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The Biggest Bitcoin Hacks and Thefts of All Time

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The story of bitcoin’s biggest hacks and thefts is the story of bitcoin itself. From its early days and its first hack, to the biggest theft of all time, bitcoin’s utopian promises often turned into a dystopian reality where scammers, thieves, unaccountable and often amateur exchanges, some, even fully anonymous, proliferated in a wild west of euphoria and hope for a new future combined with devastating, and at times, tragic loss.

It is estimated 10% to 20%, if not more, of all bitcoin in existence is held by criminals who exploited distrust in governments and their laws to give themselves freedom from any accountability whatsoever. Code is law so theft is right in some quarters, so much so that some argue the thief, in fact, is to be hailed as the smartest of them all. Moral rules should not apply, according to some, instead the free market and self-interest will magically provide the best exchanges. When things go wrong, it is always the victim’s fault.

For your pleasure, entertainment, and hopefully some information, I present below the wall of shame, starting with a less obvious and perhaps incorrect choice for the repugnant honor of the biggest bitcoin hack and theft of all time.

Bitcoin’s Defining Event – MT Gox’s Hack in 2011

As the world was looking for an answer to the banks going under, bitcoin rose on the promise of no more boom and bust, no fractional reserve money printing, cheap if not free and fast if not instant global transactions. Price skyrocketed from pennies to around $12 with general opinion, while overall balanced, mainly positive and moving towards considering bitcoin as the next big thing. Then…

Jed McCaleb, founder of Ripple (publicly announced he was to sell around one billion of them crashing the price to less than pennies) who then found Stellar (a Ripple like currency), created MT Gox to trade Magic the Gathering Cards sometime in 2010, but adapted the exchange for bitcoin trading and sold it to Mark Karpeles in March 2011.

The details of the sale are not fully known, except that McCaleb was entitled to audit MT Gox to ensure he receives part of the profits for six months or so after the sale. That auditing account was allegedly hacked in June 2011 with the hacker selling around 500,000 bitcoins, sending the price to pennies.

Hacking

This is probably the most defining event in bitcoin’s history for the digital currency was, for the first time, shown to be insecure and easily stolen. Coders and the general public dismissed the new currency as unworkable. Wired called it dead. Almost everyone left with bitcoin price going down and down, but some remained – ancaps (and we assume some techies) – who saw an opportunity to turn bitcoin into a vehicle for mainstream acceptance of ancap ideology (while the techies, now very much a minority, of course just liked the tech bit).

It is at this point, just six months after Nakamoto left (the bitcoin creator), where bitcoin stopped being primarily a technology and became more of an ideology. The focus shifted from cheaper, faster, to a metaphorical Trojan horse that somehow was to bring down governments and banks in a utopia where we all will live happily ever after.

What followed next is probably nature’s way of teaching those who proclaim universal laws, while undertaking as good as no analysis, how they are, just, wrong.

The Biggest Theft in the World – MT Gox 2014

When people found out bitcoin was somehow still around and not forgotten to a dusty archive page for there was still the technology aspect which offered cheap, fast, permissionless, trustless, programmable money, they flocked once more in early 2013, not least because a guy went around reddit giving away hundreds of thousands worth of bitcoin, amazing everyone. Euphoria, once more, was in the air, with price up and up every day. China came, Overstock, Dell, Microsoft, even Times Inc. Then…

As bitcoin reached gold parity with an all-time high of around $1,200, MT Gox, the biggest bitcoin exchange, announced bankruptcy. Almost one million bitcoin, worth at the time more than $700 million, were stolen, creating a new meme, the Bitcoin CEO – a gruesome reminder of the people who were driven to suicide by this tragic event.

MT Gox claimed at the time hackers had exploited a bug in bitcoin’s protocol called transaction malleability which allows coders to change transaction ids, making it possible to, in effect, double spend. Mark Karpeles, the CEO of MT Gox, was not fully lying. An academic study found hackers had indeed stolen from MT Gox by exploiting transaction malleability, but only 2,000 bitcoins, an insignificant amount compared to the overall theft.

Mark Karpeles, out on bail in 2016.

Mark Karpeles, out on bail in 2016. Image courtesy: news24

What happened to the rest we don’t know. 200,000 was found through blockchain analysis, forcing MT Gox to release the assets to the bankruptcy trustee, leaving 650,000 unaccounted. Speculation abounds. There were reports Karpeles, who was arrested and imprisoned last year, recently released, presumably awaiting trial, was spendthrift. The main theory, however, focused on 2011.

