The Risks and Reality of Cryptocurrencies: Understanding the FTX Scandal and Its Implications

Explore the controversy surrounding cryptocurrencies following the $10 billion fraud committed by FTX founder Sam Bankman-Fried. Find out what cryptocurrencies are and what the risks are of investing in them, as well as financial experts' advice.

The Risks and Reality of Cryptocurrencies: Understanding the FTX Scandal and Its Implications
Will cryptocurrencies continue to be valid?Image by Petre Barlea from Pixabay

Cryptocurrencies are facing a crisis due to a $10 billion fraud committed by the founder of the Bahamian-based cryptocurrency exchange platform FTX, Sam Bankman-Fried. But what exactly are cryptocurrencies, and what purpose do they serve?

According to the Mexican Financial Reporting Standards Board, cryptocurrencies are virtual assets based on encrypted codes that are used for payment or the exchange of products and services. They can only be transferred electronically.

UNAM specialist Norman Wolf del Valle explains that cryptocurrencies are not cash, financial instruments, or inventory, as they are not a contract or a commodity. The Bank of Mexico has warned of the risks involved in operations with cryptocurrencies, pointing out the asymmetry of information associated with them. Wolf del Valle says that cryptocurrencies can be used for illegal things like laundering money and paying for terrorism because they are hard to track and can move around freely on the internet.

Cryptocurrencies can experience sudden price fluctuations, and Wolf del Valle warns that if a cryptocurrency seems too good to be true, it probably is. He uses El Salvador as an example. There, the president made bitcoin a legal form of payment, but a year later, its price dropped by 21%, forcing the government to ask for a loan.

The FTX scandal highlights the lack of a well-trained management body and proper corporate governance. Cryptocurrencies, according to Wolf del Valle, will be around for a long time, but he recommends saving on traditional financial instruments.

Cryptocurrencies are not regulated or controlled by any state or private institution, which is why they can be used for illegal purposes. Specialist César Duarte Rivera points out that despite attempts to regulate cryptocurrencies, little progress has been made.

Duarte Rivera warns that investing in cryptocurrencies involves risk and is reminiscent of the 2007-2008 financial crisis in the US. He advises seeking the advice of a specialist before investing in any cryptocurrency.