Don't Get Scammed: Cryptocurrency Contagion, and Coin Mayhem

Jan 17, 2023

(TL;DR - It’s tough out there in the world of crypto. Not all hope is lost, if you want to keep braving these rough seas, here are a few things to do. Also, this article is for informational purposes only, and should not be construed as legal, tax, investment, or financial advice.) 

2022 was a year of reckoning for the crypto space. In the last few months the pace of calamity has quickened significantly. Since May, the largest crypto lender, Celsius, filed for bankruptcy and froze client accounts, the Nomad crypto bridge was hacked to the tune of $100 million (Wormhole, a different crypto bridge hacked for $325 million in Jan 2022), Axie Infinity, the web3 game platform was hacked ($615 million stolen), the FTX exchange (and 130 companies affiliated with it) declared bankruptcy and halted withdrawals, with the founder indicted, BlockFi (another exchange) has paused client withdrawals and declared bankruptcy, (the LA Lakers stadium sponsor) followed suit. In 2023, non-marketplace crypto  companies are going under, with Wyre shutting down 10 days ago. And on top of this, the tax man is coming! While the IRS recently backed off demands for platforms like Venmo & Paypal to issue 1099 tax reporting forms, the scrutiny isn’t going to stop.

What is happening? 

A phrase familiar to gamers might be useful here. Benedict Evans called what is happening in Crypto & Decentralized Finance as the sector “speed-running” the calamities that drove banking regulations to be created over the last 150 years.. When financial news is reporting levels of intrigue we’ve not seen since Enron or AIG, and the author of “The Big Short” disclosed he spent 6 months with the FTX exchange founder, this should make even the most diamond of hands take a look at their coin mix.

My crypto! Is there anything I can do?

Unfortunately, your options are extremely limited if you’ve become a victim of Celsius, FTX, Gemini, or any other companies that were seen to be playing casino games with your money. For every exchange you were on, download as much info about your transactions as you can: monthly statements, holdings, and proof of assets is critical in the off chance a settlement includes individual member restoration. You’re going to need to file a claim against the marketplace that crashed with your assets in it (FTX, Celsius, But, given FTX creditor claims are going for 13 cents on the dollar, you may not be able to recover all of your funds.. Celsius is only expected to return 22% of what users put in. Still, it’s probably worth it to submit the forms on the off chance you’re in the groups that do see pay back.

How to hold crypto safely in 2023?

While we can’t and would never tell you what to invest in, we can suggest a few tools and practices that could help you not get wiped out or wake up to find your crypto marketplace has evaporated with the bag. 

  • Ice Cold - Strongly consider holding your crypto offline (called “cold storage”) or in a hardware wallet. Keeping your crypto off an exchange means that if that exchange goes under, your assets are still verifiably yours. (a good explainer on these on Medium)
  • Diversify Yo’ Bonds - Failing that, listen to the Wu-Tang clan. Your best bet is to diversify your crypto holdings across many different exchanges. So that even if one or more of the exchanges fail in the future, the majority of your assets will be left untouched. Mixing between exchanges that only serve crypto, and general financial marketplaces like Public or Robinhood is another great way to add diversification.
  • “Know when to hold em, know when to fold em, know when to walk away, know when to run” -  Lastly, your parents’ favorite Kenny Rogers might have a good suggestion. Cryptocurrency as an “asset class” has been seen to be more volatile than stocks or bonds, historically. This means that the price you get for a specific coin like BTC, ETH, Doge, or Solana can vary wildly over the course of a month, week, day, or sometimes even an hour. This can be anxiety inducing for some investors, so make sure you fully understand the risks of putting your money into crypto before investing.