Gadens

FTX reboot could falter due to long-broken user trust, say observers

Crypto industry observers have questioned whether customers or investors will ever want to “come near” FTX again.

Several crypto industry commentators have expressed skepticism about FTX CEO John Ray’s vision to potentially reboot the crypto exchange, citing trust issues and “second-class” treatment of customers as reasons why users may not “feel safe to go back.”

Former FTX CEO Sam Bankman-Fried tweeted on Jan. 20 praising John Ray for looking at a reboot of FTX, suggesting it is the best move for its customers.

I’m glad Mr. Ray is finally paying lip service to turning the exchange back on after months of squashing such efforts!

I’m still waiting for him to finally admit FTX US is solvent and give customers their money back…https://t.co/XjcyYFsoU0 https://t.co/SdvMIMXQ5K

— SBF (@SBF_FTX) January 19, 2023

This came after John Ray told The Wall Street Journal on Jan. 19 that he was considering reviving the crypto exchange to make the users whole.

Ray noted that despite top executives being accused of criminal misconduct, stakeholders have shown interest in the possibilities of the platform coming back — seeing the exchange as a “viable business.”

In comments to Cointelegraph, Binance Australia CEO, Leigh Travers, believes it will be difficult for FTX to secure a license again, particularly as the industry moves into a new year with increased regulation and oversight by regulators.

Travers also noted that since the closure, FTX users have migrated “to other platforms, like Binance.” He questioned whether those users will “feel safe to go back.”

He addressed the issue of FTX governance and controls, with administrators sharing details about some clients getting “preferential treatment,” including “back door switches.” Travers noted:

“How will users feel comfortable going back to a platform that treated some clients as second-class?”

Digital assets lawyer Liam Hennessy, a partner at Australian law firm Gadens, thinks that it would be “very difficult” for FTX — given the reputational damage and lack of trust — to get customers or investors to “come near them again.”

Hennessy was also skeptical whether FTX will ever get approved for a license again, saying that it is “one big question mark” which entirely depends on jurisdictions.

The lawyer believes that in some offshore jurisdictions, it will be easier for the exchange to get license approval, but it will be pointless if its users do not intend to return.

“To jump through the hoops the major jurisdictions will set such as the US, UK and Australia will be a serious challenge.”

Meanwhile, RMIT University Blockchain Innovation Hub senior law lecturer, Aaron Lane, told Cointelegraph that it is “not surprising” that FTX would consider reviving the exchange business, stating that is the purpose of the Chapter 11 process — giving the company the ability to propose a plan to run the business and pay the creditors back “over time with the court’s approval.”

He believes that the “onus will be on FTX,” or a creditor that files a competing plan, to show that creditors will get a “better result” under the revival plan compared to liquidating FTX’s assets.

Lane however also questioned whether customers will ever trust FTX again, saying it is possible that another company looking to launch a new exchange “purposes those assets” rather than developing its own interface from scratch.

Death and self-custody: How to pass on your crypto when you die

Crypto lawyers suggest including highly detailed instructions in one’s will and appointing a crypto-savvy next-of-kin, among other suggestions.

The average crypto investor probably isn’t planning on dying of old age anytime soon, but that doesn’t mean they shouldn’t have a plan in place to pass on their crypto in the event they meet an unlikely demise, lawyers warn.

Speaking to Cointelegraph, Dubai-based crypto lawyer Irina Heaver believes that “billions” worth of Bitcoin (BTC) has been lost due to a lack of proper death-related planning by hodlers.

She noted that many families have been unable to access their loved one’s crypto assets due to private keys being taken to the grave, and emphasized the importance of discussing crypto assets with family and including them in their will.

Heaver said that the typical crypto investor is a “male millennial” between the ages of 27 to 42, which is the age range where arranging one’s financial affairs in case of death is the “last thing” to come up in conversation.

However, the lawyer believes it is “essential” to confirm that the administrator of one’s will is proficient in using cold and hot wallets in order to properly distribute one’s holdings.

Digital asset lawyer Liam Hennessy, partner at Australian law firm Gadens, believes that crypto investors should know that the “vanilla first step” to safeguarding their families’ future is to prepare a will — but they should also be mindful that crypto is a complicated asset and that the will needs to include really specific instructions on where the crypto is and how the keys are accessed.

Heaver has observed “huge problems” in the process of inheriting crypto, including a case where a family approached her asking for help in accessing a deceased loved one’s crypto assets.

Digital asset lawyer Krish Gosai, managing partner of Gosai law, believes that it is especially important to inform beneficiaries about crypto due to the lack of understanding surrounding digital assets.

Gosai believes it’s important to inform the executor of the will or loved ones about the existence of crypto assets but advised against sharing sensitive login information or seed phrases, saying it isn’t necessary.

He suggested that, if necessary, the seed phrase could be split among four family members.

Tax implications

Inheriting crypto can also be complex due to the differences in tax structures among jurisdictions.

Heaver added that in some jurisdictions, there are inheritance taxes. For example, in the United Kingdom, crypto assets will be “liable” for inheritance tax on the death of the holder and capital gains tax on a valid disposal.

In Australia, there is no inheritance tax, but Heaver noted that there is a capital gains tax if one disposes of an asset inherited from a deceased estate.

She noted there are then jurisdictions where there are no taxes, like the United Arab Emerites.

Digital asset lawyer Liam Hennessy, partner at Gadens, added that realizing digital assets at the best price can be another complication, due to factors such as price fluctuations and smart execution protocols.