Never let a good crisis go to waste. A near-existential disaster seems to have hit the cryptosphere: FTX, a big exchange that enjoyed a $32bn valuation in January, has collapsed with an $8bn hole. FTX’s founder, Sam Bankman-Fried — hitherto crypto’s friendly face — is mired in allegations that his firm misplaced or misused client money. Confidence in the wider crypto market — its stock-in-trade — has been badly hit, with bitcoin tumbling in value. The time for politicians, policymakers and regulators to put protections in place is now.

There is an attractive simplicity around crypto’s largely unregulated status: do not invest unless you are prepared to lose your shirt. It is a message easy for punters to understand. Whether they follow the advice is another question, faced with the siren call of easy wins promised by supermodels and sports stars in primetime adverts. Arguably, the current approach has helped ringfence crypto’s crisis from the rest of the financial system.  

To improve on the status quo, there can be no half-measures. A spate of retail investment scandals have shown that regulating only parts of a firm’s business confers the sheen of respectability with none of the benefits. It is confusing for ordinary customers, who see that a firm may hold certain authorisations and wrongly assume that their investments are safe should things go wrong. Crypto investors should not be bailed out if bets on an asset with no intrinsic value go sour. Existing criminal laws can be applied to instances of fraud and theft. But there are simple improvements that could and should be made to protect consumers and the wider financial system against crypto’s riskiness.