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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

February 4, 2019 | Kleptocurrency

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

“I was one of the lucky few,” says Ian, “who made a significant amount of money from Bitcoin.  I thought I would share a story with you about the process of getting money out of that system.”

You bet. Ian’s story is compelling. Getting lucky on a speculative flyer like Bitcoin is one thing. Actually prying your cash out is something else. The crypto world is unregulated, uneven, dangerous and populated by clowns and cowboys. The incredible mess with a BC digital exchange underscores it.

“I had used a Canadian company named QuadrigaCX to purchase Bitcoins in early 2017.  It was a fairly simple process to get my money in and buy.  Transaction fees were at a near abusive level, 1% round-trip for a transaction, and a couple percent for deposits.

“I cashed out in early 2018 and unfortunately for me, did not do any new due diligence on QuadrigaCX before transferring my Bitcoins into my account.  It turns out QuadrigaCX had been cut off from the Canadian financial system, and some of their international partners were getting shut down.  People were waiting months to see any money from them, and like the two-bit operation they were, they had no real customer service or even a storefront people could find.”

Ian was smart, and used Toronto-based Coinsquare to collect at least part of his funds.

“Finding out a six figure transaction may not complete and that the company I was dealing with could be going bankrupt or stealing funds was a huge eye opener to me about this ‘industry’.  It took me weeks to finalize the selling process from my initial thoughts of selling to receiving funds in my account, and I lost tens of thousands due to delays, fees, and additional transaction costs that need not have occurred had this been on the straight and narrow.  The stress was huge.  It taught me two valuable lessons – don’t trust companies that don’t have a storefront or people manning the phones (obvious in hindsight), and just because you have dealt with a company in the past does not mean they are the same reputable company today.”

It gets worse.

QuadrigaCX founder, sole director and officer Gerry Cotton died a few weeks ago in India, of Crohn’s disease. He was but 30. And secretive. Cotton took $180 million worth of Bitcoin belonging to 100,000 clients (like Ian) and placed them in an offline ‘cold wallet’ (so it could not be hacked) on an encrypted laptop.

Bitcoin are irretrievable if a password is lost. Since the cryptocurrency exists only as a digital file, with nothing backing it – no deposit insurance or investor protection fund coverage – it just goes pffft. And Gerry didn’t tell anyone. Not even his spouse, Jennifer Roberston, of Halifax.  In a court filing a few days ago she stated: “The laptop computer from which Gerry carried out the Companies’ business is encrypted, and I do not know the password or recovery key. Despite repeated and diligent searches, I have not been able to find them written down anywhere.”

More troubles. QuadrigaCX is also embroiled in legal wrangling with third-party partners, tying up an additional $50 million in coin. It has now filed for creditor protection, casting into doubt if any of its 115,000 customers will ever see a penny of their money.

“I do believe distributed technology has its uses,” says Ian, “but it is far less developed then I had thought, and I am glad to be done with it for now.”

What happened to this exchange’s clients is both incredible and unsurprising. The very thing that attracted so many to digital ‘currencies’ – freedom from the control of central banks, governments, corporations and regulators – is precisely why they’re failing, and now constitute the biggest bubble-collapse in financial history. The gamblers, the ignorant and the naïve among us are being slaughtered. And they have no recourse.

Meanwhile bitcoin continues to limp towards zero.

 

It’s not money. Or currency. Bitcoin isn’t an efficient medium of exchange. It cannot compete with credit card transactions. It’s no storehouse of value, having lost 80% in a year. And, as Ian discovered and Gerry Cotton proved, it can turn illiquid. Or just disappear into a laptop in Nova Scotia. Finally, it’s not an investment asset I would own nor ever, ever, ever, ever put in a client portfolio.

Finally, shame on the BC Securities Commission, like the OSC and every other regulator in Canada, plus the SEC in the States, for allowing outfits like Quadriga to survive and thrive. Our world does not need less regulation. It begs more. Except for blogs.

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February 4th, 2019

Posted In: The Greater Fool

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