You Need to Understand the FTX Debacle Even If You Have No Crypto Investments

By Philippe van Doorn

Also: inflation and the market rebound, the rise of semiconductor stocks and retirement planning

The sudden collapse of FTX, the world’s third-largest cryptocurrency exchange, underscores how important it is for any investor to know the risks they are taking when placing their money with a loosely regulated firm. .

FTX and its affiliates filed for bankruptcy on November 11. The company’s founder, Sam Bankman-Fried, resigned as CEO and was replaced by John J. Ray III, an attorney who worked on the bankruptcies of Enron, Nortel Networks, and many other companies.

Bankman-Fried is staying with FTX “to help with an orderly transition,” according to a press release.

Bahamas-based FTX held about $16 billion in client assets, but loaned about $10 billion of those funds to Alameda Research, a trading company also run by Bankman-Fried and headquartered in Hong Kong. , according to a Wall Street Journal report. Alameda, in turn, had lent billions of dollars, with some loans secured by FTT, a cryptocurrency created by FTX, according to a Nov. 2 report from CoinDesk.

FTT’s value plummeted as FTX faced $5 billion in customer withdrawal requests last weekend, which left FTX facing an $8 billion shortfall, according to Bankman -Fried. Binance, the world’s largest crypto exchange, had said it was selling its $500 million in FTT based on reports of FTX lending to Alameda.

In this week’s Distributed Ledger column, Frances Yue summarizes FTX’s collapse, rescue attempts and industry reaction.

Weston Blasi sums up Bankman-Fried’s astonishing claim that he was unaware of FTX’s leverage risk, including an apparent lack of basic financial controls.

More coverage and differing opinions as this story develops:

The rise and fall of Sam Bankman-Fried

Lukas I. Alpert recounts the rapid rise of Sam Bankman-Fried, founder of FTX and Alameda Research, and the instant collapse of his businesses.

More: Crypto billionaire Sam Bankman-Fried’s net worth could drop by more than $13 billion

What does the crypto crash mean for financial markets?

MarketWatch’s Need to Know column is an early morning roundup of the top issues of concern for investors each trading day.

On November 10, as FTX rapidly disintegrated, Thomas H. Kee Jr., CEO of Stock Traders Daily and portfolio manager at Equity Logic, described how a decline in excess liquidity had reversed the rise of crypto -riskier currencies and stocks. He explained how this could play out in the broader stock market.

He also shared the buying opportunities prompted by this year’s declines.

Bitcoin’s volatility may not be as great as you think

Bitcoin itself does not represent the kind of risk that FTX and Alameda Research took in accepting a virtual coin as collateral for billions of dollars in loans. But it sure is volatile.

On Nov. 10, better-than-expected inflation numbers helped push the price of bitcoin up 11% to $17,524. But then bitcoin fell 6% early Friday to $16,527. At that time, bitcoin was down 64% from the end of 2021. Yet it was up 150% from five years earlier.

So how volatile is bitcoin? Mark Hulbert’s conclusion may surprise you.

What’s really going on with inflation?

Investors were delighted after inflation figures for October came in below expectations, sending broad equity indices up on November 10.

As usual, the devil is in the details. Here is a set of more in-depth reviews of inflation data:

How to handle company stocks if you lose your job

It’s an uncertain time, even for the biggest tech companies that had been steadily increasing their workforces for years.

This week, Meta Platforms (META), Facebook’s parent company, began laying off about 11,000 workers. Amazon.com (AMZN) is looking at spending on unprofitable units. The biggest business expense is still the employees.

Often, when an employee is shown the door, they still hold options on their former employer’s stock. Here’s how to handle this situation if it happens to you.

Semiconductor stocks may have started to rebound

The iShares Semiconductor (SOXX) ETF tracks the PHLX Semiconductor Index by holding shares of 30 major manufacturers of computer chips or related hardware. The ETF is down 45% from 2022 to October 14, but up 23% from there, including a 10% increase on November 10.

The post-CPI euphoria may turn out to be just another bear market rally, but SOXX is now trading at 16.7 times consensus-weighted forward earnings estimates among analysts polled by FactSet. This is below the PER of 17.3 for the S&P 500 – this may still be a good point for long-term investors to acquire semiconductor stocks at attractive prices.

Michael Brush favors this qualitative approach in the selection of semiconductor stocks.

Related:Semiconductor stocks have rebounded from 2022 lows – and analysts expect at least a 28% rise next year

Tips for sorting out your finances before retirement

You may have worked hard, saved, and invested for your retirement, but unwittingly created a messy mess that can be difficult to manage? Alessandra Malito has tips on how to organize your finances for retirement.

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-Philip van Doorn

 

(END) Dow Jones Newswire

11-11-22 1512ET

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