What We Learned from FTX's Collapse

November of 2022 turned out to be one of the greatest shocks in the world of cryptocurrency. FTX, a corporation that used to be second globally, all of a sudden crashed. Ordinary people, large companies and even governments lost billions of dollars as millions of people around the globe lost their money. To a great number of Nigerians, this is a really familiar story. It lures us to the memories of the presence of Ponzi schemes as MMM which appeared and vanished leaving thousands of families in sorrows. The collapse of FTX is not a foreign story, it is a lesson to us that has lessons here at home.

The inaugural lesson is that business can be ruined within a short time due to any form of suspicion. Prior to the fall, FTX was among the most venerated companies in the crypto realm. Its founder Sam Bankman-Fried has been dubbed a genius and most of the people trusted him. He was featured on television, gave out funds to charities, and made bold statements on the emerging world of finance. Under the partying and lofty promises, there was some nefarious activity, as behind the scenes FTX was playing with customer cash on risky stakes.

This demonstrates to us that the most popular brand can destroy trust. In 2016 many Nigerians also believed in MMM. It guaranteed massive earnings, people believed it, first, because their neighbors and family members were gaining money. However, after the revelations, trust was eroded in a day and everyone lost their possessions. Eternity or MMM, it is the same lesson: we should not blindly trust every firm and individual, however popular it can be.

The second lesson that can be learned about the demise of FTX is the necessity of regulation. Cryptocurrencies are in many nations, such as the U.S. and Nigeria, unregulated. This implies that they carry on their activities with limited or no regulation by the financial authorities. FTX was given freedom to expand into a billion dollar firm without checks. In case the regulators were acting closely, they would have identified the abuse of funds earlier.

This issue was already observed in Nigeria. A lot of investment firms come up and fail due to the lack of monitoring systems. There are individuals who open online operations where they raise promises of immediate gains and after a few months, they close down with peoples savings. Had there been a stricter set of rules, then some of these losses could have been averted. Nigerians should demand a tighter regulation in the financial sphere given the increased engagement of youth investing in digital assets.

Image Source

FTX was extremely strong in attracting people through hyperbole. The corporation used celebrities, sponsored sports stadiums and promoted extensively. The ability to get their favorite football stars or Hollywood actors to promote FTX drew masses of people to invest. Yet those celebrities were also cheated in the end and their fans bore the greatest loss.

In Nigeria, care should be taken not to be tempted by hype. Popular figures including those on social media as well as pastors are employed to look credible by many Ponzi schemes including imitation investment sites. The deadlines to be rich are very short, but results make people cry. Hype may create the illusion of safety, but hype cannot save our money. Value based investments are real, rather than noise investments.

One of the main lessons of FTX could be that due diligence must be conducted. Investors, some of them very experienced ones, made no effort to ask difficult questions as to how FTX was earning its money. They just believed in the founder and advertising. It was subsequently found that FTX lacked an adequate accounting system and was involved in moving funds in some dubious fashion.

It is always important that we ask questions before we invest in Nigeria. Who is at trial running the company? What is their income? Is the system sustainable? When they are not clear-cut answers, then it is better to simply avoid them. Many of us have been duped in schemes through failure to research. The question that some Nigerians did not ask when MMM came was how this company could guarantee 30 percent monthly returns. People did not hesitate when forex trading scams came in. TX is one more indication how the blind faith is dangerous.

As well, TFT also teaches us of the issue of risk management. Others invested all their savings with FTX as they believed it was a secure exchange. When it went belly up they were wiped out. Some diversified their money and invested it in other assets and although they were affected, others did not lose it all.

Every Nigerian only needs to learn this lesson We do not have a very easy economy already and we cannot take a risk with our whole future. The need to diversify must be implemented as well. Always invest in crypto but also save some of the money at safer and low risk areas such as treasury bills, real estate or small business. Never put all your eggs in one basket however sweet an investment appears to be.

The gist of FTX was greed. The top managers of the company were not contented with regular returns. They needed more, and thus started accepting the money of their clients with the intention to get larger profits. This greed made them blind and risk assessment made them blind so that it all broke down.

Greed has ruined the business of many in Nigeria as well. We have witnessed politicians that embezzle funds that should be used in schools and hospitals. We have witnessed corporate managers who appropriate government cash wrongly. In addition, we have witnessed the cases of ordinary people who want to increase their assets by twice the amount and fall into the trap of scams. Greed is a malady It undermines belief, ruins lives and kills whole communities.

The fall of FTX ought to serve as an eye opener to Nigerians. The fascination with cryptocurrency lies in the hope that it would be an easy way to get out of a poverty situation. Realities are that crypto can come with opportunities, and also risks. We ought to go with wisdom, not with greed.

The collapse of FTX is not only a tale of a single enterprise. It is an educational worldwide reminder of trust, greed, control and accountability. To Nigerians, it can be a memory of the few scams we had before such as MMM and other worthless investments. If we take the lessons that we hear seriously, we can save ourselves a lot of suffering.

In the end, money is not numbers on the screen only. It is our sweat, our dreams and our future. It is something that we have to watch over diligently The crash of FTX demonstrates that no matter the size and popularity of the company, it can fall apart. However, we can and should learn our lessons, to prevent becoming the victims we are currently facing and to make our financial future safer and less vulnerable to cyber attacks.