network from Proof-of-Work (PoW) to Proof-of-Stake (PoS). Under PoW, miners confirm blocks by solving cryptographically-dense computation problems; total security is measured according to the amount of computation (energy) spent securing the network (otherwise known as “hash power”). On the other hand, PoS consensus validators stake ether into a smart contract on Ethereum, which acts as collateral that can be destroyed if the validator engages in dishonest activity. Not only is a PoS system more efficient, utilizing 99% less energy than PoW, PoS results in a more secure, decentralized network (PoS requires a minimum of 16,384 validators as opposing to mining pool conglomerates in PoW) and more scalability through splitting the network into “shard chains” that share the load of Ethereum. 

Undoubtably, the Merge impacted and upgraded the entire ecosystem. In a post-FTX landscape, one significant bullish indicator for the crypto market may very well be the post-Merge landscape crypto exists in today, and the fact the crypto market exists in a constant state of evolution. One thing is certain, crypto is anything but stationary.