The meltdown and bankruptcy of FTX has been a devastating event for the entire crypto industry, not just because of the contagion being spread to many prominent crypto companies but also because it has shaken the faith of investors in the market.

After all, FTX was one of the largest crypto exchanges in the world, and if these exchanges can't be trusted, then a key source of liquidity for the entire sector may be compromised.

While I definitely think the FTX debacle is far from over and could be a huge near-term obstacle for the progression of crypto, I do think that there is a silver lining in all of this. Let me explain.

Looking at the crux of the issue

Although the FTX fiasco has cast doubt on the entire industry, when you really look at what happened, the problem boils down to improper corporate governance and unchecked behavior.

FTX Chief Executive Officer Sam Bankman-Fried moved $10 billion of customer funds to his trading firm Alameda Research to prop the company up, according to Reuters, and more than $1 billion of those funds have now disappeared.

Person standing in front of very bright light and orange colors.

Image source: Getty Images.

Even though the world of crypto is considered the wild west, FTX was based in the Bahamas, which doesn't have the same level of financial regulation as in the U.S. For instance, the large U.S.-based crypto exchange Coinbase (COIN -3.24%) is regulated as a money transmitter, which means it has to hold customer funds 1-for-1. 

Not even banks, which regularly lend out customer funds and make money on the spread, could have done what Bankman-Fried did. The Volcker Rule, which was established after the Great Recession, banned banks from proprietary trading and significantly limited banks from taking stakes in private equity or hedge funds. 

Now, despite the favorable regulatory environment in the Bahamas, there does seem to have been improper behavior in this case, as Bankman-Fried did violate FTX's terms of service. But there was also clearly a lack of oversight, and the company didn't even have a board of directors.

John Ray III, the new CEO of FTX who will oversee the company through bankruptcy, said he hasn't seen "such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here" in his 40-year career.

The silver lining

The big silver lining here, in my opinion, is that the FTX debacle has not done anything at this point to undermine any of the fundamentals of Bitcoin (BTC 0.40%), the pioneer of blockchain technology and cryptocurrencies. 

In fact, I think it's reasonable to say that the price of Bitcoin has held up better than most analysts have expected. I also think long-term the meltdown of FTX could prove to be a good thing for Bitcoin.

For one, thousands of cryptocurrencies have popped up in the new age of digital assets, many of which are simply fraudulent and run by bad actors. The FTX matter will hopefully push investors into more established and trusted tokens and also into more established and trusted exchanges.

The other thing that's hard to predict but also inevitable is further regulation of the crypto industry, which is badly needed to clarify many gray areas and give investors more peace of mind that there are consumer protections in place. The regulation may end up being more strict than anticipated, but it will allow the sector to move forward.

Bitcoin is not going away

Ultimately, while I expect the fallout of FTX to lead to more contagion in the crypto industry, I don't think Bitcoin or some of the other major cryptocurrencies are going away any time soon.

There's been wide mainstream acceptance of Bitcoin on Wall Street, in many parts of the world, and even for some more limited uses of commerce. Some even think Bitcoin could be a hedge against inflation.

I'm not saying the industry isn't going to continue to be challenged in the near term, but as long as Bitcoin holds up, I think the industry will be fine long term. And the token may come out of this whole mess with even more legitimacy than before.