Most Important Takeaway From FTX Collapse

 

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 founders didn’t have to lose an estimated $15 billion in net worth. 

The one million FTX account holders didn’t have to have their funds locked up. 

None of it had to happen at all. 

But they broke most important rule of investing that most investors don't even know about. 

They have learned the hard way so that, if you read on below, you won't have to learn the way they did.  

 

One Rule That Will Make You A Better Investor INSTANTLY
 

The foundational mistake FTX and its related parties made is a simple one. 

We get that there’s a lot more to the story.

There surely will be some lying to customers, shareholders, partners, etc. 

According to reports 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 there likely will be a lot more wrong uncovered in time. 

The real mistake the key people made here, however, was averaging down.

They “bought the dip” in crypto. 

Many of them at FTX and associated companies surely did this before. Many times.  

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 “buy the dip” traders saw big payoffs. 

It's the last one there that’s how one of the worst habits was created and they paid with everything. 

Buying the dip is one of the worst investment strategies ever devised. 

Sure, you can get away with it during raging bull markets.

You actually make a bit better returns with it too. 

The FTX and related parties surely did during the crypto bull. 

When market conditions are anything other than ideal though 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. 

Frankly, all of this would have been bad with the downturn in crypto. 

But it’s a total disaster because they bought the dip (especially if they did so with client money) and for the first time in two years it kept on dipping. 

That’s all it took to wipe away billions in capital. 

All investors should learn from their mistakes though. 

Don’t buy the dip. 

Don’t average down. 

And you’ll avoid turning losses into catastrophic losses. 

Whether you have billions or thousands, that rule will keep you from losing it all and will make sure aroud for the better markets which always inevitably come.