Financial Lessons from the FTX Scandal

By now, most people have heard that FTX Digital, created by Sam Bankman-Fried, went into bankruptcy over the past week.

As reported in Axios, hardly a right-wing source of news, “dozens of Congressional candidates – most of them Democrats – received campaign contributions or indirect financial support from Sam Bankman-Fried.”

Bankman-Fried was a relatively unknown billionaire and became the second-biggest donor to Democratic candidates. Second only to George Soros. Bankman-Fried contributed over $37 million during this past election cycle, almost all of which went to Democratic candidates and causes.

It needs to be determined where his money came from. There is an alleged Ukrainian connection alongside President Biden.

But I want to concentrate on the financial lessons we can learn. After all, you don’t want your investments going to tycoons like Bankman-Fried only so they can turn around and support causes that go against what you and I believe in.

I’ve been talking for many years about the fact that 99% of fraud and problems in the crypto markets come from exchanges. Looking at crypto history, you’ll soon learn that almost $12 billion worth of crypto has been stolen from exchanges. And most of that was “your” money.

There is even a case where the owner of QuardrigaCX, an exchange, unexpectedly died with all the private keys—supposedly losing $190 million of clients’ funds. Poof.

Consider these facts:

Exchanges lose $2.7 million daily on average, and this figure is set to increase in the future.
The hacking attacks are becoming increasingly elaborate. It’s a highly-rewarding activity; therefore, it pays for ever-increasing time and effort spent plotting hacks.
Exchanges are not cybersecurity enterprises. They run financial marketplaces first, and experience has shown they need to guarantee top-notch security.

As well as losing money on the exchanges mentioned earlier, investors are also losing money on obscure coins like Dogecoin and FTT (or the FTX Token, as it is more commonly known). And there are hundreds more.

Most exchanges will create a coin and offer staking and other services to drive revenue. The only proper way to own cryptocurrency is with Bitcoin and maybe Ethereum. No staking, no borrowing, and no elaborate ways to leverage your investment.

If you buy crypto, stay away from NFTs, stick with the two main currencies, and get them off the exchanges as soon as possible by transferring them to your air-gapped wallet.

However, the honest advice is about something other than acquiring these two coins or whether you should do so while they are down in price. The most important thing is how you buy them and where you store them.

Our recommendations are straightforward. Use an exchange like Binance or Coinbase to purchase the coins. Then, frequently move them to your wallet. We recommend Trezor, but you can use anyone you want if it’s air-gapped and can hold it in your possession.

If you follow this recommendation, you’ll have a minimum financial exposure if the exchange pulls shenanigans like FTX did or goes bankrupt. Most importantly, your own Bitcoin or Ethereum will be under your control.

The FTX scandal is a financial one, for sure. It might even be a political one. It is undoubtedly a reminder of why you need a financial advisor who has your economic well-being at the top of your mind and shares your values.

I understand how financial tycoons can manipulate investors, especially with many unfamiliar new technologies and various digital currencies now available.

Refrain from being taken by swindlers and hustlers like Bankman-Fried. People like him want your money because they need your money. Sometimes those profits are used for their pleasures – and other times, they use it to support causes and candidates that you wouldn’t dream of keeping with the funds you’ve worked so hard to earn.

The American Dream is about controlling your destiny. At Rubin Wealth Advisors, we will continue to show you how to keep your investments in your controlled accounts and wallets and keep your dreams from becoming tales from the Crypt(o).

If you enjoyed this article, check out our next article on the FTX Scandal to learn more here!