Cryptocurrencies

Important Lessons from the FTX Crypto Exchange Debacle

Calvin Lo

FTX was not the first pin to fall but it might be the most important one so far. FTX was the 3rd largest crypto exchange, so for it to fail so hard and so fast came as quite a shocker for many crypto investors.

Disclaimer: Btw, I’m quite a crypto noob so I’m just writing what I think happened or is happening.

If you’re still in the dark, read this: FTX goes bankrupt in stunning reversal for crypto exchange

For me, it’s definitely a wake up call. So far, I haven’t been paying much attention to the crypto failures despite holding crypto. Part of the reason is also because we’re already in crypto winter and my crypto holdings have already fallen so much in value. Depressing to look at it.

Nevertheless, I think there are a few important lesson or takeaways from the FTX debacle I think crypto investors (especially noobs like me) should consider and take action on.

Limit crypto exposure in portfolios

First and foremost, is to limit exposure to crypto in the first place. Risk management is super important when managing investment portfolios. Don’t overextend yourself into crypto even if you think you know it well or think you can stomach the loss. Fact is, crypto is still very nascent (unlike equities) and super volatile. As we have seen in recent failures in the crypto space, billions can just go up in smoke.

Personally, I limit exposure in our portfolio to protect it from my ignorance. I admit I know very little about the inner workings of crypto and mostly got excited about it when it started to go mainstream. I think there’s a high probability that at least some coins might survive and become part of the future of the web3/metaverse/financial system, but I definitely won’t bet the farm on it.

Currently, crypto only takes up less than 3% of our Family Portfolio and mostly in Bitcoin BTC, Ether ETH, and Cronos CRO. It used to be around 4-5% but as you know has devalued dramatically. My plan is to limit exposure to just 4%. Gotta remind myself to stick to it even if crypto starts going to the moon again. At the moment, I don’t intend to add to any crypto yet.

See my previous update back in Dec 2021 on my crypto portfolio.

Spread your money around

Or don’t put all your eggs in one basket. Generally speaking, you shouldn’t invest solely through one exchange or broker, regardless of the underlying asset. Fortunately in this era, we have the luxury of choice among the many banks, insurers, brokers, exchanges, e-wallets, etc. Even if that particular is the biggest, it is never impossible to fail. Yes, it’s a bit more troublesome but I think the risks mitigation is worth it.

Personally, I hold crypto with 2 exchanges, Coinhako and Crypto.com. Fortunately, neither has collapsed yet (choi!). I adopt the same philosophy for cash and stocks. I have multiple bank accounts and brokers accounts for our savings and investments respectively. If any one of them fails or runs into issues, hopefully I have a better chance of not losing everything.

Not your keys, not your coins

Specifically for crypto, holding coins with the exchange is highly discouraged. I’ve known this for a while now, but have been procrastinating on getting a cold wallet and getting my own private keys. Something I’m seriously looking at now finally.

You might want to consider doing so too, if you haven’t. Based on my research so far, the 2 best options are Trezor and Ledger. Their most basic products are the Trezor Model One (US$67) and Ledger Nano S Plus (S$121) respectively.

Trezor Model One
Ledger Nano S Plus

Final thoughts

Every debacle offers us lessons we can learn from and take decisive action. If you’re like me and have been putting off either selling out of crypto or at least securing your coins with cold wallets, get off your butt and do it before it’s too late!

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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3 thoughts on “Important Lessons from the FTX Crypto Exchange Debacle”

  1. Hi, good point! I keep up to date with crypto happenings, just wanna add that cdc is in deep trouble and I seeing a lot of withdrawals these few days, you may want to take it out while you still can!

    1. Thanks. Yup will be trying to transfer out all my crypto into DeFi wallet while waiting for my cold wallet to arrive.

  2. Pingback: Could Crypto.com be the Next Crypto Exchange to Fail? – Finance Gnome

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