Q: FBTC is a covered security under Securities Investor Protection Corporation (SIPC) insurance. What about those investments with FTX? Did they have SIPC insurance?
Grok: To address your question about whether investments with FTX were covered by Securities Investor Protection Corporation (SIPC) insurance, let’s break it down.
SIPC insurance protects customers of SIPC-member brokerage firms against the loss of cash and securities (up to $500,000 total, including a $250,000 limit for cash) if the brokerage fails financially and customer assets are missing. This coverage applies to securities and cash held in brokerage accounts at SIPC-member firms, which are typically SEC-registered broker-dealers. However, SIPC does not cover losses due to market fluctuations, fraud, or investments in assets not considered securities under SIPC rules, such as unregistered digital assets.
Regarding FTX, the key points are:
FTX’s Structure and SIPC Membership: FTX was a cryptocurrency exchange, and its primary operations (e.g., FTX.com) were based outside the U.S., primarily in the Bahamas. Its U.S. arm, FTX.US, was a separate entity that operated as a crypto exchange and was registered with the SEC as a broker-dealer, which typically makes a firm eligible for SIPC membership. However, there is no definitive evidence from available sources confirming that FTX.US was a SIPC-member firm. Posts on X and web sources suggest FTX was not SIPC-insured, as it was not a traditional brokerage, and its primary business involved cryptocurrencies, which complicates the application of SIPC protection.
Nature of Assets on FTX: Most assets on FTX were cryptocurrencies, which SIPC explicitly does not protect unless they are registered with the SEC as securities. SIPC’s rules state that digital asset securities that are unregistered investment contracts are not covered, even if held by a SIPC-member firm. Since most cryptocurrencies traded on FTX (e.g., Bitcoin, Ethereum) were not registered securities, they would not qualify for SIPC protection, even if FTX.US were a SIPC member.
FTX Collapse and Customer Protections: When FTX collapsed in November 2022, it was not due to a typical brokerage failure but rather alleged mismanagement and fraud, as detailed in legal proceedings against its founder, Sam Bankman-Fried. SIPC protection does not apply to losses from fraud or mismanagement, only to missing assets in a financial liquidation of a SIPC-member firm. Additionally, FTX’s global operations and commingling of customer funds (as revealed in bankruptcy proceedings) further removed it from the scope of SIPC’s framework, which is U.S.-centric.
Comparison to FBTC: You mentioned FBTC (likely referring to Fidelity’s Bitcoin ETF or a similar product). If FBTC is a covered security (e.g., an ETF listed on a U.S. exchange and held through a SIPC-member brokerage), it would qualify for SIPC protection because it is a registered security. This is a key distinction from FTX’s offerings, where most assets were unregistered cryptocurrencies.
Sentiment from X Posts: Posts on X from 2022 and 2025 explicitly state that FTX was not SIPC-insured, contrasting it with traditional U.S. banks or brokerages that carry FDIC or SIPC protection. For example, one post noted, “If FTX was an FDIC or SIPC-insured entity, which all US banks and traditional brokerages are, the US government would guarantee the deposits... But FTX is neither of those.” These posts align with the understanding that FTX’s crypto-focused business model did not fit the traditional SIPC framework.
Conclusion: Investments with FTX, particularly cryptocurrencies, were almost certainly not covered by SIPC insurance. FTX’s primary operations were not structured as a traditional SIPC-member brokerage, and the assets (unregistered cryptocurrencies) were not eligible for SIPC protection. Even if FTX.US was a SIPC member, only cash or SEC-registered securities in customer accounts would have been covered, not the bulk of crypto assets. In contrast, a product like FBTC, if held through a SIPC-member brokerage, would be covered as a registered security.
