The future of crypto exchanges, regulatory battles, and governance

Welcome to the History of Crypto, a Cointelegraph series that brings readers back to the most significant events in the crypto space. Powered by Phemex, the timeline allows crypto community members to explore and look back at the important events that shaped the industry into what it is today.

This article explores the period following November 2022, when the FTX exchange collapsed, giving rise to one of the most notorious crypto winters in the history of digital assets.

The period after the collapse of the FTX exchange is known as one of the darkest times in crypto history.

The downfall of FTX and its over 130 subsidiaries catalyzed a chain reaction of bankruptcies and layoffs among Web3 firms, giving rise to one of the longest crypto winters, that saw Bitcoin’s (BTC) price bottom out at $16,000.


Following the bankruptcy that caused a $8.9 billion loss of investor funds, regulators were forced to take action and develop more investor safety-oriented frameworks emphasizing transparency for crypto exchanges and service providers.

United States regulators issued some of the most significant criminal fines in history to Binance despite no evidence of user fund misappropriation. They also fined smaller exchanges in a hawkish effort to prevent potential FTX-like meltdowns.

Explore the History of Crypto. Source: History of Crypto

How did FTX collapse?

The now-infamous FTX exchange collapsed nearly on and a half years ago, sending shockwaves across global crypto markets and wiping out tens of billions of value within a few days.

In essence, FTX collapsed due to user fund misappropriation, which resulted in billions worth of trading losses for its sister company, Alameda Research. The quantitative trading firm used FTX customer funds that Bankman-Fried transferred without consent to fund Alameda’s trading losses, now referred to as the Alameda gap.

Before getting its quantitative trading protocol from Gary Wang, Alameda lost over $500,000 every day throughout an awful month, claimed Michael Lewis in his biography about Bankman-Fried.

The user fund misappropriation started to unravel in November 2022 when it was revealed that a large portion of Alameda’s balance sheet was made up of FTX’s FTT token.

The revelation led to a large sell-off, which caused the FTT token price to plummet, raising widespread concerns about the financial health of FTX and Alameda Research. This led to mass customer withdrawals of up to $6 billion within three days. FTX could not meet the withdrawals as it was forced to suspend them.

FTX filed for bankruptcy on Nov. 11, 2022. Bankman-Fried was arrested in the Bahamas on Dec. 12, 2022, after United States prosecutors filed criminal charges against him. He was extradited to the U.S. in January 2023. Bankman-Fried was sentenced to 25 years in federal prison on March 28, 2024.

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Related: Alameda Research FTT token transfer from September fuels wild speculations

The regulatory crackdown after the FTX collapse

The collapse of the FTX exchange triggered a hawkish response from the United States Securities and Exchange Commission (SEC), which started a broader crackdown on crypto exchanges to avoid another potential FTX-like meltdown.

In June 2023, the SEC sued Coinbase and Binance Exchange for alleged securities violations. In the lawsuit against Binance, the SEC alleged that the company and its founder, Changpeng Zhao, had misappropriated billions of user funds.


Despite no evidence of user fund misappropriation, Binance was charged with violating Anti-Money Laundering laws and settled to pay one of the most significant criminal fines in history worth $4.3 billion.

As for the Coinbase lawsuit, the SEC claimed that the exchange operates as an unregistered exchange, broker, and clearing agency and violated securities laws by listing 13 tokens it alleged were securities, according to the lawsuit filed in June 2023.

Coinbase sought an order to drop the case, questioning the SEC’s authority over crypto exchanges. The exchange’s motion to drop the legal case was dismissed on March 27, allowing the SEC to proceed with its lawsuit against Coinbase.

How the U.S. SEC is waging an undeclared war on crypto. Source: Cointelegraph

The immediate regulatory response focused on prosecutions and enforcement rather than implementing blockchain-specific regulations, according to Ashar Burney, the legal head of TDeFi, who told Cointelegraph:

“This approach reflects a broader trend where regulators address fraudulent activities within the crypto space through existing legal frameworks, emphasizing enforcement against criminal behavior rather than introducing new regulations specific to blockchain technologies.”

Burney added that the FTX collapse was primarily a “case of criminal fraud,” not a lack of regulatory frameworks.

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How the regulatory landscape evolved post-FTX

Following the FTX collapse, crypto exchanges have started striving for more transparency, spearheaded by Binance, the world’s largest exchange.

By the end of November 2022, Binance launched its Proof-of-Reserves (PoR) system, which shows the amount of underlying assets the exchange holds on behalf of users. This third-party audit aims to show users that the exchange can meet any potential withdrawal requests. Binance’s main assets were overcollateralized by at least 102% as of April 12, according to its PoR page.

Following Binance’s push for transparency, other top exchanges have followed suit, including Coinbase, OKX,, Kraken, and Bybit.

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Despite the new PoR audit systems, investors still need to conduct due diligence as FTX had also performed numerous financial audits that didn’t uncover the fraud, according to TDeFi’s legal head, Burney, who told Cointelegraph:

“SBF’s firm underwent multiple audits by reputable auditing firms, demonstrating the complexity of identifying fraudulent behavior even with established compliance measures. Overall, investors’ safety is not significantly different, especially considering that the crypto industry experiences lower fraud rates compared to traditional fintech and investment sectors.”

