If you know anything about online gambling, you know that one of the best reasons to use international betting sites is the fact that you can bet with cryptocurrency.
While Internet-based gambling has become increasingly popular in the United States ever since the PASPA sports betting ban was lifted in 2018, no domestic online casino, online sportsbook, or online poker room actually lets you bet with Bitcoin or other cryptos.
And despite there being other compelling reasons to join an offshore service instead of a state-licensed one, crypto betting remains the biggest selling point for the most users.
(That’s especially true if you’re reading about online gambling at a site called DepositMethods.com. We are, after all, all about deposit methods.)
Of course, gambling with cryptocurrency comes with its own risks independent of betting with the stuff.
The “Biggest Crypto Risk” Isn’t The Biggest Crypto Risk
Now, we’re not talking about the inherent risk that is crypto investment itself. There’s plenty of that, and there are countless blogs and “analyst” sites dedicated to helping you understand what to expect.
Plus, we’re in the middle of a persistent bear market right now, and there’s no sugar-coating that reality. Hopefully, said bear market is closer to over than otherwise.
But even with the 2022 Midterms behind us, there are enough geopolitical variables (i.e. mundane things like the threat of global nuclear war, etc.) that make predicting any extreme crypto upswing pure guesswork.
In other words, we’re not going to tell you that your crypto is primed to pop off in two more weeks.
However, we will tell you that, historically, no legit crypto coin’s all-time high has been its ultimate all-time high. What’s more, crypto bear and bull markets seem to operate on cycles of 36-48 months.
Sure, if you bought in during the bull market of 2020-2021, things might seem a bit tenuous of late. But if you have yet to take the crypto plunge, all we can really do is offer a reminder that lulls are a great time for gamblers to get in.
Buying the dip is always the goal.
But again, it can be tough to convince newcomers to invest in cryptocurrency during a market downturn.
So, we’ll save our crypto proselytizing for another time.
Instead, we’d like to take this opportunity to warn you about a very serious crypto risk that was very publicly demonstrated just last week.
The Real Biggest Crypto Risk Is Much Less Obvious
More than any other risk associated with crypto gambling or crypto investing, this is the one that’s best positioned to wipe you out overnight. What’s more, the vast majority of crypto users aren’t even aware of it.
In a word, this particular risk is the crypto exchange itself.
Sam Bankman-Fried And The FTX Scandal Explained
Chances are you’ve probably heard about the recent FTX scandal.
There are all kinds of conspiracy theories out there – some believable, some less believable – about what exactly happened to the FTX exchange, but the undisputed facts are as follows (including a little bit of background to set the stage):
- The FTX cryptocurrency exchange was founded in the Bahamas in 2019 by then 25-year-old Sam Bankman-Fried (aka SBF).
- As of 2021-2022, FTX was the third-largest crypto exchange platform (behind only Binance and Coinbase), with more than one million active users.
- FTX had a projected 2022 valuation of approximately $32 billion and even floated plans of acquiring rival exchange Coinbase.
- On November 9, CoinDesk ran an article exposing the fact that FTX “partner”/subsidiary Alameda Research had a large portion of its net worth tied up in FTX’s native FTT token.
- Binance CEO Changpeng Zhao (aka CZ) responded to this news by announcing the offloading of all Binance FTT holdings.
- FTX members immediately took note and moved to withdraw all their crypto from FTX in a so-called “bank run.”
- On November 10, FTX suspended all customer access/trading.
- Binance considered “saving” (i.e. buying out) the FTX business but then issued a tweet that the offer had been withdrawn.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
The “mishandled customer funds” and “alleged US agency investigations” regarding them have yet to be fully disclosed. Still, the community has the broad strokes more or less figured out.
Per The Wall Street Journal (archived here), that last bit above is what proved to be the nail in the coffin for FTX. Again, details are scant at the moment, but the operative bit is this (emphasis added):
“Crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange’s implosion, a person familiar with the matter said.
FTX Chief Executive Sam Bankman-Fried told an investor this week that Alameda owes FTX about $10 billion, the person said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, according to the person.
All in all, FTX had $16 billion in customer assets, according to the person, so FTX lent more than half of its customer funds to its sister company Alameda.”
So basically, what happened is this:
One of the world’s most prominent crypto exchanges stole its customers’ assets to fund various related operations and high-risk investments.
They got outed by an industry blog and a competing firm shrewdly initiated a “bank run.” That competing firm then publicly issued a retraction of its proposed bailout, accelerating said “bank run” and causing the exchange in question to effectively freeze all trades.
It is generally agreed upon that FTX had stolen approximately $10 billion from its customers, with at least $1 billion of that being unrecoverable. It is also agreed upon that the final tally of losses are sure to be much higher.
FTX founder Sam Bankman-Fried has apparently done a “Bankman run” himself, with recent flight logs indicating that SBF has legged it to Argentina.
Now, while Argentina has an extradition treaty with the United States, there are also adequate exceptions to provide shelter in this particular case. And while SBF has lost a purported 95% of his net worth, that still leaves him with something in the neighborhood of $500 million. He’ll be OK.
But if you trusted this guy and his exchange, you might not be.
Which brings us the entire point of this missive:
It’s Not The Exchange, It’s The Custodial Wallets
Whenever you buy crypto, the first thing you need to do (after immediately depositing the requisite portion into your online betting account) is move the rest of it into a private cryptocurrency wallet.
More to the point, that crypto wallet absolutely must be non-custodial in nature.
See, when you buy crypto at an exchange, that exchange will store your purchased assets in your exchange account. This is a “hot” crypto wallet, and it allows the service in question to have custody of your crypto keys.
That’s what makes these kinds of wallets “custodial.”
And as you can see, the problem with that is that your exchange can do whatever they wish with your funds without your knowledge. Obviously, most reputable exchanges won’t do that, but these scams are old hat by now.
And you don’t have to be caught up in them.
Sure, it’s best to always use a reputable exchange, but FTX seemed reputable right up until last week. Hindsight is 20/20, but nobody had good reason to suspect FTX more than any other prominent exchange.
Even worse, many of FTX’ burned users had plenty of good reason to keep their money in those FTX custodial wallets. This, after all, is the best, easiest, and most cost-effective way to facilitate day trading of your assets.
Exchanges aren’t just for buying in. They’re exchanges; they’re for exchanging.
But if you’re new to crypto – or just buying to invest and spend some of your haul to legally gamble online – you probably aren’t going to actively trade crypto immediately.
In fact, we’d strongly advise against that.
For the gambler in particular, the allure of big wins via day trading and swing trading might cause you to overextend yourself right out of the gate.
Hold your crypto for a while. Spend some of it to gamble online, but save the rest. Follow the market. Get a feel for how everything works. Bankroll management is the key not only to successful online gambling, but also to successful crypto investing.
Do This Every Time And Never Worry About Bank Runs Again
To make sure your funds are always safe, there’s basically just one rule:
Move your money into a private custodial cryptocurrency wallet ASAP.
There are countless options to choose from, and many of them make everything extremely simple.
For example, the Atomic Wallet app is a great option. It supports all the most popular coins and gives its users full custody of them.
There’s no risk: Even if Atomic Wallet were to cease to be, your crypto is stored on the blockchain itself and remains accessible as long as that crypto exists at all.
Different wallets offer different features (i.e. staking vs. non-staking wallets), and you can upgrade from software wallets to hardware wallets for added security.
But whatever you do – and whatever wallet you choose – make sure you actually choose one and move your funds over immediately.
Let this whole FTX debacle be a lesson to you, but don’t let it scare you off crypto.
Crypto is legit, even when a big exchange comes up craps. But you have to know what you’re doing.
