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Why running a crypto exchange just got a lot harder

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Customers are also starting to ask hard questions, with users now demanding to see proof of reserves and evidence that exchanges hold all the funds they claim to and haven’t traded them away like FTX did.

Przelozny views this as a “good thing”, and his exchange is one of the 13 Australian crypto firms that have publicly pledged that customer funds are held on a one-to-one basis and have promised to provide customers with audited financials to prove it.

Had [the last government’s] recommendations been implemented into law, the FTX issues probably wouldn’t have occurred in Australia.

Independent Reserve CEO Adrian Przelozny

“I think it’s really important to have external oversight over any business that manages clients’ funds, especially given that there’s still not enough regulation in the space. It’s up to the industry to regulate itself,” he says.

The chief executive is far from alone in decrying the lack of local regulation for crypto exchanges, a process which has been slow moving despite a Senate report released last year outlining what changes should be made. Following the fall of FTX, Treasury has now committed to legislation by the end of next year, a move Przelozny welcomes.

However, if regulation had been in place already, Australian investors – who have lost millions in the collapse – would have been protected, he says.

“Had [the last government’s] recommendations been implemented into law, the FTX issues probably wouldn’t have occurred in Australia,” Przelozny says. “Australian cryptocurrency assets should be held in Australia. But because those rules weren’t in place… Australians will have to get in queue with everyone else.”

Recent research from Independent Reserve, completed before FTX’s collapse, showed regulation was an issue for consumers too, with 36 per cent of those surveyed highlighting a lack of regulation and consumer protections as the main reason why they chose not to invest this year.

The report, which Independent Reserve has run for the last four years, also shows a slight fall in crypto ownership – from 29 per cent to 26 per cent. However, some investors also appeared to be taking the opportunity to ‘buy the dip’ in the market, with 17.3 per cent investing $500 or more per month into digital assets, up from 10 per cent last year.

Przelozny says the report’s findings are heartening, but he still expects the current bear market to last for another 12 to 18 months, a period which he thinks will shake out many lesser projects in the system, leaving behind only the “main” coins like bitcoin and ethereum.

“Over the past two years we’ve seen a bit of a Cambrian explosion of different tokens, and it’s hard to know what all of them really do. I wouldn’t expect many of them to survive,” he says.

“People tend to recognise the main coins, and I expect they should be able to survive any bear market. Anything below that, we’ll just have to wait and see.”

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