A report of MT Gox’s internal transactions, which were leaked, shows bitcoins started missing, if not all of them disappeared, around June-November 2011:

500,000 Bitcoin Held in MT Gox Suddenly Go Missing Around 2011 and 2012

500,000 Bitcoin Held in MT Gox Suddenly Go Missing Around 2011 and 2012 Image Credit Wizsec

New reports state at least 80,000 bitcoins were never there to begin with, suggesting, quite ironically, that it was a fractional reserve from the start.

With a probable trial of Karpeles around the corner, we’re likely to hear more, periodically, about the biggest theft in the world, but many have now moved on, except the creditors who, after almost three years, are still waiting for the distribution of 200,000 bitcoins, worth around $120 million, which should, at this point, happen soon… ish.

Bitfinex – The Faceless Exchange

People woke up last month to hear Bitfinex had a “security breach” which led to the theft of around $70 million. Bitcoin’s price instantly fell by around $200, to then almost instantly recover, somehow, with the theft now as good as not reflected in the price at all.

After more than a month and a half we still have no idea what happened at Bitfinex. They instructed a company no one heard of, Ledger Labs, to investigate, but although you’d think the company would shout from the rooftop that they are so awesome others entrust them with investigating one of the biggest theft in the world, their blog and twitter is very much silent which makes us wonder whether the company is a one-man show contracting out to very, very, busy big names.

As far as we know, there has been no third party confirmation of a hack or theft, so like the previous two, it remains an alleged “security breach”. Zane Tackett, former customer services representative at OKcoin, currently wearing a nicer title as Director of Community & Product Development at Bitfinex, stated they reported the theft to FBI, the world famous criminal investigations authority, which is mainly concerned with domestic matters while Bitfinex is based in…

boat-hong-kong

Well, we don’t really know. Their Hong Kong registered address belongs to a company that specializes in providing a local presence. There is no office as such and it’s not really clear who the directors are either or whether these people even exist.

However, the incident has also been reported to “European authorities,” according to Tackett, which is far more specific than the number of their general loss of 36.067% of total assets. Many bitfinex customers, however, are happy they instantly received 63.933% back of their own money, rather than having to go through a three or four yearlong bankruptcy process. For the remaining 36.067%, BFX IOU tokens from a bankrupt company were issued and an amazingly accurate 1.1812% was recently redeemed.

Bitstamp

Bitstamp gained goodwill by being the only alternative to MT Gox, increasing its market-share while Gox went under. Unlike the previous two, they list their personnel, but although they state they are “The First Nationally Licensed Bitcoin Exchange,” their page doesn’t provide much information, such as license numbers.

However, you can now insta-buy at Bitstamp with a debit or credit card, so we don’t have much reason to disbelieve their claim, but they lost some trust when they were hacked out of around $5 million in 2015.

The theft seems to have been a sophisticated attack, with phishing emails targeting bitstamp’s personnel. However, as the theft was limited to just hot wallets, they were able to fully cover it, leading to no direct customer losses.

Poloniex

Poloniex has risen as one of the biggest altcoin exchange with trading volumes of 100,000 btc or more in just one coin on one day. However, no one really knows who they are – they have no about us page – and of course they are not regulated, so it’s probably a disaster waiting to happen.

Furthermore, their team hasn’t really shown much competence. On March the 4th 2014, someone stole 12.3% of their btc (two decimal points are impossible in this space I’m afraid), which at the time was a pretty small amount as almost no one had heard of them. The way they stole them is by, apparently, just clicking withdraw more than once. An easy oversight because, as everyone knows, you can’t really prevent double spending in a centralized database (you can), that’s why we have bitcoin (it’s not).

He just covered the loss, presumably so that we can trust his exploited exchange, and that’s exactly what happened with the faceless exchange now controlling hundreds of millions.

BTC-E

The anonymous Russian exchange makes you wonder whether it is more trustworthy than even regulated exchanges or whether they will run with your money in the next few seconds.

No one really knows much about them, but their team doesn’t seem very competent as they had all their data stolen this month and in 2012 they had about 5k btc stolen:

“On July 31, 2012, the BTC-E Liberty Reserve API secret key was broken. This key was shorter than it needed to be at only 16 characters long. The attacker initiated many Liberty Reserve deposits and injected large amounts of USD into the system, which were quickly sold for BTC.”

It wasn’t much at the time, so we assume they covered the losses, but people keep reporting losses from the data breach which we doubt they’ll cover.

BitcoinTalk

It doesn’t really feel like bitcoin without some occasional news about bitcointalk being hacked. Amazingly, people still go there with around 4,000 online if their stats are to be trusted.

The most recent hack in May 2015. How did it happen? Who knows, they hardly communicate anything and it’s doubtful anyone even looks after the website which has not changed in years.

