What happened recently in the crypto space felt like the timeline of a year of events. In less than a week, Sam Bankman-Fried (SBF) has become the talk of the town. FTX, valued at over US$32 billion, has filed for bankruptcy.
How did it all begin?
Alameda Research started in 2018 as a small hedge fund. They raised debt from investors, promising “high returns with no risk”. FTX concluded its seed round by raising US$8 million and launched in Q3 2019.
There was no denying that Alameda contributed heavily to FTX’s volume in its early days. As FTX continued to grow at an exponential pace, they capitalised on the DeFi hype by creating Serum, a decentralised exchange on Solana.
Alameda’s job as a market maker was to boost liquidity in the market and maintain delta-neutral strategies. However, realising that their edge slowly eroded, Alameda began to assume highly degenerative leveraged directional bets in crypto.
FTX, Alameda and the multi-billion dollar hole
As the tokens were all traded at thin circulations, it was an easy feat for Alameda to manipulate the price higher on FTX to beef up its balance sheet. Alameda created the illusion of a sizable balance sheet which they leveraged as collateral to borrow heavily and fund directional bets.
As the market plummeted this year, Alameda could not repay the borrowed money as their collateral was illiquid, leading to margin calls. This led to the theft of FTX users’ funds to attempt to put out the fire.
Also Read: ‘From a cybersecurity perspective, the Asian market still uses legacy tools’
Coindesk released an article two weeks ago regarding Alameda’s balance sheet, citing that a huge part of its US$14.6 billion assets is issued by the FTX team itself. In light of revelations regarding Alameda’s balance sheet, CZ announced that Binance would liquidate their entire $FTT holding, which equates to more than US$580 million at that point in time.
As of 7 November 2022, approximately US$450 million worth of stablecoins left the exchange in the past seven days. Herd mentality participated in fear-mongering, inducing a bank run and the bankruptcy of FTX soon after.
Security and custody
As the saying goes, “not your keys, not your coins” security is important. However, there is an apparent lack of security awareness among investors today.
We have identified three key factors to consider when securing your coins:
Ensure they are offline
We have all heard about hackers, viruses, social engineering and more. A simple way to prevent others from stealing your coins is to take them entirely offline and store them in a cold wallet.
This way, your device will never be connected to the internet, and you will never download any malicious files to that device. By connecting your computer to the Internet, you allow yourself to be vulnerable to any form of hacks that could come your way.
Keep your device safe
Any device that you use to store your coins can be lost or damaged. It is important to have backups. A fuss-free example is writing down your seed phrase on a piece of paper.
However, that piece of paper could be burnt during a house fire, misplaced, or read by others.
Bequeathing – Pass them to your loved ones
Estate planning is needed should something happen to you unexpectedly. Many exchanges or banks will not allow the transfer or sale of your crypto holdings and will withhold them until ownership is proven.
Also Read: Strengthening cybersecurity measures in the face of Web 3.0
Proving ownership legally (including the source of wealth and source of funds) is difficult, given the uncertainty of probate in different jurisdictions.
Key lessons
There has been a myriad of catastrophic events in 2022 alone, and the recent one has proven to be the most unsuspecting yet arduous challenge. Security and self-custody are no strangers to anyone in this space by now.
We have seen time and time again how centralised entities halt withdrawals to cope with a potential bank run. Users’ funds that are on the platform are now stuck and plausibly gone forever. Some of them had a majority of their net worth on these platforms.
By working with a licensed fund manager in a major financial jurisdiction, one eliminates most of the regulatory and security risks when investing in Bitcoin.
Fintonia Group is a Singapore-based fund manager regulated by the Monetary Authority of Singapore with a provisional license in the Virtual Assets Regulatory Authority in Dubai.
We comply with strict standards and regulations regarding client funds and with proper due diligence conducted on the management team to ensure adequate experience and qualifications in terms of risk management.
Fintonia Group works with insured and licensed third-party custodians with state-of-the-art security measures where Bitcoins are stored in cold wallets. The client’s funds are segregated and not co-mingled with Fintonia funds, as required by regulations.
Fintonia Group’s institutional-grade funds were created for professional investors looking for direct exposure to Bitcoin, allowing them to gain exposure to Bitcoin and store them in segregated cold storage vaults.
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