The Free Lesson Investors Must Learn From FTX Collapse
None of this had to happen.
FTX, the second largest crypto exchange in the world, didn’t have to collapse.
Its owners didn’t have to lose $15 billion in net worth.
The company private jet didn’t need to be tracked.
There doesn’t need to be multiple documentaries already in the works.
The one million FTX account holders didn’t have to have their funds locked up.
Again, none of it had to happen.
It’s all because they broke the one rule that, if you follow, will make you a much more successful investor instantly.
And it sits at the center of the multi-billion dollar FTX collapse.
One Rule That Will Make You A Better Investor INSTANTLY
We get there’s likely a lot of grey area or outright foul play here.
There surely was some lying to customers, shareholders, partners, etc.
There was commingling of firm and client funds through the acceptance of otherwise ridiculous collateral (like FTX’s own tokens, which are down 90%+ from their past highs) agreements.
There’s a lot wrong here.
And that’s just what has been reported in the first fiew days.
The real mistake they all made, however, was averaging down.
They “bought the dip” in crypto.
Many of them at FTX and associated companies surely did this before.
Bitcoin’s epic run from $4,000 in 2019 when FTX was founded to peaking at over $64,000 two years later rewarded every type investor.
Active traders couldn’t go wrong.
Buy-and-holders made a killing if they got out within 50% of the top.
And even “buy the dip” traders saw big payoffs.
And that’s how one of the worst habits was created.
Buying the dip is one of the worst investment strategies ever devised.
Sure, you can get away with it during raging bull markets.
And you actually make a bit better returns with it too.
When market conditions are anything other than ideal, however, buying the dip is a starting point for disaster.
In flat markets, dips tend to turn into slides.
In bear markets, dips turn into slides which turn into total collapses.
That’s what happened here with all parts of the crypto sector.
The leverage bets on crypto turned bad and then the collateral lent to FTX from it’s trading partners soured too.
All told an estimated $9 billion in total assets turned into $900 million.
And the valuation of FTX collapsed as did the net worth of its owners.
All of this would have been bad with the downturn in crypto.
But it’s a total disaster because they bought the dip (especially with client money) and for the first time in two years it didn’t bounce back.
That’s all it took to wipe away billions in capital.
All investors should learn from their mistakes.
Don’t buy the dip.
Don’t average down.
And you’ll avoid turning losses into catastrophic losses.
