(Kitco News) – The so-called Crypto Winter of 2022, which saw massive drawdowns in crypto portfolios and the failure of firms like 3AC, Celsius, and FTX, was largely due to overleverage and too much “centralization,” said Hong Fang, CEO at Okcoin.
“The failure of FTX is not the failure of crypto, and not the failure of a decentralized network,” she said. “It’s a failure of centralization… And there is a lot of leverage in the system that is not really transparent.”
However, Fang emphasized that Bitcoin, despite its price decline of 65 percent over the year, will regain its lost ground.
“I think the fundamental value proposition of Bitcoin has never changed,” she explained. “It’s resilient. It is the only form of decentralized money that is not being controlled by anyone, any government, or any entity… long-term, I am very bullish on Bitcoin.”
Fang spoke with David Lin, Anchor and Producer at Kitco News.
Banning Leverage and Margin Trading
On December 13th, the Canadian Securities Administrators (CSA) banned crypto leverage and margin trading, in an apparent move to protect customers from high-risk activities, like those which led to the fall of FTX and Alameda Research.
Fang said she foresees more countries adopting moves like Canada’s.
“I wouldn’t be surprised if more countries come out with those type of requirements, particularly for retail customers,” she said.
In 2020, the U.K.’s Financial Conduct Authority came out with similar rules, prohibiting the sale of crypto-related derivatives to retail consumers. This affected firms like Binance and FTX, which provide such products.
“The silver lining is that people are naturally asking for more transparency, asking questions, and they don’t trust by default,” she said. “Crypto by nature should be a more decentralized and trustless platform and technology.”
Can Crypto Exchanges Satisfy Withdrawals?
Crypto exchanges allow customers to trade, buy, and sell cryptocurrencies, but there are questions over what these exchanges actually do with client funds. These concerns have become more salient following the fall of Celsius and FTX. It is alleged, for example, that instead of using client funds to purchase crypto on their behalf, FTX funneled the money to its trading arm, Alameda Research, which conducted highly leveraged bets.
Fang said that proof-of-reserve audits can help assuage client concerns about crypto exchanges.
“Merkle tree proof-of-reserve is a technical way of proving that an exchange’s assets, or ‘reserves’… equals the sum of all the assets that customers have let the platform hold in custody for them,” she explained. “By the end of it, we can actually mathematically calculate and prove that the asset and liabilities sides are equal for the platform.”
She added that this kind of exercise can help assure customers that centralized exchanges are solvent.
“If I were a customer, I would like to look at all the centralized exchanges, which primarily provide on-ramp and off-ramp opportunities, to let me verify that my customer funds are not being appropriated and that there is enough solvency,” said Fang.
To find out Fang’s Bitcoin price outlook, watch the video above.
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