Should Cryptocurrency Exchanges Have Bank-Level Regulations?
Written by Amara Makim
In 2022, FTX, a Bahamas-based cryptocurrency exchange, filed for bankruptcy and revealed an $8 billion shortfall triggered by fraudulent misuse of customer funds. Apart from FTX, Voyager Digital, BlockFi, Celsius Network, Genesis Global Capital, and other crypto exchanges went bankrupt between 2022 and 2024 amid volatility in the cryptocurrency market. These failures raise questions about the rules of regulating cryptocurrency exchanges. Cryptocurrency is a relatively new asset, and the “coins” often don't fit within existing regulations because there is no set way to assign value to a cryptocurrency. In the United States, there has been debate over whether the regulation is under the responsibility of the Commodities and Futures Trading Commission or the Securities and Exchange Commission. Given the financial risks these platforms pose to consumers and markets alike, cryptocurrency exchanges should be subject to regulatory standards comparable to those imposed on traditional banks.
Cryptocurrency exchanges are “platforms people can use to buy and sell cryptocurrency.” They facilitate the trading process by matching the right bids to the right orders for the right prices and provide tools to make trading convenient and accessible. Functionally, crypto exchanges perform many of the same core financial roles as banks. For example, they hold customer funds, act as intermediaries, generate revenue from financial activities, and influence the broader financial stability of the market. Despite these similarities, the regulations for banks and crypto exchanges are vastly different. Banks are heavily regulated by the Fed and SEC, while crypto exchanges operate under an inconsistent framework of state legislation, securities law enforcement, and limited federal banking oversight.
Unlike banks, crypto exchanges often lack deposit insurance. When consumers deposit money into a traditional bank account, those funds are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Crypto exchanges offer no comparable safety net. If an exchange collapses or freezes withdrawals, customers are typically treated as unsecured creditors in bankruptcy proceedings. In other words, the individuals whose deposits sustained the platform are last in line to recover their funds.
The absence of insurance is only part of the issue. Banks are also required to maintain minimum capital reserves and undergo stress testing from institutions such as the Fed. These requirements exist to ensure that banks can withstand economic downturns and sudden surges in withdrawals. However, many cryptocurrency exchanges have historically operated without reserve requirements. The collapse of FTX illustrated how dangerous that gap can be. When consumer funds were allegedly commingled with affiliated trading firms and used for speculative investments, regulatory guardrails were not strong enough to prevent the misuse.
Supporters of lighter regulation argue that cryptocurrency is fundamentally different from traditional finance. Since blockchain technology is decentralized and transparent, they claim that additional oversight would stifle innovation and push companies offshore. There is some merit to the idea that digital assets do not fit neatly within existing regulatory frameworks. The ongoing debate about whether this oversight should fall primarily under the SEC or the CFTC highlights the complexity of the issue. However, regulatory uncertainty should not excuse regulatory absence. Exchanges are not decentralized networks. They are centralized companies holding billions of dollars in consumer assets.
Innovation does not require the absence of accountability. The American banking system itself evolved through waves of regulation following financial crises. Deposit insurance, capital requirements, and disclosure mandates were not designed to limit growth; they were implemented to restore trust after market disasters. The same principle should apply here. Retail investors now make up a significant portion of crypto market participants. Many of them treat exchanges like banks, leaving substantial balances on-platform under the assumption that withdrawals will always be available. When that trust is broken, the damage extends beyond individual losses, and it erodes confidence in emerging financial technology as a whole.
If cryptocurrency exchanges wish to operate as core financial intermediaries, they should be subject to baseline federal standards. At a minimum, Congress should require exchanges to separate corporate funds from customer deposits, maintain sufficient reserves, and undergo independent third-party audits. Clear federal registration requirements, whether through the SEC, CFTC, or other regulatory bodies, would replace today’s fragmented system with consistent oversight and rules. These measures would not eliminate risk from cryptocurrency markets, but they would reduce the likelihood of fraud and large-scale mismanagement.
The collapse of FTX and other exchanges was not simply a story of market volatility. It was a reminder of what can happen when financial platforms grow faster than the rules designed to govern them. Cryptocurrency may be a modern asset, but the principles of financial protection are not new. Exchanges hold customer funds, facilitate transactions, and influence financial stability in ways that resemble banks, and therefore should be regulated accordingly.
Sources
American Bankruptcy Institute. (2025). What Happens If a Cryptocurrency Exchange Files for Bankruptcy? American Bankruptcy Institute. https://www.abi.org/feed-item/what-happens-if-a-cryptocurrency-exchange-files-for-bankruptcy
Bankruptcy Court for the District of Delaware. (2024, June 26). IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 ) FTX TRADING LTD., et al., ) Case No. United States Bankruptcy Court. Retrieved March 2, 2026, from https://www.deb.uscourts.gov/sites/deb/files/opinions//FTX%20Opinion%20and%20Order%20Digital%20Asset%20Estimation.pdf
Husch Blackwell. (2026, February 18). SEC-CFTC Harmonization and Digital Asset Regulation: What Stakeholders Need to Know. Husch Blackwell. https://www.huschblackwell.com/newsandinsights/sec-cftc-harmonization-and-digital-asset-regulation-what-stakeholders-need-to-know
Labonte, M., & Scott, A. P. (2023, March 9). Bank Capital Requirements: A Primer and Policy Issues. Congress.gov. https://www.congress.gov/crs-product/R47447
PayPal Money Hub. (2023, October 24). How do crypto exchanges work? PayPal. https://www.paypal.com/us/money-hub/article/crypto-exchanges
Peterson, N. (2025, May 6). What is Cryptocurrency & How Does It Work? (2025). Charles Schwab. https://www.schwab.com/learn/story/cryptocurrencies-what-are-they
Purdue Global Law School. (2025, July 3). Crypto Regulation: How It's Governed in the U.S. and Worldwide. Purdue Global Law School. https://www.purduegloballawschool.edu/blog/news/crypto-regulation
Schneider, J., & Smalley, I. (2025). What is a Bank Stress Test? IBM. https://www.ibm.com/think/topics/bank-stress-test
Wheat, C., & Eckerd, G. (2025, August 27). Crypto investor waves since 2017: What retail investor behavior reveals about digital asset adoption. JPMorganChase. Retrieved March 2, 2026, from https://www.jpmorganchase.com/institute/all-topics/financial-health-wealth-creation/crypto-investor-waves-since-2017-what-retail-investor-behavior-reveals-about-digital-asset-adoption
Winfrey, S. (2025). FTX bankruptcy | Law | Research Starters. EBSCO. https://www.ebsco.com/research-starters/law/ftx-bankruptcy
