Virtual Currency

Crypto’s Greatest Risk: Investor Carelessness

I’ll wager you’ve misplaced a dollar or two.

No matter how eagle-eyed you may be on your daily inflows or outflows, at some point in your life, you’ve lost some money.

And I don’t mean a stock or some other investment that went against you.

I mean “POOF!” – physical money was gone. Lost lost. Carried away by the wind… tumbled unnoticed out of a pants pocket or purse… destroyed in the laundry… simply vanished into the ether.

It’s frustrating, no doubt.

But in the majority of cases, the amount lost is negligible. Its bearing on your financial future is moot. You may suffer a quiet moment of embarrassment and exasperation, but you’re not losing sleep.

Heck, you might even get a funny story out of it.

But that’s not always the case.

Unfortunately for a man named Stefan Thomas, he didn’t lose just $5 or $10…

He’s lost a fortune.

But he’s not alone. As cryptocurrency continues to go mainstream, this growing issue highlights the flaws and features of the asset class.

“I’m a Complete Idiot.”

There’s a gold mine waiting to be unlocked.

On an encrypted IronKey flash drive is 7,002 Bitcoin. This is Stefan Thomas’ hoard of gold.

For a decade it’s sat trapped, waiting for the right key.

All Thomas has to do is enter his password, and the $315 million in Bitcoin is his.

That’s a winning-the-Powerball kind of payday.

The problem is Thomas can’t remember the password. For 10 years, he’s watched his unreachable fortune grow from $100,000 to hundreds of millions of dollars.

“I’m a complete idiot,” the German Bitcoin trader told The Sun.

He has 10 chances to guess his password before the IronKey locks itself permanently. He’s already used eight.

The funny thing is… this isn’t uncommon.

In fact, it’s estimated roughly 3.7 million Bitcoin are stranded or lost forever. That’s 20% of the current 18.5 million supply.

Now, we know Bitcoin is designed to be finite. There are only 21 million coins in existence. And due to the regimented reward halving every four years, more than a century from now, in 2140, the last Bitcoin will be mined.

But that total supply will never be in circulation. Already, of 18.5 million Bitcoin that have been mined, a little less than 15 million are available. And more and more Bitcoin are lost each and every day (which has given rise to a cottage recovery industry).

The important question is this: What impact does this carelessness have on crypto’s price?

As Flexible as Fiats

The value of the U.S. dollar isn’t impacted every time you misplace a George Washington or even a Benjamin Franklin. Nor is Bitcoin’s value impacted every time a stash of coins is lost forever, stranded in the digital darkness of an inaccessible wallet.

The technology that cryptocurrency is built upon – the blockchain – is designed to be solid, impenetrable and unable to be hacked.

This is what makes cryptocurrencies unique as well as flexible.

On the surface, these millions of lost Bitcoin seem like they’d create a shortfall… and maybe, one day, they will.

But even though there is a finite number of Bitcoin, each “coin” can be broken into minute, fractional pieces. Keep in mind that every Bitcoin is made up of 100,000,000 “satoshis.” That allows every token to be divided up to eight decimal places.

So even though one Bitcoin is worth around $50,000 today, you can purchase 1,000 satoshis for a little more than $0.50.

And I think that makes Bitcoin – and all cryptocurrencies – that much more attractive.

For investors, the asset’s biggest security risk isn’t cybercriminals or the volatility. It’s their own carelessness.

How often have you been locked out of an account because you forgot the password?

We live in a world dominated by a growing list of apps, services and websites that we log in to. And then there are the devices we need to access them. They require passcodes themselves.

Now, for a bank account, Venmo account or trading account, if we forget our password or login, it’s easy enough to reset. A few clicks of a mouse, a verification email or text later, and we’re back in.

For IronKeys (encrypted flash drives) and other cold storage wallets, it’s not so easy.

And there are thousands of crypto traders – including IT professionals – who are guilty of poor password management and can attest to that.

I believe every investor should have exposure to cryptocurrencies.

Bitcoin is the best-performing asset of the past decade, outperforming the Nasdaq 100 by nearly tenfold.

How could you not want a piece of that?

That’s a return every person striving for financial independence wants a part of. But you have to be smart. You can’t be careless with your digital wallet, just as you wouldn’t be with your physical wallet.

And don’t worry if you don’t want to take on the risk of opening a crypto account or the stress of protecting and securing cold storage.

There are more traditional paths to cryptocurrency market exposure – like crypto small caps – that offer all the upside without the headaches and hassles of digital wallet management.

Here’s to high returns,

Matthew

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