For former banker and BTCMarkets chief executive Caroline Bowler,the experience gave her flashbacks to the global financial crisis,where financial institutions made increasingly risky bets in the belief that good times would just keep on rolling.
Caroline Bowler,the chief of one of Australia’s largest crypto exchanges,says the collapse of US exchange FTX highlights the need for urgent regulation.The Age
But what goes up must come down,and Bowler says the collapse reaffirmed her risk-averse approach to running a crypto exchange,along with the desperate need for solid regulation in Australia’s Web3 industry.
The Age and The Sydney Morning Herald spoke to Bowler for our weekly seriesYou,Me and Web3,which aims to examine,challenge and demystify the ideas behind the emerging industry by speaking to the people who live and breathe it.
It’s been a huge few days in crypto. As someone who runs an exchange,how does the FTX collapse change how you operate or think about the space?
I think it reconfirms the decisions that we’ve made as an exchange. BTCMarkets is a bit being conservative and low-risk in the products we offer and how we conduct ourselves. We’re kind of known for it.
And during the bull market,when there was a lot of exuberance,we didn’t make some of the same decisions that others did. I know that decision,in the short term,hurt our P&L,but looking at where we are today,I’m glad that we stayed true to it because now I’m actually sleeping at night.
My background coming into crypto had been from traditional finance,and having sat through the GFC,I knew I didn’t need to learn those lessons twice. So I knew we were going to be a low-risk exchange. The way that we’ve structured our business is such that our clients’ best interests are our best interests. And that makes life very,very easy.
That bull market exuberance you mentioned,do you think that’s partially at the core of all these collapses we’ve seen this year? Did companies stretch themselves too thin when times were good?
Yeah. I saw firsthand what happened in Ireland when people thought the good times would never end. And they did,they came to a crashing halt. And I don’t condemn people for their choices – it’s a normal human thing to be excited about the good times that you’re living through.
I think what was lacking,perhaps within the crypto ecosystem,was enough experience and voices saying it won’t always be like this,things go down as well as up. I think that is a reflection of the relative youth of the sector. But even then,I don’t think anyone would have expected what happened in the past week or so.
But I’ve been so vocal about the need for regulation,and right now,we have an industry that understands the need for protection when it comes to the segregation of client assets and proper custody solutions. We know that’s a good way to go,and the Senate report from last year suggested as much.
So we’ve got an industry that’s up for it. You’ve got a Senate recommending it. But we’re now in November 2022,a year on from that report,and we haven’t really made enough traction.
Is that lack of progress frustrating?
I don’t know if it’s frustration because I understand we’ve had to change governments since then and there’s a lot to get your head around from a regulatory point of view.
But instead of trying to regulate the products and assets,we should be trying to regulate the bad behaviour. I think that’s what the industry is 100 per cent behind because what happened with FTX wasn’t a problem with crypto,it was behaviour.
Do you think the FTX collapse will have a major negative effect on crypto as a whole,especially for institutional confidence?
No,and the reason why I say no with a great degree of surety is because this isn’t a problem with bitcoin,it’s a problem with behaviour. What I think we’ll see off the back of this is an escalation in conversations about regulation in Australia,the US and UK. So the institutional interest will remain,though it may quieten down until at least the new year.
I doubt that this is the death knell to crypto that so many outsiders have predicted.
What I hope we see is rather than an amplification around the price of bitcoin,instead we see an amplification of stories about the use of technology. I think that that’s where the shift is going to come,and I think that’s a critical narrative change the industry needs to undergo to survive.
Does it change what sort of crypto assets you might list as an exchange?
Well,we were ready to go live with Solana last Friday,and then obviously the wheels fell off FTX,which was quite closely linked to Solana. So we’ve paused the launch until the smoke clears and we can see where we’re at.
We’ve got some other launches in the pipeline,and there’s still very much an appetite for new listings,but it’s safe to say the due diligence will be incredibly thorough.
As someone who worked through the GFC,does this feel like a bit of a GFC moment for crypto?
Maybe a mini one,in the sense that there are larger exchanges than FTX,and an awful lot of them have been doing the right thing,so this was more of a warning shot across the bow.
I don’t blame investors who are feeling very down over the course of this week and anxious about the future. That’s a normal human reaction. But I doubt that this is the death knell to crypto that so many outsiders have predicted.
After the FTX collapse,a lot of major international exchanges have been publishing their proof of reserves and getting them audited. Should Australian exchanges follow suit?
Yes,and I think it needs to be on both sides of the ledger,both assets and liabilities. Certainly in the short term having that degree of transparency would be useful,but I don’t know how useful it is over the long term. When I sign up for a bank,I typically don’t go and look at their balance sheet.
I think when you bring in appropriate regulation which requires exchanges to provide financial information to the regulator,I think that’s going to meet needs over the long term.
But for us,as an exchange,we’re actively looking into methods we can use to prove our reserves,and we have a couple of different options. So we’ll hopefully get that out as quickly as possible so customers can appreciate that their assets are safe and backed by our platform.
Given the turmoil of the past week,what do you think this will mean for crypto in the coming months?
I would expect,certainly in Australia,we’ll continue to agitate for regulation. We need to have the proper protections here to look after investors in this asset class. And that doesn’t mean regulating it out of existence and making it so people have to go overseas exchanges to buy crypto. That’s just passing the buck.
We have to do it properly here in Australia,to make sure that we have these protections in place and also to properly develop the industry.
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