Cryptocurrency was invented in 2009, and Bitcoin was the first addition. Since then, crypto has grown to a massive scale. It has long been a great option for investors, but things have changed since the FTX cryptocurrency collapse.
The cryptocurrency exchange went bankrupt, and the crypto world hasn’t been the same since. But what have we learned from the crypto collapse? Is crypto funding and investment still a valid route?
Keep reading and learn more about investment risks and whether investing in crypto is still a good idea.
Know the Risks of Where You’re Putting Your Crypto
The cryptocurrency exchange FTX used to be a massive crypto network. Its CEO was Sam Bankman-Fried. The collapse of this organization occurred late in 2022.
It happened so suddenly that crypto investors weren’t able to do much but watch their investments burn to the ground. The crash came out of nowhere and showed investors that crypto comes with certain risks. While the collapse is over, its effects will continue sending shockwaves through the crypto community for years to come.
The collapse took around 10 days from start to finish. By the time it was done, crypto investors worldwide were filled with anxiety and panic regarding their investments. The collapse happened because FTX did not have enough assets to back up the demand it was receiving.
The exchange’s CEO decided that going bankrupt was the best option. FTX also got hacked, which also contributed to its collapse. The CEO, Sam Bankman-Fried, is expected to go to trial for several criminal charges relating to this collapse.
While this collapse was hard for crypto investors, it also acted as an important lesson. This collapse shows that you need to be careful where you keep your crypto. Those who kept their crypto in FTX lost everything.
There is no telling whether they will get back any of what they lost. Some may have to start from scratch. This is why you need to have absolute trust in the place where you put your crypto.
The Details
Various companies are starting to allow crypto. Consider Fidelity. Fidelity is a very trusted resource for investors.
It is starting to offer crypto options for investors. This allows you to put your crypto in one of the safest places on the market. As more trustworthy sources start allowing crypto, it will be much easier to put your crypto in a safe place.
Avoid crypto wallets and other organizations that may have shady histories. Many crypto exchanges seem legit, but they may not be. This is why you have to do your research before you make any big decisions regarding crypto.
The crypto market is still very much like the wild west. There are not very many regulations or rules regarding how crypto should be handled, stored, traded, and so on. You have to do much of the research yourself.
If you’re not careful, you might put your crypto in an unsafe place. You might lose it as investors lost their crypto during the FTX collapse. But if you are safer about where you put your investments, you shouldn’t have this problem.
Don’t Forget to Diversify
Any investment guide will tell you how important diversification is. And yet, few people bother to do it. Portfolio allocations need to be spread across many different holdings.
Few investors bothered to do this with FTX. This is because, for a long time, FTX was seen as an authority exchange for crypto. No one imagined that anything bad could happen to it.
But many crypto investors had to learn the hard way that no company is perfectly safe. They also learned why it’s important to diversify. Suppose you allocated 40% of your portfolio to FTX.
While this is a large amount, you have great trust in FTX. It is a trusted exchange, and it has long produced great results for countless investors. Putting such a large chunk of your portfolio in one place like this shouldn’t matter as long as that place has a good reputation, right?
Not necessarily. If you put such a large chunk of your portfolio into FTX, it would be lost after the collapse. This is the unfortunate reality that many investors had to face as this exchange went bankrupt.
Many were left with nothing after the collapse. They might have lost thousands of dollars worth of crypto. Many had to start from scratch because they had nothing left.
The Danger of Not Diversifying
New investors are more likely to put most of their portfolios in one place. When something goes wrong with your portfolio allocation, there isn’t much you can do to fix it. The best thing you can do is prevent these issues from happening.
You can do this with simple diversification. Most investing experts advise that you don’t put more than 5% of your portfolio in any one place. This might sound like a very small amount, but it is ideal if you want to keep your investments safe.
Putting 5% here and 5% there is a great way to spread out your portfolio. Some investors may go up to 10% for a single asset location. But this is already a very concentrated number.
Are you willing to lose 10% of your portfolio if something goes wrong with that source? Most people aren’t, which is why they go for 5% or smaller. While doing this is more tedious than keeping most of your portfolio in a few locations, it’s worth it.
This is because there will be very little risk for your portfolio. If one of your asset locations goes bankrupt, it won’t be a problem. 5% of your portfolio might be gone, but the rest of it will be fine.
If 10% or 20% of your portfolio went bust, this would be a much more stressful issue. Diversifying to this extent will also give you more peace of mind. You won’t have to worry as much about anything going wrong with your investments.
Your portfolio will be much more secure, and it will have more opportunities to grow.
Ignore What Influencers, Brands, and Celebrities Say
A big problem with FTX is that it was constantly endorsed by people who didn’t know much about crypto. These endorsements led many people to put their portfolios into FTX when there might have been better options for them. This is why you have to be careful about what influencers and celebrities say regarding investments.
FTX received endorsements from the famous basketball player Shaquille O’Neal, NFL quarterback Tom Brady, and more. Famous models, actors, and other well-known figures also endorsed FTX.
When the public sees a celebrity promoting something, they’ll want to see what they’re talking about. If such a well-known figure is promoting something, that thing must be good, right? Not necessarily.
Celebrities are paid millions of dollars to promote all sorts of things. This doesn’t mean that those celebrities believe in whatever they’re endorsing. It also doesn’t mean that they know anything about what they’re endorsing.
Many of these celebrities are now facing lawsuits because of these endorsements. This is because many people made massive investments based on what they said about FTX. This amounted to millions of dollars of lost money and destroyed portfolios.
What You Need to Know
An $11 billion class-action lawsuit has since arisen after the FTX collapse. This lawsuit is an attempt to get investors back some of the money they lost. But this lawsuit will likely be a very long and drawn-out process.
If you’re looking for someone to give you investing advice, don’t turn to a celebrity. What does a celebrity know about crypto if their main field is football or modeling? If you want to get high-quality investment advice, you should instead turn to a real investor.
While crypto hasn’t been around for many years, there are already people who have become experts. They know all about how to choose the right exchanges, how to make a good trade, and so on. They also know how to diversify their portfolio, where to put their crypto, and more.
Getting advice from investors like these will allow you to make much better investment decisions. It can also help you avoid future crypto disasters.
All About the FTX Cryptocurrency Collapse
The FTX cryptocurrency collapse was one of the most influential and terrible events in the crypto market so far. Countless investors lost their investments once FTX collapsed and went bankrupt. Many FTX investors didn’t diversify and got their advice from the wrong people.
But if you stay clear of these mistakes, your crypto investments should stay safe. Are you ready to learn more about crypto? Check out what we have to offer.