Beyond the transparency efforts of crypto exchanges, governments worldwide have also taken a more collaborative approach to regulating the nascent crypto industry, according to James Wo, the founder and CEO of DFG, who told Cointelegraph:

“Although countries have different stances with some being more crypto-friendly than others, they all work towards the same goal of providing a framework that prevents Anti Money Laundering (AML) with ample Know Your Client (KYC) processes in countries that do not outright ban it.”

In May 2023, the European Council adopted the first comprehensive legal framework for the crypto industry. The Markets in Crypto Assets (MiCA) framework aims to protect investors through more rigorous transparency standards and AML rules.


Thanks to the new MiCA bill, crypto exchanges will become fully regulated entities from the end of 2024, Vyara Savova, senior policy lead at the European Crypto Initiative, told Cointelegraph:

“2024 is the year of MiCA, and the whole EU will now have a comprehensive legal framework for crypto-assets, crypto-asset services, and crypto-asset service providers (also known as CASPs). Crypto exchanges are a type of CASP under MiCA and will become fully regulated in December 2024. “

While MiCA is a significant step for the global regulatory landscape and investor safety, its efficiency will depend on the member state implementations for each country, explained Savova:

“An important aspect that is often overlooked is the role of member state laws in applying this regulation, as these laws will create the supervisory framework in the respective country.”

Hong Kong and Dubai have also introduced crypto regulations that favor innovation in an effort to become known as global crypto hubs. Yet, the most regulatory sign came in January 2024, with the approval of the spot Bitcoin exchange-traded funds (ETFs).

Related: TradFi Wall Street firms pushing for Ether ETF approval, says former Binance Labs head

Bitcoin ETFs signal an innovation-friendly approach, but investors are not necessarily safer

After months of regulatory battles, the ten spot Bitcoin ETFs were approved by the United States SEC on Jan. 10, enabling traditional investors to gain exposure to BTC through publicly-traded funds.

The approval of the ETFs is a positive development signaling that signals an innovation-friendly approach from U.S. regulators for the future, according to DFG’s Wo, who told Cointelegraph:

“Despite the lawsuits to multiple crypto exchanges, the SEC previously approved the Bitcoin ETF with the Ethereum ETF being filed. This is a signal that governments are more in favor of regulation than outright banning, as seen in many other countries regulators which provide tight regulations for the approval of licenses to operate crypto-related businesses.“

The U.S. ETF approval has also inspired other jurisdictions to follow suit. The Securities Regulatory Commission (SFC) of Hong Kong could approve the first four spot Bitcoin ETF applications by April 15, after the financial regulator has reportedly accelerated the approval process for the first ETFs.

Spot Bitcoin ETF Approved: Impact on Investments with Mark Yusko. Source: Cointelegraph

Related: Hong Kong regulator fast-tracks Bitcoin spot ETF approvals

Despite significant global regulatory developments like ETFs and more regulations around crypto exchanges, investors aren’t necessarily shielded from another FTX-like meltdown, according to DFG’s Wo:

“Although regulation and compliance have stepped up in regulated entities, it does not mean it will not happen again even if we can expect better risk management from these entities. Overall, self-custody will still be the safest as you are in control of your own funds as long as you take sufficient risk mitigations of not clicking on phishing or scam links that may drain your wallet.”

Related: FTX moves to offload 8% stake in Anthropic

Looking ahead to 2024 and beyond

The FTX collapse inspired widespread collaboration between global regulators to prevent another high-profile meltdown. Some of the world’s leading economies have developed new regulations for crypto exchanges, while Europe passed the first comprehensive framework for the crypto industry, setting the benchmark for other regulators.

The European MiCA framework is still a work in progress. The next major part of the bill will set a marketing communication standard for crypto exchanges, which could impact crypto service providers in Europe, according to the European Crypto Initiative’s senior policy lead, Savova, who told Cointelegraph:

“What will develop throughout 2024 is the CASP and, therefore, exchanges’ marketing communications and what will be allowed. It’s a very impactful topic that emerged in France and is now being discussed at the EU level through the Retail Investment Strategy.”

The second consultation package for reverse solicitation guidelines under MiCA is set to end on April 29. The outcome of the consultation will be influential for MiCA’s final implementation in December, according to Savova:

“[This will determine] how exchanges and other CASPs from countries outside of the EU might provide services to EU citizens without a license and how these services should be marketed in Europe. The outcomes of this consultation will be critical for MiCA’s implementation in December.”

According to TDeFi’s Burney, crypto service providers could still see more regulatory scrutiny, including more stringent disclosure and compliance requirements, leading to a more mature industry. Burney said:

“These developments reflect a shift towards a more mature regulatory framework aimed at balancing innovation with regulatory oversight. However, obtaining a license in the US may not entirely prevent exchanges from operating globally and serving US customers, highlighting the challenges of regulating a decentralized and global industry.”

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