The crypto market is one of temptation, among many other things. As the crypto exchange FTX collapses, a story you may or may not be familiar with, many are finding the usual temptation irresistible.
“The FTX collapse shows crypto is…” use your imagination and come up with your own metaphor for dumpster fire. While prices have indeed tanked, it isn’t by a particularly extreme margin so far, especially when you factor in past volatility. The downturn has even been a benefit for those with an eye on accumulating long-term digital asset holdings.
As has been the case over the past few days since FTX halted withdrawals and cited insolvency, you’re likely to encounter a lot of FUD. There might even be calls for regulation that will save us all. And there will undoubtedly be someone saying this damns crypto in some way. But how ridiculous is all this, really?
Understanding exchanges
There is nothing special about an exchange that makes them secure or resistant to hacks. At the end of the day, they are just like any company and will have the same vulnerabilities and threats. Many people will put their faith in an exchange, and hand over valuable assets for them to manage on their behalf. It’s important to make sure the exchange is up to the task. The sad truth is some exchanges might really just be a scam, never having any intentions of delivering on their promises, but a lot of the missteps will probably be less malicious than that. As mentioned, exchanges are going to have the same issues of security any other company might, and not all will have the competence and resources for dealing with that which means they could be open to theft and hacks.
As rough of a reality as it might be, anyone using an exchange must take scenarios such as these and base their risk management around them. An exchange is a third-party providing financial services. Nothing more, nothing less.
Does this make crypto exchanges untrustworthy of your assets? That depends. Do you find banks untrustworthy of your assets? Because…
The real reason we still have faith in banks after the 2008 financial crisis is that the government has bailed them out. That’s it. And that’s what, purportedly, prompted the creation of bitcoin. Granted, not all banks managed to avoid bad publicity to the same level. But 2008 was a year when banks, which really function similarly to exchanges, were exposed for malpractice.
Fortunately for them, a government bailout was there, something that neither the three-year-old FTX nor its more seasoned competitors can expect. After all, the foundational block of bitcoin criticizes government bailouts. “Why should we help our detractors?” and all that.
The BitIRA difference
What are the best practices and tips to minimize risk and maximize profits when investing in cryptocurrency? Diversification (within as well as without crypto), due diligence and maintaining a long-term time horizon.
Let’s apply this to our company as an example. Anyone doing due diligence on us knows we’re in it for the long haul and caution crypto investors about risks left and right. Crypto isn’t just about secure transactions: knowing how to store your assets so that they remain in your possession is just as important, if not more so. And we have a guide on that.
Getting into more details, we’ve chosen to work with Equity Trust, Fireblocks and other leading experts in digital asset storage and security. So by investing in crypto through us, you’ve secured your assets with a company whose first over-the-counter bitcoin transaction was recorded in 2013. If you knew about bitcoin back then, chances are you’re already wealthy. We use what’s called Multi-Party Computation (MPC) to ensure every transaction has your personal authorization as well as authorization from our trusted security partners before it can be approved.
FTX’s collapse is one of the reasons why institutional-grade custody is so important to big investors: they want their crypto assets secure. This tells us that these investors have enough faith to place large sums in money into crypto, but they’re just skittish about trusting a particular company.
More than anything else, however, it’s a beginner’s lesson about financial markets. Names come and go, assets stay. After all, you don’t hear Switzerland apologizing over issuing francs because Credit Suisse is undergoing an insolvency crisis, right?
Image (CC BY 2.0) by Marco Verch via Flickr
