Navigating information: The smell test, did FTX stink?

 Lets imagine it is July and you suddenly have $10 000 to invest.  You have no debt, no desire to buy a luxury item nor a wish to travel.  You have no immediate need for the money.  Let's paint an even rosier picture and say you have substantial savings.  You conclude that you can support a high level of risk with the money.  You are not going to be foolish and through it away.  You decide to get into crypto.  What would be your first action?  Chances our you are new to crypto and like most of us you understand nothing or very little about the subject.  You recall the Super Bowl commercials for a company called FTX.  You recall some of the celebrities from the commercials.  It is time to investigate FTX.  Chances are google would be your first resource.

With google you can look at search results from a specific time frame.  I searched FTX and used July 1, 2022 - July 31, 2022 as the criteria.  I picked July simply because the demise of FTX was on no ones radar at the time.  FTX appeared to be a somewhat solid company with substantial assets.  Tom Brady endorsed it so it has to be good, right?  I will admit that it is very difficult to look at past information  and not have the current state influence how it is analyzed.  In other words it is very easy to look at the past and say that we should have seen it coming.  More simply, hind sight is 20/20.

This post is about where to direct or efforts when approaching something for the first time.  Emphasizing the scenario;  It is July 2022, and we have $10 000 that we can afford to take a substantial risk and that is why crypto is chosen.  The decision is should I invest it with FTX or move on to another vehicle (Bitcoin, Binanace or what ever).   I do a search on google for FTX and I begin to look at the links returned.  Most are from general news outlets, (reuters, bloomberg, cnbc, etc.).  Some appear to be crypto specific (techcrunch, coindesk).  So what do I look for?

I am doing a "smell test".  I am looking an immediate reaction on my part.  I am not looking for information to immediately support or reject a position.  I am looking for my next question.  Think of a person that has a peanut allergy.  They walk into a kitchen and smell peanuts.  They would inquire as to whether or not peanuts or peanut products have been used in preparing the meal.  I am looking at the information to decide where I should do a deep dive.  How does the information available in July reflect FTX.  Where would the smell test have led me?

The first thing that strikes me is that in July the crypto industry was declining.  Bitcoin had substantial loses and many other firms were insolvent.  However this scenario has me wanting to take the risk and invest in crypto so this information is irrelevant.  What is relevant to me was the fact that most of these articles portray FTX as the industry savior.  FTX provides funds to the insolvent firms in an effort to maintain investor confidence.  Many of the articles list firms that have been propped up by FTX.  This would lead me to investigate how interested FTX was in protecting my assets.  Would they sacrifice my assets for the greater industry?

Another odor was a phrase used often.  Paraphrasing; We have a few billion on hand to shore up struggling firms.  How can anyone be so casual with billions of dollars.  I might want to investigate who is looking after the pennies.  I searched "ftx employees" and this article from July 1st popped up Getting out of crypto .  It talks about NFT's and wildly marked up prices.  This made me think that a lot of this crypto world is well beyond my comfort level.  After reading this I probably would have moved on the another source but, as I said earlier hind sight is 20/20.

What would you do if the smell test led me to a question I could not answer.  For example FTX supporting failing crypto firms.  Was this a good thing or a bad thing.  It is very likely that I would not be able to determine that.  At this point you make the best call.  Do you go ahead based on any of the other information or is this void significant enough to take you in a different direction? 

 Your choice, maybe you flip a coin.

Postscript;  I would at this point in my life never get into crypto.  I just do not understand it enough.  Even if Tom Brady is on board I will pass.