On Nov. 11, cryptocurrency exchange FTX filed for bankruptcy, revealing gross financial mismanagement that casts doubt on the validity of crypto as a currency and a need for regulation of the crypto market.

Cryptocurrency is “a digital or virtual currency secured by cryptography and based on a network that is distributed across a large number of computers […] that is generally not issued by any central authority,” according to Investopedia. 

Even at the humble beginnings of bitcoin, many were skeptical about a currency that existed only in an online format that was incapable of being interfered with by a government entity. The recent declaration of bankruptcy by a notable figure in cryptocurrency exchange, FTX, and the revelation of how its finances were used support this skepticism.

When people exchange different currencies for crypto, they are doing so with an entity they trust. However in the case of FTX, the money they had been exchanging had been used for their own purposes, and there is a lack of security surrounding the funds. 

According to Business Insider’s Sindhu Sundar and Samantha Delouya, “[In the bankruptcy court, it was found that] financial documents may have been altered, corporate funds were allegedly used to purchase homes for employees and advisors, and workers had expenses approved via personalized emojis.” 

For those who argue for the validity of cryptocurrency and its exchange, “adjusting” financial documents means that it is unlikely that the information they relay is accurate, and it is certainly not valid. Financial documents may also encompass records of financial transactions. 

This means that even your financial records of cryptocurrency exchange may be altered to reflect a number that is more favorable or that grants greater leeway to the use of excess funds – such as on vacation homes for employees, as was done by FTX.

There is also the fact that expenses were approved by emojis. Let’s say, hypothetically, you submitted a paper and received an emoji from your professor as a response. No grade and you received it within minutes – how legitimate, valid, or appropriate would this feedback be?

It is not legitimate, valid or appropriate. In doing this, FTX scammed people out of billions of dollars, promoting the idea that cryptocurrency exchange is invalid and that the currency is invalid as a whole. 

But this does not mean the end of cryptocurrency. Instead, the poor financial situation of FTX has only proven further that government monitoring of the market is needed.

To many involved in cryptocurrency, the appeal is the inability of a central entity to interfere or monitor the market. It is a financial domain in which people can operate the market themselves, which is good in theory but in practice calls for a government presence.

At this point, as the cryptocurrency market has continued to expand, so has its capacity for danger. As it has gained popularity, especially towards younger individuals and students intrigued by the investment opportunity, this has drawn many to the market in search of the financial benefit it offers – including FTX, who are willing to compromise the financial assets of others in pursuit of financial gain.

To prevent similar circumstances in the future and to reinstate a sense of validity in the cryptocurrency market, regulating the market through a party not directly involved is necessary. Specifically, government regulation of the cryptocurrency market and those who act within it is needed to ensure that the market is secure and that the financial security of consumers is maintained.