Could regulation have prevented the FTX crypto crash?

What exactly happened at FTX and its sister company Alameda Research is unclear, and will be for some time. What we do know is that what’s currently unfolding is a sort of economic Jurassic Park; we are being given a brief glimpse of financial life in the 18th century, before centuries of bitter experience coalesced into the financial regulations we love to hate.

It’s a common joke that cryptocurrency is gradually learning why all the boring rules and regulations of the traditional financial world exist. It’s also entirely true. The earliest explanation for the sudden crash of FTX was very simple: the exchange had become something like a bank, taking in deposits, and lending them out. It had built up assets which it couldn’t access in the long term, and liabilities – customer deposits – which could be instantly accessed. This put it in a very tricky position. Technically, it was probably solvent: it may have had enough assets to cover all the money it owed.