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ARK Invest says FTX collapse ‘could delay institutional crypto adoption by years’

Cathie Wood’s investment management firm is among DeFi loyalists warning about the domino effect failed cryptocurrency exchange FTX could have on the industry.

ARK Invest said on Tuesday that the demise of Sam Bankman-Fried’s once acclaimed company has dramatically affected crypto’s reputation and could be a major setback towards wider adoption while ushering in overly restrictive regulatory action.

“In our opinion, FTX’s insolvency is one of the most damaging events in crypto history,” ARK said in a newsletter written by director of research Frank Downing and analyst Yassine Elmandjra. “This could delay institutional crypto adoption by years and perhaps give regulators license to take draconian measures.”

ARK Invest is the fourth-largest shareholder of Coinbase ( COIN ), with more than 7.7 million shares or a 4.3% stake in the publicly traded crypto exchange as of Sept. 30, according to Bloomberg data. The firm also doubled down on the position as turmoil unfolded in the crypto space last week.

Coinbase said it had minimal exposure to FTX, but the extent of the contamination remains unclear.

MIAMI, FLORIDA - APRIL 7: Cathie Wood, CEO and Chief Investment Officer, Ark Invest, gestures while speaking during the Bitcoin 2022 Conference at Miami Beach Convention Center on April 7, 2022 in Miami, Florida.  The world's largest bitcoin conference runs from April 6 to 9 and expects more than 30,000 people to attend and more than 7 million live stream viewers worldwide. (Photo by Marco Bello/Getty Images)

MIAMI, FLORIDA – APRIL 7: Cathie Wood, Founder and CEO, Ark Invest, speaks at the Bitcoin 2022 Conference on April 7, 2022 in Miami, Florida. (Photo by Marco Bello/Getty Images)

In any case, institutional investors have warmed to the space in recent years. A recent survey by Fidelity found that 74% of surveyed institutions reported plans to purchase digital assets.

However, a lack of legislation has kept crypto world in a regulatory gray area. And now there are concerns that the FTX crisis could motivate federal watchdogs to overcompensate.

“The collapse of FTX should be a wake-up call to Congress and financial regulators to hold this industry and its managers accountable,” Senator Elizabeth Warren said in a tweet on Friday, pushing for stronger rules and enforcement. “Too much of the crypto industry is smoke and mirrors.”

ARK pointed to a response by Coinbase CEO Brian Armstrong to Warren’s call.

“The problem is that the SEC has failed to create regulatory clarity here in the US, so many US investors (and 95% of trading activity) have gone overseas,” Armstrong said on Twitter last week.

Ripple effects already show across the space. BlockFi, a digital asset lender that received a bailout from FTX earlier this year, has suspended customer withdrawals. Voyager is ending a deal to sell itself to FTX and is looking for new bidders, and Genesis said $175 million in funds were locked up in the collapsed exchange.

Wood and ARK, who earlier this year set a $1 million price target on Bitcoin by 2023, remain crypto bulls despite recent events. The firm also said that the silver lining of FTX’s downfall was that Bitcoin and Ethereum “didn’t skip a beat,” and the crypto market punishes centralized entities that lack transparency, pushing the ecosystem toward more decentralization and transparency. push.

“ARK’s belief in the long-term promise of public blockchains on money, finance and the internet is unwavering,” the firm said. “While the crypto asset market may be operating under selling pressure and liquidity crunches in the short term, we believe this crisis will purge bad actors and improve the health of the crypto ecosystem with more transparency and decentralization in the longer term.”

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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