Will $11B Crypto Exchange Failure Send Flight Capital Back To Real Estate?

Dec 8, 2022

Will the huge multi-billion dollar failure of FTX, and the new lawsuit against its founder and the celebrities that promoted it finally be the wake up call that sends investors back to investing intelligently? 

The Day Crypto Went Broke

A recent run on deposits left cryptocurrency exchange FTX with an $8B shortfall, leaving a million of its investors owed money. 

A new $11B class action lawsuit has been filed, naming not only the company’s founder Sam Friedman, but Shaq, Tom Brady, and Gisele Bundchen, among others who promoted it. 

In turn, bitcoin prices took another dive, while more calls for regulation could cause even more mayhem in this space. 

Invest In Your Circle Of Competence

Putting a few dollars into something new can be exciting. Just don’t bet your financial future on it.

With celebrities being sued for promoting this and other recent ‘scams’, influencers are going to have to take a step back and seriously consider what they put their names on. They will need to understand what they are advertising to their followers, and had better make sure it is legitimate if they don’t want to be liable for damages. 

It is even more shocking that many entrepreneurs running and raising money for crypto, NFT, and similar ventures don’t even understand the technology themselves. It is a recipe for disaster. 

As Warren Buffett has long said, invest within your circle of competence. That means the things you know. 

Most people do not truly understand how bonds work, or how stocks are manipulated. What everyone does have experience with is real estate. You’ve either rented, bought a home, or have experienced not being able to afford one. 

Many individual investors, influencers, and even big funds are going to have to return to this asset class for their future financial welfare, and to make up for recent losses like these.

Choose Who You Invest With Wisely

Even more important than what you invest in as an asset class, is who you invest with. 

The company, and its leadership will make all the difference in the outcome. 

There can be bad actors in every sector. There could also be some great individuals and firms that not only have the right intentions, but the capability to deliver on them. 

So, what should you look for as indicators of the right people to invest with?

Size is clearly not everything. FTX is a perfect example of that. So are banks like Wells Fargo which have continually ended up settling lawsuits for defrauding their own customers.

Looking at their products and services is a good start. If they have routinely been in the news for continually selling the same faulty and dangerous products without care for their customers’ health and safety, that says a lot. Like Camping World for RVs. Where there’s smoke, there’s fire.

In addition to how they treat their customers, how do they treat their own staff and team members? If they don’t treat their own people well, how can you expect them to do any better for you?

Look at their long term track record. Not just the fact that they’ve been alive or incorporated for years, but how they’ve performed during that time. 

Then look at the actual fundamentals of the investment and assets. Does it make sense? Is it obvious? Is there protection for your capital, the ability to withdraw your capital if there is a problem, and a sound business model that isn’t based on pure speculation? 

Real estate checks a lot of these boxes, but it is still about picking the right individuals and companies to invest with.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund.