After a month of dramatic scenes and courtroom revelations, FTX co-founder Sam Bankman-Fried has been found guilty on all seven counts of fraud, conspiracy and money laundering. Bankman-Fried, previously hailed as the King of Cryptocurrencies, has pleaded not guilty to all charges against him. He will be sentenced at the end of March.
The dramatic collapse of FTX almost a year ago caused the price of Bitcoin (BTC) fall below $16,000. Since then, cryptocurrency prices have begun to recover, with Bitcoin now trading at over $34,000, according to data from CoinGecko. That's still significantly below its 2021 high of over $67,000, but has still raised hopes that the crypto winter may be over.
Can cryptocurrencies put the FTX saga behind them?
Many people in the cryptocurrency world want to draw a line under the ftx disaster. They hope Bankman-Fried's conviction marks the end of what has been a sorry chapter for the industry. Their argument is that fraud can (and does) occur in many industries and that cryptocurrencies themselves are not to blame in this case. Unfortunately, it's not that simple.
Bankman-Fried clearly broke the law, whatever currency he used. And it is true that many frauds have also occurred outside the world of cryptocurrencies. But equally, the lack of crypto regulation made it easy for FTX to misuse billions of dollars of customer funds. That same lack of regulation meant that FTX customers had fewer protections when things went wrong. Unlike money in a bank, FDIC Insurance it does not protect cryptocurrency investors against platform failures.
If you're thinking about buying cryptocurrencies just because the storm has passed, think again. Sure, prices have started to rise, but prices don't tell us what's going on behind the scenes. The crypto industry will only be able to put the FTX saga behind it when there are security barriers in place to prevent something like this from happening again. There have been several proposals from lawmakers in Washington, but there is no solid framework yet.
Meanwhile, the SEC is pursuing cases against several key players. He maintains that several popular cryptocurrencies, including Solana and Cardano, are unregistered securities that should be under the purview of the SEC. He also accuses the crypto giant Binance deceives consumers and engage in "manipulative trading" practices. The outcome of the SEC cases could have serious implications for cryptocurrency investors, particularly in the US.
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How Cryptocurrency Investors Can Reduce Risk
Cryptocurrency is a volatile and high-risk investment. Simply put, there is a lot we don't know about how it will play out. Bitcoin could reach its potential and become the digital currency of the future. But FTX testing aside, cryptocurrencies still have many hurdles to overcome, including the SEC charges I mentioned above.
Don't assume that Bankman-Fried's conviction makes it safer to invest in cryptocurrencies. That doesn't mean that you should not invest. I have several cryptocurrencies in my wallet. It is simply important to understand the risks and take steps to mitigate them.
1. Make sure cryptocurrencies only make up a small part of your portfolio
Don't bet everything on cryptocurrencies. There are many other investments that carry less risk, such as stocks, bonds, property and even commodities like gold. Open a brokerage account and build a portfolio containing a combination of assets with different levels of risk. For example, you could have a small percentage of cryptocurrencies, along with a safer investment, such as bonds.
2. Use a crypto wallet to store your cryptocurrencies
If you keep your cryptocurrencies on an exchange rather than in a crypto wallet that you control, you could be at risk if that platform crashes. In the case of FTX, the new management has attempted to recover much of the cash and there is a proposal to return a percentage of it to the platform's users.
Consider moving your crypto to a crypto wallet. There is a learning curve involved and wallets carry their own risks. For example, if you lose your passphrase, you could completely lose access to your assets. But if you take the time to understand how they work and are comfortable with the added responsibility, a wallet could protect you against exchange failures.
3. Use a Reputable Crypto Exchange
I'll hold my hand up and admit that I thought FTX was a reputable exchange. That's one of the reasons I don't think the Bankman-Fried conviction will solve all of crypto's problems. It is difficult to recover from the loss of trust caused by the repeated lies of a major player. That said, some cryptocurrency exchanges They certainly have more reputation than others.
Look for companies that perform third-party audits of their warehouses and keep your assets offline in cold storage. I'm a big fan of New York's BitLicense as the requirements are more rigorous than most, so Check here to see if the platform is licensed in New York. Stockbrokers who also sell cryptocurrencies have more legitimacy since they already follow the SEC's stockbroker rules.
Key takeaway
The FTX collapse highlighted one of several risks associated with investing in cryptocurrencies. But Sam Bankman-Fried's conviction doesn't really solve the problems facing the industry. These include investor confidence, limited regulatory protections and controls, and questions about whether the digital currency will reach its potential.
If you are considering investing in cryptocurrencies, don't be distracted by the Bankman-Fried circus. Research the risks involved, consider how these assets might perform in the long term, and plan how you will store your cryptocurrency. Keep in mind that cryptocurrencies are just one of many asset classes. As such, try to consider what role it will play in your portfolio and how it will help you achieve your broader investment goals.
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