4 lessons for cryptocurrency investors from the FTX collapse

Bahamas-based crypto exchange FTX filed for bankruptcy in the U.S. on Nov. 11, 2022, seeking court protection as it looks for a way to return money to users.

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After a difficult year for digital assets, many investors were blindsided by the recent collapse of cryptocurrency exchange FTX, as customers wait for answers about an estimated $1 billion to $2 billion of missing funds.

While the future of the company — and investigations into the vanishing assets — are in limbo as FTX enters bankruptcy protection, experts say there are key lessons for crypto investors.

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“The FTX collapse provides harsh reminders that ‘there is no such thing as a free lunch’ when trying to make a quick buck in a still fairly new, unregulated financial industry,” said certified financial planner Jon Ulin, CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.

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You should invest “what you are willing to lose 100%, like in Vegas,” and “discretion and skepticism” should be exercised when weighing assets and related products pitched by “pro-athletes, celebrities and media personalities,” Ulin said.

Here are four other lessons for investors from FTX’s downfall.

1. Know the risks of where you’re holding cryptocurrency

Kevin Lum, a CFP and founder of Foundry Financial in Los Angeles, works with younger investors and said about 50% of his clients hold crypto in some form. 

While he doesn’t necessarily think clients need to reduce their exposure, he said they need to understand where digital currency is held and the possible risks of keeping assets there.  

“I think the collapse of FTX will end up being good for traditional finance companies like Fidelity who are entering the crypto space,…

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