That’s what just happened to FTX founder Sam Bankman-Fried.
Remember that Tom Brady Super Bowl ad where he convinced everyone to quit their jobs to buy crypto?
That was for FTX…
It’s the world’s second largest cryptocurrency exchange.
And it was flying high until a spiral of events this month caused the crypto it issues, FTX Token (FTT), to plunge 95%.
This bankrupted FTX… and wiped out Bankman-Fried’s fortune. It’s also caused serious drops in the crypto market.
Bitcoin (BTC) and Ethereum (ETH) are down 30% for the week. And the rest of the crypto market has plunged alongside them.
And colleague and crypto investing expert Teeka Tiwari warns there’s more pain to come.
So today, let’s look at what’s going on… and how we got here. Then I’ll show you the two steps Teeka says ALL crypto investors should take right away.
Crypto will rally again… just has it always has after big dips like this.
But it’s crucial you follow his recommendations if you want to get through the days and weeks ahead. It’s your best shot for those long-term crypto gains.
You couldn’t open a magazine without finding articles on him.
Not only is “SBF” – as his fans call him – a 30-year-old billionaire. He’s also a major Democratic Party donor… and a mover and shaker in Washington.
He’s one of the top voices pushing for the federal government to regulate crypto.
Here’s SBF on the August cover of Fortune above the headline, “The Next Warren Buffett?”
That may seem comical now, after the blow up of FTX.
But just a few months ago, SBF was worth about $16 billion.
And he was using his financial heft to bail out troubled crypto firms such as BlockFi and Voyager Digital… much like Buffett bailed out Goldman Sachs and General Electric during the 2008 crash.
Last week, it published leaked documents that showed balance sheet shenanigans on an epic scale.
They revealed for the first time that much of the balance sheet of SBF’s Alameda Research was made up of FTT tokens.
As one crypto analyst, Cory Klippsten, of Swan Bitcoin, put it…
It’s fascinating to see that the majority of the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token.
FTX was loaning funds to his crypto trading firm. Then it used its own FTT token as collateral.
I know that sounds like a lot of accounting gobbledygook.
All you need to know is that FTX was fabricating money to lend to itself. And when people found out about it, they lost all confidence in his businesses.
That’s Changpeng “CZ” Zhao. He runs the world’s largest offshore crypto exchange, Binance.
He was sitting on $580 million of FTT tokens after he sold an early stake in FTX.
And he’s had a long-running beef with SBF…
Zhao claimed SBF was spreading rumors in Washington that Zhao had close ties to the Chinese government.
And on Sunday, Zhao went in for the kill.
He tweeted that he wouldn’t “support people who lobby against other industry players behind their backs.” And he said Binance would liquidate its FTT holdings over the next few months.
Investors yanked $1.4 billion off the platform in one 24-hour period following the revelation.
And FTX hit the wall…
Yesterday, bitcoin plunged to a low of $15,900 before rallying back to $17,500.
Ethereum hit a low of $1,100, before climbing back to $1,300.
And the plunges aren’t over yet, says Teeka…
The crypto market is headed lower over the short term. We don’t know how leveraged Alameda Capital or FTX were. But they probably borrowed heavily from a bunch of different players. And we still don’t know who owes what to whom.
It’s like what happened to the banking system after the subprime mortgage crash in 2008 and 2009. Back then we had all these credit default swaps where nobody knew who had liability because it was all so opaque.
So over the next few days, weeks, and months, we’re going to see a lot of firms blow up. As a result, we’re going to see a lot of crypto investors having to unwind leveraged positions and be forced to sell.
Over time, the crypto market will be worth $10 trillion, $20 trillion, $30 trillion. But over the short term, bitcoin’s going lower. Ethereum’s going lower. The whole market is going lower.
That’s why it’s crucial you follow the steps Teeka has laid out for his readers.
The blowup of FTX has nothing to do with a crypto protocol breaking… or a successful blockchain hack.
They’re human greed and stupidity problems.
Sam Bankman-Fried was an idiot to back one of his companies with a token issued by his own exchange.
And he was an even bigger idiot to go on a massive spending spree and buy a bunch of other crypto companies with this secret lurking on his balance sheet.
That’s why Teeka recommends his readers to self-custody their crypto on a digital wallet rather than leave them on a centralized exchange such as FTX.
That’s the whole point of crypto – to remove human greed and stupidity from the equation and replace them with a decentralized system everyone can trust.
That way, the only risk to your crypto is if someone finds the private key that controls your wallet. Teeka…
As I’ve said from the beginning, if it’s not your keys, it’s not your crypto. So I strongly urge you to take possession of your own crypto by transferring them off centralized exchanges and onto a wallet.
And if you do that, please be careful. You can’t store your seed phrase that unlocks your wallet on your computer. So, write it down, and keep several copies. If you lose it, your cryptos are gone.
It may seem strange given what’s going on.
But once you’ve made sure securely store your crypto holdings, your next job is to do absolutely nothing.
I’ll leave Teeka with the final word on that…
I know it’s easy to get consumed by this stuff. But I urge you not to. There’s nothing you or I can do to change these short-term outcomes. Our only job is to keep a level head… and enjoy our lives.
Crypto is like a bucking bronco. There’s nothing we can do while it’s bucking like crazy except hold on. Eventually, it’ll buck all the idiots out of this market. It’ll form a bottom. And that will pave the way for the next bull market.
Editor, The Daily Cut