On Nov. 11 2022, cryptocurrency exchange FTX filed for bankruptcy after users withdrew around $6 billion in funds from the exchange and Binance, a competing offshore crypto exchange, backed out of a deal to buy the company.
And now, less than a year later, Sam Bankman-Fried, FTX's founder and CEO, has gone from running a $32 billion crypto company to standing trial in a Manhattan courtroom for allegedly orchestrating one of the biggest financial frauds in U.S. history. He has pleaded not guilty to all charges.
Ishan Bhaidani, co-founder of web3 marketing firm Scrib3, wasn't surprised by FTX's collapse. He publicly raised concerns about FTX's financial health about a month before the company's multibillion-dollar implosion.
"I feel pretty confident saying I was the first one to openly say that there's something fishy going on there," he tells CNBC Make It. "In hindsight, it couldn't have been more obvious."
Bhaidani first became interested in the world of crypto and decentralized finance in 2020. He began working in the industry in 2021.
At that time, the crypto craze had soared to a fever pitch and the entire crypto market was valued around $3 trillion. FTX had reported explosive growth and even purchased and renamed the Miami Heat Arena.
However, despite the hype surrounding FTX, Bhaidani says that the numbers just weren't adding up at the time.
In a tweet from Oct. 5, 2022, he said "something shady" was going on at FTX and that he was pulling his money out of the company due to his concerns about its financial stability.
In that tweet thread, he pointed out a number of red flags, including that trading volume on the exchange had sunk to December 2020 levels. Since exchanges typically earn revenue by charging traders transactions fees, this would mean that revenue was down for the company as well, he says.
"It just didn't make sense," he says. "How are you able to spend the kind of money to do a Super Bowl ad and buying the Miami Heat arena naming rights when your volume is going down pretty significantly?"
As Bankman-Fried sits trial in the wake of the FTX fallout, Bhaidani's No.1 piece of advice for crypto traders going forward is: Don't trust, verify.
Although FTX was a private company, most of the information that Bhaidani used to come the conclusion that there could be problems was public, such as FTX's trading volume and the departure of head executives.
"You can never trust these cult figures," he says. "You can never trust what people are saying, you have to verify."
Bhaidani also says crypto investors should aim to rely less on centralized crypto exchanges and manage their digital funds and transactions themselves instead.
Aside from using Coinbase, a popular crypto exchange, to convert his money into cryptocurrency, Bhaidani says he doesn't use centralized exchanges often.
"I don't believe in centralization. I don't think we need them and I think it's pretty antithetical to what crypto is," he says.
Centralized crypto exchanges can be thought of as digital marketplaces where users trade crypto. They have both pros and cons.
Centralized exchanges are usually run by a company that stores and keeps track of your crypto. In the U.S., they must comply with state and federal regulations and can offer customer support if anything goes awry with your digital funds.
On the other hand, you lose direct control over your crypto since the company holds the private key used to access your virtual wallet. You could face a long legal battle to get your digital funds back if the exchange fails.
However, maintaining your own crypto, as Bhaidani suggests, comes with its own potential benefits and pitfalls.
If you store and maintain your crypto in your own digital wallet, you'll have full control over your virtual funds and essentially act as your own bank when making transactions. However, there's no one to call if something goes wrong or you lose access your wallet. And since crypto transactions are irreversible, once it's gone, it's gone for good.
And above all else, remember that many financial experts consider crypto to be a highly volatile asset subject to erratic price swings. For this reason, most advise against investing more into cryptocurrency than you're willing to potentially lose.
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