Its current owner, Michael Marquardt (aka Theymos), who was just gifted the forum by Nakamoto, raised millions in dollars’ worth of bitcoin for a less hackable site a few years ago, but web development takes time, a lot of time, years in fact (it doesn’t).

One Billion Bitcoin Out of Thin Air

Many like to say bitcoin, the protocol, was never hacked, but it was and very early on. Some clever unknown guy found on August the 6th 2010 an exploit which allowed him to “print” one billion coins or however much he liked – 184 billion.

Jeff Garzik sounded the alarm while Nakamoto solved the problem by hard forking. It is the only known instance of protocol exploitation as far as we know – thankfully at a time of no hardfork phobia – if you exclude transaction malleability. Hopefully it stays that way.

Evolution

We can’t have a bitcoin biggest hacks list without some inclusion of drug markets. There have been many, with most taking the form of exist scams since operators are anonymous, therefore they don’t need bother with any made up hacking story.

The biggest, I think, is SheepMarket and Evolution. The latter is a bit more interesting because someone came out stating that evolution’s admins, a fairly big marketplace where you could buy drugs with bitcoin, were exit scamming. Apparently, 120,000 bitcoins were stolen, around $70million.

Mt Gox 2013

This is another not really a hack, but deserves mention because it shows a different sort of hack, a hack of human nature – specifically, a hacking of emotions.

As bitcoin was rising to $260, MT Gox, at the time practically the only bitcoin exchange, froze and went offline. Euphoria quickly gave way to panic and fear with r/bitcoin having almost everyone online. The selloff was brutal, but $50 held and bitcoin (or willy the bot) went on to $1,200 a few months later.

MT Gox was DDOSed, claiming at the time it was a victim of its own success with apparently millions of accounts registering. In response, people left, with other exchanges gaining market share, but MT Gox still had almost a million bitcoin when it went under.

How, is anyone’s guess, with the obvious explanation being that people are lazy, so they just park their bitcoin somewhere and don’t want to bother any further, raising some interesting questions about the extreme end of the free market and just how easily trust and power can be given and abused.

Lessons Learned

It is amazing that five years after bitcoin’s biggest weakness – security – was revealed, which bitcoin barely survived, little if anything seems to have been done to address this very important – if not the most important – matter as shown by the occurrence of one of the biggest theft just last month.

Although segwit is now addressing transaction malleability, the loss it caused was far too small with the main issue seemingly being at a human, rather than protocol, level. However, there are way too many more things that can be done at the protocol level, such as Bitcoin Vaults, but for some reason, they are not even being considered for implementation.

bitcoin-bboard

At the social level, what is obvious and does not need mentioning (although some, amazingly, dispute it) is that individuals who handle our money should be public figures with their full background on display for otherwise they cannot be held accountable. Lacking such accountability, hundreds of millions, understandably, is far too tempting as we have often seen.

An equally important point is that bitcoin security is very hard. Exchanges, in particular, require highly experienced developers who are fully familiar with the bitcoin protocol, the many aspects of exchange coding and how to secure hard digital assets for, to truly secure bitcoin, exchanges need layers and layers amounting to metaphorical armed guards defending iron gates with vaults deep underground behind a thousand doors.

My biggest criticism is however reserved for CFTC because, although there is little that can be done about some incompetents putting up a website, CFTC can, should and must provide an alternative and allow, in my view as a matter of urgency, professional exchanges such as GDAX and Gemini and others, to provide margin and future trading.

Of course the culprits – the thieves, hackers, scammers and amateurs – have the repugnant honor of primary blame, but CFTC holds an almost equal level of blame for they are denying the people the right to flock and trade at professional exchanges which comply with the law and have their USD balances FDIC insured with some even having insurance for hacks or theft with incompetent websites, therefore, ignored and one hopes, eventually, becoming a thing of the past.

Although we are talking about abstract numbers and entities with bitcoin, even after almost eight years, still being something very new, every theft has a human tragedy at the other end. Fathers losing all their savings, mothers left with no retirement, entrepreneurs sent to bankruptcy, young industrious men sent back to nothing. We can of course criticize them and repeat that this space remains incredibly high risk, you might and perhaps will lose everything, but mistakes are made, people naturally dream of a better, richer, future, while traders and some entrepreneurs have no choice at all.

It is crucial, therefore, that my inevitable question of who is next to be hacked of millions finds no answer, at least for a decade, but alas, looking around at exchanges – Poloniex, Bitfinex, OKcoin, Houbi and others – and the lack of choice of professional exchanges, that is, unfortunately, unlikely.

