The last 12 days have been extremely trying for so many people in a lot of different ways. Thank you to everyone who has expressed concern for me, the team at Arbor Digital, and our clients. In this edition we will look to accomplish a few things: Review the three biggest misconceptions of recent events, relay an important message regarding Arbor Digital and Gemini, and finish with some resources to answer the questions of ‘How did we get here?’ and ‘What to look for moving forward?’.
Three biggest myths about what is happening right now:
- This is proof that crypto failed and is dead. This was not a failure of technology, decentralization, or open permissionless blockchains. FTX and Sam Bankman-Fried (SBF) are not crypto. They were a traditional financial company set up offshore to service crypto. This is not the first time in which fraud was committed in the financial sector by a bad actor. Unfortunately, there are many examples of this throughout history: Bernie Madoff, Enron, Worldcomm, and the most recent example, Theranos founder Elizabeth Holmes.
- This is proof that self-custody is the only way forward. Not your keys, not your wallet. The most fragile point in engaging in digital assets is human interaction. Self-Custody is meant for those who have the proper security hygiene and expertise to take on the responsibility of safely engaging in self-custody. If you do not have a robust and sound security process then it is of greater risk of self-custody. You should speak with a trusted advisor to see which option is best for you.
- FTX was regulated and every other regulated exchange in the US is going down.
As we have highlighted recently, and below, there are stark differences in how centralized exchanges are regulated. FTX was set up and regulated offshore, not based in the US. Therefore much of their regulation was not like the regulations that U.S.-based exchanges like Coinbase and Gemini go through. FTX was purposefully manipulating data to fool auditors and regulatory probes into their company.
A message regarding Arbor Digital and Gemini:
Since last Friday’s newsletter, the contagion effect from the FTX fallout has been ongoing. Within that other major players are facing troubles. Given that we are centralized players within the digital asset space we understand the need for clarity and details. The following is meant to give as much clarity as possible. If you have further questions you can reach me directly at email@example.com, DM me on LinkedIn, or schedule time with us here. We are here for you.
Arbor Digital’s mission is to help investors and financial advisors engage the crypto/digital asset ecosystem safely and securely. To achieve that mission Arbor Digital started its journey in 2018 rooted in beneficial traditional practices around risk management, compliance, and legal work. We are proud of that work, and therefore Arbor Digital is a trusted partner for investors and financial advisors today. That has not changed.
Arbor Digital does not hold any assets on FTX or Binance. All assets remain with Gemini, a US-regulated qualified custodian underneath the purview of the New York Division of Financial Services for which they are licensed. We are in constant communication with Gemini and Gemini BITRIA regarding updates. As a result, client funds held within Gemini are backed 1:1 in reserves and able to access 24/7. All withdrawal requests can and have been met. For more details on Gemini and how they are regulated please see the following link: Gemini is Built on Trust
Arbor Digital does not invest in centralized finance companies like FTX. Arbor Digital’s sole focus is investing in the emerging asset class of crypto/digital assets. Arbor Digital has never held positions in digital assets FTT or BNB. Arbor Digital does not engage in leveraged trading, derivatives, or any staking/earning programs like Gemini Earn. Our portfolio strategies are long-only strategies. Read the following for more details on Gemini Earn and its impact on Gemini.
Arbor Digital has been structurally set up with the intent to survive and thrive in this emerging asset class. We are playing the infinite game. Arbor Digital does not have any debtors or private investors to whom we are beholden. Arbor Digital does not exist to chase markets or shiny objects in the crypto space. We exist to bridge the gap between sound and beneficial financial practices to the emerging world of public blockchain and crypto assets through our Digital Asset Separately Managed Account strategies. Ric Edelman has a quote, that while on the surface comes off as paternalistic, on a deeper level is about risk management, “It is time for adult supervision in the digital asset/crypto industry.”
Given everything that has gone on with FTX, SBF, and Alameda Research, the light has never shown brighter on the value we at Arbor Digital, and everyone in the financial advisor/wealth management space, who is building a secure space for Digital Asset Investing, provides. The need for a trusted partner who will proactively ask you the hard questions to identify risks and gaps between your current situation and your stated goals has never been clearer. It isn’t enough to simply say NFA-DYOR (Not financial advice – Do your own research).
To everyone who trusted FTX and has been adversely affected by the ongoing FTX events, our hearts go out to you. Digital Asset markets are global, so when something like this occurs, everyone is affected. It will take more time to see the full contagion effects as FTX, Alameda Research, and other direct partners are still in the process of unwinding.
If you are an investor or financial advisor who needs help or simply someone to talk to about all this, even if you are not a client of ours, please reach out. You can reach me directly at firstname.lastname@example.org, DM me on LinkedIn, or schedule time with us here. We are here for you.
What does this all mean for the industry?
- Trust destroyed. It will take years to regain.
- Regulators are going to come heavy-handed and rightfully so.
- Prices will suffer in the short term.
- In the long term, those who are well-intentioned and strongly positioned will continue to operate effectively.
How did we get here?
For a full recap please listen to a recent episode of The Breakdown. This is the most comprehensive and well-presented sequence of events and comes from an FTX insider.
“NLW gives an insider’s view of the timeline, from the beginnings of trouble as the crypto community turned on Sam Bankman-Fried for his role in shaping industry regulations to the chaotic week that saw FTX go from high flyer to bankrupt. Along the way, [NLW] shares how he and other FTX employees felt as they realized that they, along with the rest of the crypto industry, had been duped, lied to, and defrauded.”
An important watch:
FTX, one of the world’s largest crypto exchanges, collapsed in just 72 hours, wiping out $30 billion in value and causing a cascading decline in the value of all digital assets. In this urgent webinar, DACFP Founder Ric Edelman and Bitwise CIO Matt Hougan explain what happened, what will happen next, and what this means long-term for crypto.
The content presented is for information purposes only and should not be considered specific or individualized financial advice. Arbor Digital is a Division of federally registered Arbor Capital Management, Inc. (ACM) CRD # 111362. Registration does not imply a level of skill or knowledge. Past performance is no guarantee of future results. The digital asset class is speculative and has unique risks compared to traditional assets. See our regulatory disclosures or contact us for more information.