Around five years ago, in an article in Times of Malta called ‘Virtual currencies – be vigilant!’, I summarised the misgivings expressed on cryptos as reported in the UK financial press as well as a warning issued in the last quarter of 2017 by the Malta Financial Services Authority.

I ended my article by saying: “In conclusion, my view is a definite no to cryptocurrencies but by all means let us explore the potential introduction of Blockchain technology, with adequate safeguards, as this may well be a service that could prove to be a valuable extension to Malta’s very valuable and lucrative services industry.”

Much water has flowed under the bridge since then. I certainly cannot exclude the fact that some investors, especially those who can afford to take the risk of losing substantial sums of money, may have made good capital gains by buying cryptos and selling these at the right time.

However, what I said five years ago still holds good for the cautious investor and, if anything, time has reinforced the general view of financial commentators that cryptos are highly speculative and are vulnerable to misuse for criminal activities such as money laundering.

Events have shown, more often than not, that law enforcement authorities are too late in taking appropriate action to clamp down on the exchange platforms so essential for crypto transactions to be carried out.

The front-page header of the past weekend’s issue of the UK Financial Times read ‘Crypto world rocked by fall of FTX empire’, one of the world’s biggest exchanges.

In more than one article, details are given of this highly speculative venture by a relatively young Sam Bankman-Fried, who built up a web of companies. According to the FT, “his trading venue is not his digital trading shop opened in 2017 but it’s much wider”.

Indeed, the tipping point wasn’t FTX but a risky entity named Almeda Research, which led to FTX being unable to meet customer demands for the withdrawal of millions of dollars resulting in a liquidity crisis.

Observers noticed ‘unusual’ withdrawals of $650 million last Saturday alone. It is reported that, in the hours after the collapse, there were abnormalities within wallet movements “which prompted fears that the site had been hacked”.

There are fears that the crisis could yet deepen, thus throwing more serious questions on the safety of cryptos.

Bankman-Fried even turned to his rival Changpeng ‘CZ’ Zhao, the billionaire founder of Binance, who initially agreed to throw a lifeline to FTX only to withdraw from the deal after less than 48 hours of due diligence, resulting in Bankman-Fried’s empire filing for bankruptcy protection in the US.

Just as well that, in 2017, the Malta Financial Services Authority put a stop to the government’s expressed enthusiasm to grant Binance a Malta licence- Anthony Curmi

This created an upheaval in the $1 trillion crypto market with Bitcoin, the main digital currency, trading at a two-year low below $16,000, having shed 17 per cent last week in just five days. This contrasts sharply with the currency’s high point of over $60,000 reached in November 2021.

Just as well that, in 2017, the Malta Financial Services Authority put a stop at the 11th hour to the government’s expressed enthusiasm to grant Binance a Malta licence, although the company had already registered a company here and was even allowed to operate. This despite evidence that Binance was already engaged in unauthorised crypto business elsewhere.

Zhao also tried obtaining a Malta banking licence for a new bank, Founders Bank, which, he said at the time that he was setting up in Malta, was to be owned by digital coin investors. It was reputed to be the first decentralised and community-owned bank in the world focusing on serving the tech and crypto business. It is reported that several of those who worked with Zhao have said security and compliance were sacrificed in the race to dominance.

Just as well that Malta managed to extricate itself from what seemed to be a foregone conclusion that Binance’s plans in Malta were coming to fruition.

Regulators in a string of financial capitals, including the UK, have censured the company and warned that its complex and high-risk financial products posed a serious risk to consumers.

Malta, having already suffered so much from being greylisted for more than one year, could certainly ill-afford another black mark on the reputation of its financial services industry.

Anthony Curmi is a former senior bank executive in Malta, UK, Italy and the Bahamas.