Today we’re taking a quick side note away from the Chart of the Day to make a couple of comments on cryptocurrencies and FTX’s bankruptcy. FTX is a popular online cryptocurrency exchange, and its bankruptcy may turn out to be the biggest in history.
Regarding our investments:
-
We do not hold crypto assets and have no dealings with FTX.
-
Unless clients gave us specific instructions to do so, we do not even invest in the crypto industry. Even when instructed, we do it with publicly traded stocks that trade on regulated exchanges.
-
We believe this recent bankruptcy will have little to no effect on the rest of the stock and bond markets.
Below is regarding FTX specifically:
-
There was a large decline in the value of FTX's key crypto assets from $26, previously traded at $70 at the peak in 2021, to now only $1 as it came to light that they were using others' deposits as collateral for risky loans made by a related hedge fund owned by the founder. This action is not allowed in regulated markets.
-
The day before they filed bankruptcy, FTX Trading held $900 million in liquid assets against $9 billion of liabilities. At one point, the FTX had $32 billion in assets.
-
To add insult to injury, after FTX filed for bankruptcy, over the weekend there was an unlawful withdrawal of $662 million in cryptocurrency. This highlights the fact that it is nearly impossible to enforce liens on digital assets.
-
The decline in value, the large liabilities, and the theft of the assets leaves little hope for customers hoping to recover much of their deposits.
-
The Bahamian police and regulators are investigating whether there was any criminal misconduct in the collapse of FTX.
We believe in the technology behind crypto assets, and someday it may play an important role in processing transactions and record keeping for ownership of physical assets, such as art, vehicles, or even real estate. Someday our kids and grandkids may use this as a form of currency. However, in the meantime, crypto is the wild west of finance, and until the market can be regulated and additional safety measures implemented, it is not yet a viable investment vehicle.
The story develops each day, so feel free to give one of the Portfolio Managers a call if you have any questions or want to talk further on the topic.
