Check Out this Backdoor Cryptocurrency Hack
Imagine owning hundreds of millions of dollars worth of Bitcoin, the vanguard in the world of cryptocurrency. All you need is a password to open your online wallet to riches.
You sit at your computer ready to access your money, and the machine responds, "incorrect log-in."
Oh my god, did I forget my password? Where's that slip of paper. I know I have it here somewhere.
You try again, knowing that the rules of Bitcoin wallets allow only 10 attempts to log-in. After that, your fortune is lost.
That very real scenario is playing out for many investors that have participated in Bitcoin's evolution from the renegade currency of the black markets to a seemingly legitimate alternative to printed money today.
Imagine the horror!
The idea behind cryptocurrency is a network of computers controlled by a complex software algorithm, allowing anyone to open a digital bank account free from government reach and regulation.
The algorithm allows account holders to have a private key or password. The rub is: forget the password, and you are out of luck; there is no "click here if you've forgotten your password" tab. Forget your password, and your bitcoins are gone.
Most of the Bitcoin owners facing this dilemma were early pioneers in the currency, back when it had little value. They will suffer now as the values accumulated are often material if they don't remember their passcodes.
According to Chainanalysis, a cryptocurrency data firm, of the existing 18.5 million Bitcoin in circulation today, some 20% appear to be lost or in wallets stranded by those who have lost their passwords. At today's prices, that amounts to approximately $140 billion in lost riches.
Indeed, one can lose printed money, but it's unlikely that lost wallets could ever lead to total losses of that size.
In the world of cryptocurrency, Bitcoin has established itself as the leader, and its price has zoomed to record highs. As of mid-January, 1-Bitcoin was valued at approximately $36,000, according to Yahoo Finance.
It's been one heckuva run. In late November, Bitcoin traded for around $18,000. That's a double or 100% appreciation in less than two months. That's on top of a six-month similar gain that brought the digital currency to the $18,000 level.
That may seem nonsensical, but cryptocurrencies are gaining legitimacy, and that helps fuel the gains.
Hedge fund managers like Ray Dalio of Bridgewater recently went on record stating that Bitcoin established itself as a gold-like asset class. Paul Tudor Jones goes even further, suggesting that buying Bitcoin today is like getting in on Google in the early days.
One feature of Bitcoin helping move prices higher is the limits on its supply. The algorithm for Bitcoin caps the number of coins available to 21 million. With the current number available to trade just below that number today, there won't be much supply coming to the market unless the algorithm is changed.
The recent spike in its price may be investors betting that demand will continue to grow. With supply capped, growing demand would support higher prices.
If indeed Bitcoin is a real alternative to gold, current macro conditions would seem favorable to bitcoin's value. In light of the massive money printing that has gone on this past year, it would be easy to see how inflationary pressures might build.
With bitcoins limited supply, it would fare well relative to other currencies if inflation rises.
So what is the backdoor hack to Bitcoin?
Bitcoin still represents the wild, wild west. True acceptance by central banks across the globe is a distant dream. Translation: there is still a ton of risk associated with this nascent, new currency.
For those interested in acquiring exposure to Bitcoin, there are numerous options. Some of those options are more expensive than others. One interesting way to get that exposure is by owning a stock that used its balance sheet to acquire Bitcoins.
Small business payment processing pioneer Square is one such company. On October 8, 2020, Square announced it had invested $50 million to acquire 4,709 Bitcoins. The company stated, "Bitcoin has the potential to be a more ubiquitous currency in the future."
Square founder, Jack Dorsey, is a big believer in Bitcoin. In 2018 he commented that bitcoin could become the single currency of the planet within a decade.
Whether in response to that acquisition of Bitcoins or merely riding the wave of a rising market, Square shares gained another $40 since that October 8 announcement.
If you are interested in learning more about how Square could be an exciting backdoor hack to Bitcoin, please give me a call. We would love to chat with you about cryptocurrency and more!