Images from Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3 Comments

3 Comments

  1. sherifX

    September 20, 2016 at 12:35 pm

    You didn’t mention the most recent, and probably one of the biggest hacks: “Hash Ocean”, a cloud mining outfit that suddenly closed shop and ran away with millions worth of bitcoins last summer 🙁
    And as if this was not enough, they opened again under a new name “Hash Poke” [Grrrr]. It is painfully obvious that Hash Poke IS indeed Hash Ocean. Unfortunately not many people seem to notice this. Sad

    • Samburaj Das

      September 20, 2016 at 3:27 pm

      Thanks for letting us know! We’ll be looking into this incident and will include it in the article if it’s deserving of a place, after gathering the facts!

  2. ECGUY

    September 20, 2016 at 3:00 pm

    Respect those that attempt to navigate our new worlds and risk all doing it.
    However, more true than not: Explorers get slaughtered, settlers get rich.

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Analysis

Crypto Update: Monday Selloff Drags Majors Lower

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The cryptocurrency continues to show mixed short-term signs following last week’s Ethereum-led bounce, and the subsequent consolidation. Today, all of the majors sold off after the US open, triggering downgrades in our trend model, but the two largest coins, barely, retained their short-term buy signals, holding up above key support levels.

Ethereum remained north of $200, while Bitcoin is still above the $6275 level, but the total value of the market is back at $195 billion as BTC failed to gain ground during last week’s rebound, and as several coins failed to join the move. The odds of a failed rally got higher after today’s selloff, and the move still only qualifies as a counter-trend one, with the long-term downtrends being in no danger in most cases.

XMR/USD, 4-Hour Chart Analysis

Monro, which has been the third major on a short-term buy signal, is also still positive in our model, despite bouncing lower off the $120-$125 resistance zone and getting close to testing the $108 support level. The coin is now trading slightly below the rising short-term trendline and it would need to show strength quickly to retain stay on a buy signal. Further support is found near $100, while key long-term resistance is ahead at $150.

ETH/USD, 4-Hour Chart Analysis

Ethereum fell back to the $200-$205 support zone today, and the coin is trying to establish a swing low, following the initial rally of its 15-month low. Despite the pullback, ETH is still on a short-term buy signal, but given the segment-wide long-term weakness, traders should still not enter full positions. A sustained move below $200 would warn of a test of the lows and a possible new leg lower, with strong resistance still ahead at $235 and $260 and with further support found at $180.

Market Still Lacking Sustained Strength

BTC/USD, 4-Hour Chart Analysis

Bitcoin fell back to $6275 again after failing to show bullish momentum last week, and although BTC is still trading with relatively low volatility, well above the crucial support zone near $5850, the recent days are not positive for crypto-bulls. A sustained move below primary support would warn of a test of the weaker support near $6000 and a likely move to the key long-term zone, with resistance levels now ahead at $6500, $6750, and $7000.

XRP/USDT, 4-Hour Chart Analysis

Ripple’s weakness is also a warning sign for bulls, as the third largest coin not just failed to join the rally last week, but it turned lower today, threatening with another move towards the August lows. XRP is still trading within its short-term range, and it remains on a neutral short-term signal, but further weakness could quickly trigger a sell signal. Support below $0.26 is found near $0.23, while resistance is ahead at $0.30, $0.3130, and $0.32.

EOS/USD, 4-Hour Chart Analysis

EOS also remained weak during the recent altcoin bounce and now it is back on a short-term sell signal after dipping lower together with the broader market, plunging below $5 yet again. Now, a test of the August lows and a move to $4 is once again the most likely, with only the support between $4.55 and $4.65 found above the August low, while strong resistance is ahead between $5.35 and $5.55.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 347 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Bitcoin

Bitcoin Price Stable Near $6,500; Path of Least Resistance Higher

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Bitcoin’s price traded within a narrow range on Monday after failing to make new highs over the weekend, a sign that the bulls were dialing back their optimism of an imminent breakout. However, the technical charts suggest that slow and steady upside is the path of least resistance in the short term, barring any new cases of market manipulation.

BTC/USD Update

Bitcoin is currently trading at $6,477 on Bitfinex, where it was virtually unchanged compared with 24 hours ago. The price reached a high of $6,543.30 earlier in the session. Trading volumes on Bitfinex and all exchanges have declined sharply over the weekend. As of Monday, bitcoin’s 24-hour volumes were $3.4 billion.

A look at the moving averages suggests bitcoin is poised to continue higher in the short term. BTC crossed the 50-day moving average last week and is now targeting the longer-term MAs. What’s more, the 100-day moving average is fast approaching the longer-term 200-day MA.

At current values, bitcoin is capitalized at $112.2 billion, according to CoinMarketCap.

