A universal truth about market bubbles is that they’re masters of disguise. Each new bubble appears different enough, on the surface, to lure new investors. While market bubbles are almost as old as the market itself, the latest example—centered around the cryptocurrency exchange FTX—is particularly impressive. At this point, no one is 100% sure what happened, but this is what we know so far:

Back in 2017, a 25-year-old MIT graduate named Sam Bankman-Fried started a hedge fund to trade cryptocurrencies. He called it Alameda Research. A few years later, Bankman-Fried started another business, a cryptocurrency exchange, FTX. For a while, everything seemed to be going very well.

After just two years in business, FTX reached $1 billion in revenue. In early 2022, FTX raised hundreds of millions from blue-chip venture capital firms, bringing its total funding to $2 billion. From there, its star kept rising. It signed a sponsorship deal for an NBA arena. It brought on Tom Brady and Gisele Bundchen to promote its products. And it received lavish praise in print and from its investors. At its peak, the company was valued at $32 billion, making Bankman-Fried a multi-billionaire.

But a few weeks ago, trouble started. In early November, some of FTX’s financial information was leaked to the public. Soon after, another crypto firm called Binance—spooked, apparently, by what it saw in FTX’s numbers—announced that it was liquidating its holdings in a cryptocurrency called FTT. While not widely known, FTT is FTX’s own cryptocurrency.

Binance’s announcement caused an immediate loss of faith in FTX. Investors reasoned that if Binance—a knowledgeable industry player—was worried about FTX, then everybody else should be too. Almost overnight, FTX customers lined up to withdraw their funds.

Warren Buffett likes to say that when the tide goes out, you find out who isn’t wearing a bathing suit. That’s precisely what happened to FTX. When customers asked to withdraw their funds, it became clear that FTX was many billions of dollars short.

Where did the customers’ funds go? A fair amount, it appears, was shifted over—without authorization—to Alameda, Bankman-Fried’s hedge fund, which lost most or all of it. According to a court filing this week, large amounts were also loaned out to FTX’s leaders. Bankman-Fried received a $1 billion loan. Another employee received $500 million.

Despite the company’s roster of sophisticated investors, including Sequoia Capital, the court filing states that FTX never held board meetings. It lacked audited financials. It couldn’t even produce a reliable list of employees. You might wonder how this could happen.

As I said, bubbles are masters of disguise. But they often draw from the same playbook. Here are four ways in which FTX succeeded in fooling so many.

Investor endorsements. Before the bankruptcy, Sequoia Capital had on its website a description of FTX and its founder that was so excessively complimentary that it’s hard to believe it was serious. (The original has been taken down, but an archive is still available.) Taking a different angle, investor and “Shark Tank” star Kevin O’Leary went on record describing why he was comfortable as an FTX shareholder: “He has two parents who are compliance lawyers. If there’s ever a place that I could be that I’m not going to get in trouble, it’s going to be at FTX.”

Media endorsements. Just a few months ago, Fortune magazine ran a story on FTX. On the cover was a picture of Bankman-Fried with a headline that read “The Next Warren Buffett?” And later this month, Bankman-Fried was slated to speak at a New York Times conference alongside the president of Amazon, the mayor of New York and the secretary of the Treasury, among others.

Celebrity endorsements. With its mountain of venture capital, FTX was able to buy endorsements from notable celebrities. In addition to Brady and Bundchen, there was Steph Curry, Shaquille O’Neal and Larry David. The company spent heavily on ads in magazines like Vanity Fair and Vogue. In one, Bundchen appears alongside a quote reading “I’m in on FTX because we share a passion for creating positive change.”

Hero worship. Everything about Bankman-Fried communicated genius and success and helped to reinforce that long list of endorsements. He had graduated from MIT. Both of his parents are on the law school faculty at Stanford. He showed up pretty much everywhere in a t-shirt and shorts, with a hair style reminiscent of Einstein’s. And of course he was one of the world’s youngest billionaires. Adding to this aura, Bankman-Fried donated tens of millions to charitable causes and to political candidates. All of this seemed to fit with his casual style. He didn’t look like a thief. To the contrary, he looked like a do-gooder.

With this playbook, FTX ultimately drew in more than a million investors. Whether it was a fraud or just incompetence—or some of each—what’s clear is that this bubble was very well disguised. So how could investors have seen through it? More importantly, how can we spot the next FTX? While each market bubble looks different, I suggest asking these five questions:

Can you understand it? Does an investment appear overly complicated? This is probably the easiest litmus test to apply. Things that are complicated aren’t necessarily a problem. The challenge, though, is that it makes it hard to tell the difference. And if you don’t know what you’re buying, it’s probably best to stand clear. This, by the way, would have saved many of Bernie Madoff’s victims. His purported strategy sounded complicated, and those who asked questions were rebuffed.

Is it transparent? When you own a straightforward investment, like a stock or a bond or a mutual fund, the structure is clear. With FTX, it was the opposite. For starters, the company was based in the Bahamas, far from the reach of U.S. regulators. That anomaly alone should have been enough to give investors pause.

Does it have a track record? Some investments are complicated and lack transparency, but at least they have track records. That wasn’t the case with FTX. It was basically brand new, operating offshore, and trading in asset classes—if you can call them that—that were also new and untested. Here’s how one writeup described FTT, which was FTX’s “house brand” cryptocurrency: “Even if FTX created more FTT tokens, it would not drive down the coin’s value because these coins never made it onto the open market. As a result, these tokens held their market value, allowing Alameda to borrow against them – essentially receiving free money to trade with.”

Are critics dismissed as old fogeys? For years, Warren Buffett and his partner, Charlie Munger, among others, have been critical of cryptocurrency. Buffett’s primary criticism, which I share, is that they lack intrinsic value. Munger has called bitcoin “stupid and evil.” As cryptocurrencies gained greater acceptance, and their prices rose, however, Buffett and Munger appeared out of step. They were dismissed as old guys who “didn’t get it.” This is another red flag that tends to be consistent from bubble to bubble. It occurred back in the 1990s as well. When traditional investors criticized money-losing technology companies, they too were dismissed as being behind the times. But of course, they were right.

Can it be shorted easily? A friend who is a business school professor provided this insight: When investors are able to take short positions in speculative investments—that is, to bet that their prices will go down—that helps to keep prices in check. Without that downward pressure, it’s much easier for prices to keep rising. While it’s possible to short many cryptocurrencies, it isn’t easy. That’s why, for example, it was termed “the greatest trade ever” when just a small handful of investors figured out how to short housing prices during the bubble leading up to 2008. If housing prices had been easier to short, more people would have done it, and that would have helped keep prices from rising as high as they did.