FTX Empire, an exchange company worth over $60 billion collapsed in the space of 48hours due to a liquidity crunch as described by the founder Sam Bankman Fried.
Traders and investors who have funds on the FTX exchange platform are at significant risk of loss due to the inability to withdraw their funds.
According to the report from Coindesk, Sam Bankman Fried is no longer a billionaire after a $14.6 billion wipeout from his networth amidst the insolvency of his company FTX.
This event alone has caused a lot of sell pressure in the crypto market making it lose over $2 billion dollar within 24 hours, sending Bitcoin to a new low of $15,700 in 2 years.
In this reading, we will outline 5 lessons to learn from the collapse of a giant crypto company.
1. Don’t store your funds in centralized exchanges
There’s a popular quote in the crypto industry that says “not your keys, not your coins". What this means is that, if you invest in cryptocurrency, and you’re not in possession of your private keys, then your funds aren’t fully yours.
Because the idea of cryptocurrency is to get rid of third parties, keeping you solely in charge of your funds. So using centralized exchanges like FTX override this use case of cryptocurrency.
However, due to simplicity investors tends to leverage centralized exchanges more, but then they are decentralized derivate exchanges to use like dydx exchange that doesn’t have access to your funds.
2. Cryptocurrency as a high-risk investment
The way the media presents how people make wealth from cryptocurrency after holding it for some years has made it seem investing in cryptocurrency is an easy-peasy way to make it big.
However, cryptocurrency is considered a high-risk investment, that’s not a security and anything can happen that might lead to you losing all your hard-earned money.
The year 2022 has the saddest event in the history of crypto now with LUNC crashing from an all-time high of over $100 to $0 wiping out over $60 billion dollars from the crypto industry according to a Forbes report, and FTX shortfall of $8 billion dollars according to Wall Street Journal.
The public should be educated on the fact that the crypto industry is unregulated, and it's a high-risk investment.
3. Don’t be greedy
Greed is one thing that is difficult to completely overcome in traders and investors. A lot of people tend to lose money based on their greed which arises from an optimistic view of the market always.
According to Coinglass, over $640 million in liquidations took place in 24 hours amidst Binance and FTX fiasco, with $182 million liquidated within an hour alone.
4. Staying off Platforms Using Native Tokens as Collaterals
Don’t completely trust an exchange or platform that uses their native token as net equity or collateral against their loans or leveraged position. This is because their token is not a security and it’s not backed by anything fiscal.
Outside the walls of their community and people holding the token, it's not worth anything, and a FUD or sales pressure can send it crashing.
5.. Crypto Education as a Priority
Aside from uncertainty, It’s likely that most people lost money in this tragic event due to a lack of adequate knowledge of how the crypto market works, which led them to make wrong moves or took bad financial decisions.
Crypto education should be a top priority for everyone who is in the crypto space, as the industry evolves rapidly, the only to catch up with it is through education.
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