Handing out post hoc lessons is easy. It’s practically a mainstay of financial media – Monday-morning quarterbacking at its finest, rife with the most salacious details
We can call FTX was a bad c exchange with (allegedly!) dishonest upper management. We can point out that SBF ran his multi-billion-dollar crypto empire with seeming disdain for basic organizational principles – let me just quote Matt Levine in Bloomberg’s Money Stuff column, discussing FTX’s new Chief Restructuring Officer John J. Ray III’s appearance in bankruptcy court:
Because the gist of this declaration is that, while Ray definitely doesn’t minimize the likelihood of intentional fraud and theft, mostly he is aghast at the children who ran FTX and had no idea what they were doing:
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
He’s never seen anything this bad in his career, and he saw Enron!
Red flags are always easier to see in the rearview mirror, aren’t they?
Okay, we all know FTX was a disaster waiting to happen. In hindsight. How does that help us moving forward?
The trick is to be prepared for events such as these. After all, not even the insiders themselves expected this particular disaster.
CNBC interviewed a number of financial experts who outlined four reminders for investors. Honestly there’s nothing here you won’t be familiar with, except possibly the “How can I reduce risk by holding my crypto in cold storage?” point.
Without further ado, here’s what CNBC’s financial expert panel wants us to remember:
#1: Know where your assets are stored
Ideally, you’d keep your crypto in cold storage all the time. Your wallet should be hot only when you’re transacting.
As we’ve spoken about often, there’s no replacement for offline cold storage. Better yet if they are in a secure place, and all the better if your assets are insured. (Yes, we just described “The World’s Most Secure Digital Currency IRA” – what a coincidence!)
Back in the day, exchange hacks were making the headlines – but usually, the hackers were only able to steal some, not all, of an exchange’s crypto.
Now, we have entire exchanges imploding and even issuers of coins blocking wallets on these platforms.
Since our customers want over-the-counter trading, we try to provide a platform for it in the safest way possible. This brings us to the next point on the CNBC list.
#2: Diversification within and outside of crypto
“Diversification” is a huge subject – so, in brief: diversification across geography, across asset classes and sectors, especially with uncorrelated or negatively correlated assets, is beneficial to say the least.
While we’re sure there are some who want their life savings in crypto, it should really be seen as a diversification tool. That’s not a downside. After all, gold is one of the most respected assets in the world — perhaps the most respected — and “diversification” is among its primary selling points.
What is crypto portfolio diversification and why is it important? To us, it has been a joyful struggle to meet demand. If we offer only bitcoin and ETH, we’ll be called limited to say the least. That other company offers hundreds of tokens – they MUST be better!
Then come the Squid Game and LUNA headlines (though the latter has actually tried to make amends in a commendable way). What we try and do is curate our offerings to let our customers achieve crypto portfolio diversification while spreading risk across assets, even though they’re within the same asset class.
There are two ways to look at the BitIRA cryptocurrency options:
- BitIRA only offers 18 cryptocurrencies (out of nearly 22,000 choices!)
- BitIRA has culled nearly 22,000 cryptos into a svelte menu of the 18 we think are worth your consideration
I mean, if you want to do your own deep dive into all 22,000 available cryptos, assess their value propositions and assemble your own risk/reward matrix, be my guest! Our customers believe less is more and they appreciate a streamlined approach to crypto investing.
#3: (Probably) more regulation
We’ve also spoken about coming regulation, as we have about its rather mythical status by this point. Obviously, FTX’s collapse has brought on regulation talks. But regulation of what kind?
If this event does spark more regulation, it should be of the kind that prevents future black swans from happening as opposed to clamping the sector down. Regulation, for now, is yet another source of FUD.
After all, even the feared head of the SEC, Gary Gensler himself, had little to say on this event except that investors need more protection. I agree! The driving force of finance is that risk and reward are joined at the hip, and that investors’ risks should be appropriately compensated!
Perhaps it’s fair to say that the crypto market should be allowed to be the Wild West, with just any script kiddie who can copy/paste code launching a new speculative venture — but not the crypto industry.
Well, we’ll see. No amount of regulation can stop individuals from making money mistakes, but at the very least, a properly-regulated crypto industry could at least be prevented from making mistakes with other people’s money.
#4: Back up your records
Keeping a record of your digital currency investments, whether for tax purposes or otherwise, is an enormous pain (in fact, there are cottage industries whose sole purpose is to make it easier to track your trades). Just imagine how much more difficult filing your tax return is when the platform you used collapses…
This is the kind of thing that’s best leased out to a specialist. Fortunately, anyone working with BitIRA doesn’t have to waste countless hours of their lives mucking about with spreadsheets and the IRS website. The custodian that oversees your digital IRA does this for you, leaving you free to invest and trade as you see fit. In other words, you get to do the fun stuff – and leave the boring stuff to the folks in the records department. =
We don’t doubt that anyone with an account on a cryptocurrency exchange wants to have a personal assistant of sorts (especially at tax time). That’s just one more thing BitIRA customers don’t have to worry about.