The FTX Debacle: Another Sucker Punch To Peoples’ Finances

The FTX debacle is another example of the old adage, “There’s a sucker born every minute”. Sometimes we have to learn the hard way. For some, this foray into cryptocurrency has been an absolute disaster, with life savings gone. It goes to the larger question of cryptocurrency and why we even have gone down this path of speculative investing.

The head of FTX was a character named Samuel Benjamin Bankman-Fried (SBF), often seen wearing shorts and a T-shirt with a child-like voice. He set up this cryptocurrency exchange, FTX, in 2019 with its own digital coin, FTT. SBF started to comingle funds from this company with others and even spent and borrowed money to finance other ventures, including real estate and “effective altruism”. Beware of someone who purports to do something out of pure altruism.

Many celebrities, sports figures, and politicians put SBF on a pedestal. These included Tom Brady, Katy Perry, Tony Blair and Bill Clinton. He did contribute almost $40 million to the Democrat Party. Rapidly with cryptocurrency starting to collapse in 2022, there were insufficient funds to back investors, who started pulling their money out of FTX. The result was bankruptcy. Where have we heard that before? This crypto wunderkind will probably go to jail for a long time after his arrest in the Bahamas.

It appears crazy that so many people heaped adoration on this, at worst, con artist, or at best, some naive geek who was in over his head. At the same time, they are heaping scorn on Elon Musk, who produces things like the Tesla or the Space Ex program. Musk has run afoul because he dared to buy Twitter and has sworn to restore the rights of its users to express free speech.

I invested in several digital coins, such as Bitcoin and Ethereum. Overall I did make a few thousand dollars, but I pulled out when I saw a turn in the graphs. As I had taken some courses in technical analysis of stocks and currencies, I could read signals of a new trend.

So how do these graphs correlate with the ‘experts’ who have been pushing cryptocurrency? The rationale for Bitcoin is that there are only 21 million coins that can be ‘mined’ because of the way it was technically instituted with Blockchain technology. It’s an online ledger that can’t be hacked. It may be the way of the future and cannot be controlled by the conventional banking system. But how has it worked out for Bitcoin? It’s now in the $17,000 range from its peak of $64,000. If you got in early, you made a killing. However, if you bought at the peak, your investment has gone south.

Things like cryptos should only be invested with money you can afford to lose. It is essentially gambling.

Over the years, I have invested in stocks, options, warrants, currencies, real estate, and cryptocurrency. I also have to admit that I fell victim to “There’s a sucker born every minute.”

Fifteen years ago, I went into a real estate land development with several other investors. I knew the person––from college days–– who set up the Trust to purchase the land. He was the Trustee and borrowed money against the land, which is illegal. 

In the end, the bank that loaned the Trustee the money had to be paid. As land values collapsed dramatically, the property had to be sold at a significant loss. All the investors—myself included—lost substantial six figures of money. It was definitely a learning experience.

While my wife and I didn’t put all our money into the investment, others did. The result for some was broken marriages and being saddled with ongoing financial liabilities.

Whether it’s FTX or any other investment vehicle, there are sound strategies for investing. We can think of it as a pyramid—different from a pyramid scheme.

The base or foundation of the pyramid is cash that you have on hand. This needs to be a significant amount of your income, whether passive or active, before you move up to term deposits or CDs as they are called in America. The higher you go, the greater the potential gain, but the greater the risk.

So here are some investing tips:

• Don’t put all your eggs in one basket - it’s obvious but so many forget this point.

• You need a minimum two months income as your savings base.

• Don’t invest with family or friends.

• Invest in products where you have direct control over access to your money.

• With multiple assets don’t invest more than 20% of your income in any one asset other than your family home.

• Don’t make investment decisions based on emotion.

• Look on instruments like derivatives as high risk, if you can’t afford to lose it, don’t do it.

• Save more each year, ideally an extra 10%.

• Appreciate money; it is a means of fair exchange when used wisely.

Ultimately, the idea is to get to the point where your passive income from your investments pays you what you would earn by actively working. So stay away from people like SBF or any get-rich-quick scheme. They usually don’t end well. Invest wisely and steadily so you don’t become a victim of a financial sucker-punch.