Trading in the broader cryptocurrency market was equally tepid on Monday. Total trade volumes across all cryptocurrencies and exchanges reached $10.5 billion, according to latest available data. The total market is currently valued at $202.8 billion. The majority of coins in the top-ten have posted narrow gains compared with Sunday.

XBT Issuer Doubles Down on Cryptos

The yearlong downturn in bitcoin has not deterred Sweden’s leading crypto issuer from doubling down on the market. The Stockholm-based XBT Provider AB is planning to launch a new exchange-traded product (ETP) that tracks a basket of up to ten cryptocurrencies. The product, which will be available this year, will provide blended exposure to some of the world’s leading cryptocurrencies.

In an interview with Bloomberg, company CEO Laurent Kssis said a blended ETP is “something that the market is looking for. They are telling us ‘I’d just like blended exposure to 5 or 10’ cryptocurrencies.”

XBT has been offering crypto exchange-traded products since 2015. After finding initial success in Sweden, XBT’s products entered the U.S. market last month. However, the Securities and Exchange Commission (SEC) quickly suspended trading of the Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF) over investor confusion.

In a statement after the SEC’s decision, the company said the suspension “relates only to trading in the Unites States, does not apply to trading on the listing market – Nasdaq Stockholm, and does not relate to any action taken or failed to be taken by XBT Provider AB.”

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 601 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Altcoins

Good Crypto News: What It All Means

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It was another one of those weeks.  Crypto prices hit rock bottom around $186 billion. Goldman Sachs backs away from it plans to offer a crypto trading desk.  Vitalik Buterin tells Bloomberg how little he thinks of Ethereum. Technical analysts give us little hope for getting bullish anytime soon.

But that was before The New York Department of Financial Services approved Gemini and Paxo cryptocurrency exchanges. Both GUSD and PAX are based on the Ethereum ERC-20 token and backed by physical dollars custodied in FDIC-insured U.S. bank accounts. This insulates investors for whatever else may be rocking the wider crypto market. This development alone is a step forward for investors and regulators.

The most negative news of the week appeared in a Forbes article, written by Pawel Kuskowski titled: “How To Stop Ether Going To Zero: Defusing The ‘Difficulty Bomb’.  The negative slant of the title alone reflects the mindset of the crypto market these days.  It hard to expect anything else with the market having lost a tidy $600 billion in value this year.

Pawel’s strength is his ability to spell out a core unknown to Ethereum’s immediate future. That is if ETH developers will solve the much talked about Difficulty Bomb with modifying Proof of Work or moving to Proof of Stake.  This is hardly a new issue but Pawel does a solid job explaining how either choice still produces uncertainty. As for the price of ETH, uncertainty is no friend.

So the question becomes simply this.  If Vitalik Buterin and his group fail to solve the Difficulty Bomb and ETH goes to zero, won’t this produce a similar result on virtually every other ERC-20 token built on the Ethereum platform?  The answer is so apparent that is makes you want to liquidate your investment position even at current depressed levels.

Unfortunately, there is no immediate answer to this riddle. That doesn’t mean that we should cut and run from crypto. Let’s take some of this week’s developments and apply the principles of a reasonable person.

The Sun Still Shines

And now for something that lends hope that the crypto world is not coming to and end.

On a purely technical note, Hacked.com’s Greg Thomson documented a $1 billion trade influx in the five days up to September 13th producing a tidy little bump of 23% in the price of ETH.

On a more fundamental point comes the word that the big Wall Street investment bank, Morgan Stanley is building a Bitcoin swap trading product.  The key feature here is that the new product will create so called synthetic exposure to the price of Bitcoin.

Just how this will function remains to be seen but the implications both for individual and institutional investors is promising.  The ability to create a security that addresses the custody issue for institutions and protects parties from loss from hackers is a real value added proposition.

According to CCN, Morgan Stanley is one of several major Wall Street firms that even includes Jamie Dimon CEO of JP Morgan Chase.

So what does all this focus on Bitcoin have to do with the rest of the crypto market? Moreover, what does any of this have to do with solving the Difficulty Bomb? Simply put, the answer is money or more precisely, the expected return on investment.

Each of these Wall Street firms has some serious money behind these decision to commit capital and human resources to crypto currencies. Their initial interest may be in Bitcoin, but it would be foolish to assume that it is limited to a single coin in a multi billion asset class.

So it is important to assume that these folks have done their homework and have gotten comfortable with the many short term uncertainties of the current crypto marketplace.  Apparently their crystal ball can read beyond some of the recent negative price action.  This may not entirely remove the uncertainty, but it is good to be in the company of smart money.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 104 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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