Crypto Crash, Fear, Uncertainty and Doubt

This past week has been absolutely chaotic in crypto land. Even the mainstream media (which usually shies away from talking about cryptocurrency) has started putting it front and center.

New York Times

Global News

USA Today

Well, you get the point.

If you don’t know what went down last week, I’ll give you the coles notes (the 80’s and 90’s babies will get that reference) below.

FTX, by volume, was the second largest crypto exchange globally behind Binance. The CEO of FTX was (now has resigned) Sam Bankman-Fried (SBF), who co-owned a quant trading firm, Alameda Research. It was discovered through a Coindesk article, that FTX was using customer deposits to fund risky trades (through a token - FTT) made by Alameda. The CEO of Binance, Changpeng Zhao, promptly sold his share of FTT which trigger a huge drop in that token’s price and instigated a bank run of sorts.

FTX, who was ill-prepared for this huge wave of withdrawals (because they did not have the necessary cash reserves) filed for bankruptcy on Nov 11, 2022. This all went down in a period of 9 days.

SBF’s net worth went from ~$30 Billion to ~$0 in a matter of days.

Now you’re all caught up, and you’re likely asking yourself, what the hell does this have to do with me and what can I learn from it?

To address the first question,

Further crypto regulation is coming, it’s a polarizing topic as some people argue it should be decentralized and allow the free market reign while others argue for more safety and protection for investors.

The second question is likely more pertinent to you,

This is not the first time that a crypto exchange has blown up, it’s not even the first time this year that it’s happened. Voyager and Celsius were the first casualties this year. AND there will be more to come.

The old bitcoiner cry of ‘not your keys, not your coins’ ring louder and louder. What that means is, to take your crypto off exchanges and self custody it. Not sure what that even means, click here.

Furthermore, and this may irritate bitcoin maximalists, I am in favour of using registered cryptocurrency exchanges. You can find a list of Canadian Exchanges here. Yes, they will have strict ‘Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements but rest assured that they have regulation in place to ensure that the likelihood of what happened with FTX and the other defunct exchanges are less likely.

These are some questions I asked myself before getting started with crypto investing:

🧐 Do you understand the currency you are investing in? (decentralized, supply amount, track record, regulation etc)

🧐 Are you able to purchase it on a cryptocurrency exchange? (check with your local regulatory/governmental body)- I’ve used BitBuy for over 2 years

🧐 Are you going to purchase the currency outright or get exposure through an ETF/Fund/Public Company?

🧐 Are you going to hold the currency personally or in a corporation?

🧐 Are you going to store the currency on an exchange (warm wallet) or on a hardware device (cold wallet)?

🧐 If you are storing it on a cold wallet, which one will you use, and can you defend why you made that choice?

🧐 Where are you going to store the cold wallet? (in a safe in your home, with your family, at a secure facility)

🧐 Who will have access to that wallet?

Lastly, something that really piqued my interest and found quite concerning was the news regarding the Ontario Teachers Pension Plan ($95million) and the Canadian Pension Plan Investment Board both having exposure/investments in FTX. While this is shocking news, it’s not surprising to me as I’ve been pounding the table for a wile now questioning whether you can truly rely on your pension for retirement.

If you're interested in learning more about getting your financial house in order and how to set up your financial life, please register for the recorded beginner course.