Nick’s Note: Earlier this month, world-renowned cryptocurrency expert Teeka Tiwari told me about the strange case of a Canadian cryptocurrency exchange that filed for bankruptcy after the death of its owner. Some account holders have most likely lost their entire life savings.
Today, Teeka’s right-hand man, Crypto Income Quarterly chief analyst Greg Wilson, shows you three steps to avoid the same fate…
By Greg Wilson, chief analyst, Crypto Income Quarterly
Imagine waking up one day to find $422,000 in life savings gone.
That’s exactly what happened to Tong Zou, a 30-year-old software engineer from Vancouver… He got caught up in the bankruptcy of a leading Canadian cryptocurrency exchange.
It’s a story so unbelievable, you might think it’s a movie plot. But unfortunately for Zou and over 115,000 other account holders on the exchange, it’s very real.
In today’s essay, I’ll tell you the background of this story—and more importantly, show you how to easily avoid the same mistakes made by Zou and the thousands of other victims involved in this case…
A Tragic Death or A Conspiracy?
If you follow cryptocurrency news, then you’ve probably heard about QuadrigaCX.
Last month, the company filed for creditor protection. It reportedly owes its customers over $190 million in cryptocurrency and fiat.
The story surged into the media limelight in mid-January, following the death of founder and CEO Gerald Cotten. And the circumstances surrounding his untimely end are strange indeed…
Cotten died in India while on a trip to open a local orphanage. The “official” cause of death is complications from Crohn’s disease. But what’s strange about his passing is that it occurred in Jaipur—home to what is known as India’s “fake death certificate mafia.”
He also happened to get married and set up a will only about a month before his death. And he decided to travel despite the company’s financial troubles.
You can’t make any of this up… On top of Cotten’s tragic death, his wife, Jennifer Robertson, announced she didn’t have the private keys to Cotten’s accounts.
Without those private keys, it may be impossible to recover the funds held by the exchange. So customers like Zou are likely facing a 100% loss.
And with the company now facing bankruptcy, it’s an all-out battle amongst creditors to get anything back.
But looking back, the warning signs were all there…
A Classic Exit Scam?
QuadrigaCX experienced “withdrawal issues” dating back to October 2018. A month later, a Canadian court took control of C$26 million worth of the exchange’s funds due to provenance issues.
And just before Cotten’s death, investigators discovered that nearly $1 million worth of ether had been moved from the exchange. This begs the question: Did somebody know something?
As if that isn’t enough, many are still wondering whether Gerald Cotten is really dead—or if the whole story is just a massive exit scam (when the founders of a company run off with investors’ money).
The evidence surely suggests that could be the case with QuadrigaCX…
In 2017, Cotten’s wife changed her last name from Griffith to Robertson. And reports later surfaced that exchange cofounder Michael Patryn changed his name, too. He used to be known as Omar Dhanani and was previously convicted of fraud.
Crypto research firm ProofofResearch discovered the exchange never set up cold wallets to safely store its customers’ funds.
And even after filing for creditor protection, QuadrigaCX transferred $370,800 in bitcoin to one of Cotten’s wallets. The company called the transfer “inadvertent.”
So is this an exit scam? No one knows for sure.
But here’s the thing… You shouldn’t have to worry about any of this—or let it deter you from buying cryptocurrencies. In fact, there are three simple steps you can take to avoid a situation like this…
Three Steps to Secure Your Cryptocurrency
Before I get to the steps you need to take, let me go over Zou’s biggest mistake: He put his entire life savings on a crypto exchange.
The case of QuadrigaCX is exactly why we recommend you don’t hold large amounts of your crypto assets on exchanges.
When possible, you should keep most of your assets in their respective wallets. These are software or hardware devices that store the private keys you use to access your crypto funds.
And here are three simple tips to secure your crypto:
Review how much you hold on exchanges. If it’s too much, move your funds to a wallet that’s in your control. How much is too much? If you’re losing sleep worrying about your funds, it’s too much. That’s why we suggest you hold no more than 5% of your crypto funds on exchanges.
Make sure you’re using small, uniform position sizes. There’s no reason to bet the farm on one pick. We generally recommend $200–400 per position for small investors, and $500–1,000 for larger investors.
Develop a routine for safely storing your private keys and passphrases. For example, you can make a physical copy of your private key address and put it in a safety deposit box. Then, make two digital encrypted copies, storing one in the cloud and the other on an encrypted flash drive.
If you’re a Palm Beach Confidential subscriber, you can click here to access our Crypto Corner. It contains comprehensive instructions on how to safely buy, store, and transfer cryptocurrencies—including how to do so with our recommended wallets and exchanges.
If you’re not a subscriber, you can download our basic cryptocurrency quick start guide here.
Chief Analyst, Crypto Income Quarterly
P.S. Despite 2018’s crypto bear market, this is an asset class on the rise. And while the “crypto winter” is thawing, Teeka and I have found a way for you to generate income from small cryptos as we wait for the next big move up.
You see, we’ve uncovered a group of crypto investors who were making money every week… It didn’t matter if the market was up, down, or sideways—this group always had income coming in.
Readers take opposing stances on world-renowned cryptocurrency expert Teeka Tiwari’s interview about JPMorgan’s new “crypto”…
From Edward J.: Hi, Teeka and Nick. I love your interview on JPMorgan CEO Jamie Dimon’s hypocrisy over cryptocurrencies. The SEC and FBI should investigate him.
I feel this is a conspiracy, and Dimon’s not to be trusted. I can image how much money he’s made based on his negative campaigning against cryptos, and then creating a JPMorgan “coin.” How can anyone do business with JPMorgan?
From Jerry S.: Bitcoin is the biggest fraud ever perpetuated against the world! It’s electronic “nothing” backed by nothing more than imagination. It has no potential.
Gold and silver have actual value. If there’s a worldwide electromagnetic pulse that cuts off everyone’s power, it would be the end to the fairytale trading of cryptos. I will never be interested in imaginary money.
And another reader is critical of government attempts to regulate wages…
From Terry M.: It’s obvious that Bernie Sanders, AOC, and Marco Rubio have no idea how companies work. If you raise pay for employees at the lower end of the wage scale—to $15 per hour, for example—then you must raise the pay of every other employee by a similar percentage. The end result will be higher costs for goods and services… and then we’re right back where we started.
Do you have questions for our editors about the issues of the day? Or maybe you have your own stories to share. Send them to us right here…
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