Helo\u00edsa Nogueira Engel<\/p>\n\n\n\n
One of the largest players in its sector, the FTX exchange announced its filing for bankruptcy protection in late 2022, alerting investors and creditors to the urgent need to regulate the crypto market\u2014not only at a national level but globally.<\/p>\n\n\n\n
History repeats itself, the first time as tragedy, the second as farce \u2013 KARL MARX<\/p>\n\n\n\n
That famous quote by Marx was one of the first things that came to mind when news broke that FTX had filed for bankruptcy protection\u2014or \"filed for Chapter 11,\" to use the English term. <\/p>\n\n\n\n
There has been much discussion in the media recently regarding the impact that the collapse of FTX\u2014one of the sector's largest exchanges\u2014will have on the market, now that it has proven to be fundamentally fragile and, more alarmingly, insolvent.<\/p>\n\n\n\n
This is a highly complex topic, and while this text makes no claim to cover it exhaustively, I would like to share a reflection. In law, in life, and in the cycles that societies and economies undergo, the \"pendulum swing\" consistently reveals itself as a constant.<\/p>\n\n\n\n
If we experience a shift toward extreme economic liberalism, the pendulum\u2019s response will be a move toward conservatism\u2014a pattern that repeats itself in myriad ways. For instance, regarding cryptocurrencies, it is well known that their rise and popularization occurred in the wake of the 2008 subprime mortgage crisis, serving as a market response to a lack of confidence in centralized economic structures.<\/p>\n\n\n\n
Thus, the rise of exchanges like FTX and the growth of investments in Bitcoin and utility tokens emerged as a response to this skepticism regarding the effectiveness of the traditional financial system.<\/p>\n\n\n\n
Indeed, the prevailing argument was that decentralization\u2014and the creation of a system devoid of a single institution (such as banks or regulatory boards) responsible for validating transactions\u2014offered the safest way to operate, as all participants would validate one another in a sort of infinite chain.<\/p>\n\n\n\n
Fast forward to 2022 and FTX\u2019s filing for bankruptcy protection. Surprisingly (or perhaps not), the initial discussion and criticism that emerged amidst the \u201cchaos\u201d caused by the company\u2019s insolvency centered on: What is the regulatory framework? Why is there no regulation? How did no one see this coming? How could the company have issued loans without any backing\u2014not even its own native token (FTT)?3<\/p>\n\n\n\n
At this point, I imagine that\u2014just like me\u2014you automatically linked this outrage over FTX to the sentiments expressed against Lehman Brothers in 2008. Indeed, the very same questions raised when the housing market bubble burst are now being repeated in relation to this exchange.<\/p>\n\n\n\n
Thus, the question that arises is: Are we witnessing the next swing of the pendulum? Are we seeing a potential tightening of institutional oversight and, perhaps, another attempt to regulate not only the cryptocurrency market but also cross-border insolvency?<\/p>\n\n\n\n
Perhaps the answer to this question\u2014however tentative\u2014has already begun to take shape... In December 2020, Brazil enacted Law No. 14.112\/20, which amended Law No. 11.101\/05 (the Judicial Reorganization and Bankruptcy Law)4 and introduced\u2014in Articles 167 et seq.\u2014regulations addressing cross-border insolvency cases.<\/p>\n\n\n\n
These new provisions were primarily based on the UNCITRAL Model Law (Arts. 239\u2013241)5; consequently, much like the Model Law itself, the articles in question are far more procedural and principle-based in scope than strictly positivistic.<\/p>\n\n\n\n
Along these same lines, Bill 4.401\/2016\u2014also known as the Cryptocurrency Legal Framework\u2014was approved in December of this year; it will regulate exchanges dealing in digital assets. Although still awaiting final approval by the President of the Republic, the version presented by the Federal Senate has already put the market on alert and divided the opinions of market players.<\/p>\n\n\n\n
This is because the non-positivist nature of the law leaves room for speculation regarding which body would act as the regulator, and whether the Central Bank\u2019s involvement\u2014along with the centralization and regulation of cryptocurrencies\u2014will bring greater security and, consequently, more investors (placing Brazil ahead of many other countries), or if regulation will have the opposite effect, driving away more aggressive investors.<\/p>\n\n\n\n
As can be seen, the lack of a consolidated system lies at the heart of market unease; thus, I do believe we are witnessing a swing of the pendulum, and we can expect that, in the coming years, international and national regulations regarding the insolvency of digital and non-digital financial assets will advance rapidly in both Brazil and other countries.<\/p>\n\n\n\n
As mentioned above\u2014and unlike the approach taken a few decades ago, when national policy sought to codify everything into a formal system\u2014I believe the path forward this time will be based on the rule of law, implementing principle-based norms such as those introduced by Law 14.112\/20 regarding cross-border insolvency and Bill 4.401\/21 concerning the treatment of cryptocurrency transactions.<\/p>\n\n\n\n
Furthermore, it is important to highlight that this movement will likely unfold at an unprecedented pace, driven by the vulnerabilities exposed by the FTX scandal, as well as society's digital evolution and the automation of processes where transaction costs are being reduced through artificial intelligence.<\/p>\n\n\n\n
Consequently, the conclusion reached at this moment is that there are far more questions than answers on the table, but one thing is certain: history is repeating itself. The question is: will it be a tragedy, a farce (and here I take the poetic license to add one more option), or an innovation-driven revolution that determines the future course of the market?<\/p>\n\n\n\n
1 LAWLER, Richard. FTX files for Chapter 11 bankruptcy as CEO Sam Bankman-Fried resigns. Available at: . Accessed on: Dec. 15, 2022.<\/p>\n\n\n\n
2 The Subprime Mortgage Crisis of 2007-2008 \u2013 StMU Research Scholars. Available at: https:\/\/stmuscholars.org\/the-subprime-mortgage-crisis-of-2007-2008\/. Accessed on: Dec. 10, 2022.<\/p>\n\n\n\n
3 BANKS, David A. Crypto was meant to solve financial corruption. The FTX scandal shows it\u2019s got worse. Available at:<\/p>\n\n\n\n
4 Law No. 11.101\/05. Available at: https:\/\/www.planalto.gov.br\/ccivil_03\/_Ato2004-2006\/2005\/Lei\/L11101.htm. Accessed on: Dec. 19, 2022.<\/p>\n\n\n\n
5 UNCITRAL Model Law on Cross-Border Insolvency (1997) | United Nations Commission On International Trade Law. Available at: https:\/\/uncitral.un.org\/en\/texts\/insolvency\/modellaw\/cross-border_insolvency. Accessed on: Dec. 5, 2022.<\/p>\n\n\n\n
6 FEDERAL SENATE BILL No. 4401 of 2021. Available at: https:\/\/legis.senado.leg.br\/sdleg-getter\/documento?dm=9054002&ts=1671455324011&disposition=inline. Accessed on: Dec. 12, 2022.<\/p>\n\n\n\n
<\/p>","protected":false},"excerpt":{"rendered":"
Helo\u00edsa Nogueira Engel Uma das maiores de seu setor, a Exchange FTX no final do ano de 2022 anunciou seu pedido de recupera\u00e7\u00e3o judicial e colocou investidores e credores em alerta acerca da necessidade urgente de se regulamentar o mercado de cripto n\u00e3o somente a n\u00edvel nacional, mas sim global. A hist\u00f3ria se repete, a […]<\/p>\n","protected":false},"author":2,"featured_media":836,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_joinchat":[],"footnotes":""},"categories":[1],"tags":[],"class_list":["post-829","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"yoast_head":"\n