Bitcoin and cryptocurrencies have come under unprecedented scrunity in the aftermath of the collapse of major crypto exchange FTX.
Calls for stricter regulatory controls have grown to a cacophony over the last week as the amount of money thought to have been lost by FTX and its sister company Alameda Research reaches eye-popping levels and threatens to engulf the wider crypto market.
Now, following the latest gathering of the Group of 20 (G20) industrialized countries in Indonesia, the leaders of the attending countries called the need for international rules to govern the fast-growing bitcoin and crypto space "critical" and said potential risks to "financial stability" needed to be mitigated.
"It is critical to build public awareness of risks, to strengthen regulatory outcomes and to support a level playing field, while harnessing the benefits of innovation," the G20 leaders, including U.S. president Joe Biden, wrote in a statement posted to the White House website following the meeting this week in Bali, Indonesia.
Last month, global financial standard-setter the Financial Stability Board (FSB) proposed rules that would subject crypto companies and markets to the same tough rules that govern traditional finance.
"We welcome the FSB’s proposed approach for establishing a comprehensive international framework for the regulation of crypto-asset activities based on the principle of ‘same activity, same risk, same regulation,'" the G20 leaders said, adding they want to "ensure that the crypto-assets ecosystem, including so-called [traditional currency-pegged] stablecoins, is closely monitored and subject to robust regulation, supervision, and oversight to mitigate potential risks to financial stability."
The Bahamas-based FTX exchange reportedly loaned customer deposits to Alameda Research, a trading company also owned by former billionaire and founder Sam Bankman-Fried (SBF), possibly losing as much as $8 billion.
The gaping hole in FTX's balance sheet has triggered a wave of warnings from other crypto companies with FTX exposure and sent them scrambling to distance themselves from the bankrupt exchange.
U.S. Treasury secretary Janet Yellen said the fall of FTX "demonstrate[s] the need for more effective oversight of cryptocurrency markets," in a statement this week, adding that the same protections offered in traditional markets should apply to crypto assets.
"This is a wake-up call, rather than just a bump in the road, or the even the end of the road," Cristiano Bellavitis, a Syracuse University professor specializing in cryptocurrency and blockchain technology, said in emailed comments. "The sector is huge financially but has very limited regulation. The same problems would not have occurred in the mainstream financial system."
However, Bellavitis expects the bitcoin and crypto industry to eventually recover from the FTX meltdown, predicting regulation will help the technology flourish.
"[The collapse of FTX] will diminish confidence in the crypto industry, but this industry and blockchain technology is here to stay," Bellavitis said. "More regulation and clearer rules will only strengthen what this industry can do."