Hundreds of millions gone missing affecting 115,000 clients
The country’s most widely used crytocurrency trading platform, QuadrigaCX, recently filed for creditor protection as it had lost access to nearly $200 million in Bitcoin and other cryptocurrencies. Altogether including Canadian cash, the company owes $250 million in assets to its 115,000 customers. Jeebus! 😮
According to statements from his family last month, Quadriga’s 30 year old CEO, Gerry Cotton allegedly died suddenly in December due to complications of Crohn’s disease while traveling in India. Cotten’s wife, Jennifer Robertson, claims her husband was the only person with access to the company’s cold wallets. Cold wallets are similar to savings accounts, used for storing and accumulating currency. On the other hand hot wallets are like checking accounts, used for frequent transactions. People who hold cryptocurrencies often have both. Hot wallets are connected to the internet and are used to facilitate transactions. Quadriga has some of its clients money in hot wallets for liquidity purposes, like when someone wants to withdraw funds. But it keeps most of the assets offline in cold storage, to avoid hacking.
Cotten basically ran the exchange on his encrypted laptop. He was the sole person responsible for transactions between the company’s hot and cold wallets. And apparently only he knew the passwords and recovery keys to access the cold wallets.
Court documents revealed the company had been recently facing liquidity problems. The website went offline at the end of January and clients can no longer log in to their accounts. Currently the only content on the site quadrigacx.com is a letter from the company.
Unfortunately any attempts at trying to access Cotten’s laptop to retrieve the keys to the wallets haven’t been successful. But in the latest twist of this unusual story, last week Ernst and Young (EY), the monitor of the QuadrigaCX case, stated that an additional sum of Bitcoin had disappeared from the company. This is because QuadrigaCX “inadvertently” transferred $468,675 worth of Bitcoin to cold wallets controlled by CEO Gerald Cotten, who is supposed to be dead.
Be Cautious
As many of you know QuadrigaCX was the exchange I used to trade cryptocurrencies in the past. I bought some Bitcoin and Ethereum in 2017, but decided to sell it all by mid 2018 because I had decided a bear market was coming and I wanted to lock in my 300% profits. 🙂 I’m one of the lucky people who took out all my gains before the website seized operations. But others still have assets worth 6 or 7 figures that are frozen with the exchange and may never be retrieved. 🙁
The movement of nearly half a million dollars into wallets that the company is unable to access seem a bit suspicious to me. That’s like a bank wiring its customers’ deposits to another institution without their consent. That’s not normal business practice. Cotten was only married for 1 month before kicking the bucket. He also signed his will just 11 days before he died. He left behind $9.6 million of personal wealth to his widow, Jennifer. This windfall includes multiple properties such as a large home in Kelowna BC, and a sailboat. It looks like she can be FI and retire early. 😀 And get this – there’s even a plan in place to provide $100,000 to help Jennifer’s parents cover the costs of caring for their pet Chihuahuas, Nitro and Gully. Lol. But as generous as Cotten was, he apparently just didn’t have the foresight to make a plan to look after his customers if something were to happen to him.
The takeaway for me is to always do your best to understand the risks before putting money in harm’s way. If you’re going to invest/speculate in highly unregulated digital markets make sure to keep most of your assets offline. Fully accept that there’s a chance you could lose everything. Don’t rely on your online account for security. Exchanges can be hacked such as the time when $450 million worth of Bitcoin was stolen from Mt. Gox. For a long term storage solution, invest in a quality hardware wallet with a screen such as a Ledger Nano. As for the QuadrigaCX case, we’ll just have to wait and see how things unfold as questions are answered over time.
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Random Useless Fact:
it aaaaaaalmost seems like it was on purpose, something smells fishy in my un-professional opinion
The whole situation sounds like the start of an amusing plot for a dramatic Hollywood crime film. 🙂
As the saying goes, sometimes it is better to be lucky than smart
That’s certainly I feel right now. I also like the original adage, “it’s better to be lucky than good.” I’m not very good at timing the markets, but it just so happened that I was in the right market at the right time.
What I’ve learned is that the old investment philosophy of buy and hold is only true for asset classes that have a long history of positive performance over time. The longer the asset has been around, the more likely adopting a buy and hold strategy will work. That’s why blue chip stocks and prime real estate are fantastic buy and hold investments. But other asset classes such as Bitcoin and marijuana stocks are still in relatively young industries so it might be better to use other strategies when trying to make money from those assets.
[…] found a good price to get back into it. The other problem is the exchange I used to buy BTC and ETH went bankrupt and lost all their client’s money. Luckily I got out before all that happened. I think the […]