How to learn from the downfall of FTX: Red flags in the crypto trading space

Deciding which crypto exchange to use and trust is a critical step in acquiring and trading cryptocurrency. It can impact the security of your investments, your user experience and the overall success of your trading endeavors. 

Recent events have cast a light on the importance of choosing the right crypto exchange, such as the cautionary tale of the rise and fall of FTX. Once a rising star in the crypto exchange ecosystem, the name FTX now stands as a reminder of how booming crypto start-ups that look too good to be true, often are. 

This blog offers insights into the benefits of choosing Limitlex as your crypto exchange and how to spot red flags across the crypto ecosystem that could put you and your assets in danger. 

The rise and fall of FTX

FTX, founded in 2017 by Sam Bankman-Fried and Gary Wang, was initially established as a crypto derivatives trading platform.The exchange's rise was meteoric and it soon became one of the top choices for traders seeking to capitalize on the crypto market's volatility.

Behind the scenes, however, Sam Bankman-Fried and his team of directors were illegally using investors’ assets to fund lavish lifestyles, real estate purchases and political donations. 

On Thursday 2nd November, Sam Bankman-Fried, former CEO and majority shareholder of FTX, was convicted on seven counts of defrauding customers, lenders, and investors. His actions cost victims $10 billion. His sentencing, scheduled for March 28, 2024, may result in a maximum 115-year prison term. 

What makes Limitlex one of the best crypto exchanges on the market

Limitlex has five key features that make it a safe, secure, and cost-efficient platform for crypto trading. Firstly, Limitlex prioritizes security by implementing rigorous due diligence practices, such as Chainalysis KYT compliance and Sum & Substance verification, to confirm the assets available on the platform. Keeping clients’ accounts, funds and personal information safe and secure is the main priority. It also allows bulk trading with its innovative Basket Buy and Sell All features, making trading multiple digital assets simultaneously efficient and safe.

Users can also trade directly between cryptocurrencies and the Euro, a unique feature seldom found on other exchanges. This direct pairing simplifies payments and withdrawals for European users. Lastly, Limitlex offers unbeatable fees, charging a percentage of the total order value, making Limitlex the most cost-effective choice for both micro and macro transactions. 
 

Looking out for red flags

In order to mitigate risk, it is important to conduct thorough research and look out for any potential red flags before settling on a cryptocurrency trading exchange. Here are some considerations to bear in mind:
 

- A unexplained boom

A sudden and unexplained surge in success may be cause to question its source. A reputable exchange should be transparent about its operations, financial health, security measures and regulatory compliance. If it cannot provide clear and transparent information, be wary.

- If it seems too good to be true…

In the case of FTX, Sam Bankman-Fried stated on Bloomberg's Odd Lots podcast in 2022 that they could essentially make money out of nothing using tokens. The podcast’s host, Mat Levine, was “stunned” at the claim, which in hindsight seems only too similar to what led to the exchange’s demise. 

- Reputation

It is essential to look into the exchanges you are considering using to trade cryptocurrencies. Look for exchanges with a history of reliability, transparency, strong security measures, and a good track record of customer service. User opinions and reviews from reputed sources are a fantastic source of information to be considered before settling on a decision.

- Insufficient liquidity 

Liquidity is vital for the success of any exchange in the digital asset market. It ensures efficient order execution, price stability, and attracts a broader range of market participants. A sudden uptick in trading volume may lead to a lack of liquidity and can result in delays, order execution problems or even cause traders to suspect market manipulation.

- Being asked for crypto in advance

Scammers send messages via social media channels or emails from seemingly legitimate “companies” demanding you send crypto in advance. These may even be sent from hoax profiles. Don’t fall for it. 

The rise and fall of FTX serves as a stark reminder of the need for caution and diligence when trading any kind of asset. A reputable and trustworthy exchange like Limitlex can ensure a positive trading experience and protect your investments. Unfortunately, the same cannot always be said for other platforms as the crypto space continues to evolve and expand. Do your research and always prioritize security and transparency when making your decision.