I’d say you were a little late to the cryptocurrency party if you haven’t heard about the ongoing catastrophe that’s been QuadrigaCX these past six months.
QuadrigaCX was (note the past tense) Canada’s largest and most popular cryptocurrency exchange. During last year’s cryptocurrency craze, there were reportedly more than 350,000 registered users and a cool $190 million in Bitcoins and other currencies stored in the platform’s virtual wallets.
But then, in the blink of an eye, it was all gone.
On February 5th, 2019, visitors to the platform’s website were greeted with a message barring their entry and informing them that the company was applying for creditor protection.
All trading ceased. The hundred thousand plus users (and full disclosure: myself included) who had funds tied up in the platform were no longer able to access their accounts, make withdrawals or transfers.
What had started like any other day, ended in confusion and frustration. It was as QuadrigaCX had been suddenly folded up and tossed away, along with all our investments.
Maybe it was.
The reason for the sudden collapse came together sporadically from official (less official) sources, and most of it only reaching our ears later than it should have.
As the narrative making its rounds in the news goes, the CEO, Gerald Cotten, had died during a recent trip to India. For reasons that continue to be perplexing, Cotten was the only person who knew the location of and had access to the wallets containing the entirety of the funds traded over the platform.
Or at least that’s how the story goes.
A Cryptocurrency story that reads like a mystery thriller
Around the internet, more than a few avid researchers have spotted problems with this story. After all, it has all the ingredients for a good potboiler. A dead CEO. Missing funds. And a shady company trying to hide the news for nearly a month from its users before letting the proverbial cat out of the bag.
One of the main theories floating around is that Cotten faked his own death. Normally, stories like this whiff of conspiracy theories, but in this case, proponents point to plenty of possible evidence.
For one, if Cotten faked his death, it was conveniently timed when he was overseas — and in a country notorious for providing illegitimate yet official documents for the right price.
There was also a recent marriage and a last-minute will.
And never mind that Crohn’s Disease — the official cause of death — is rarely fatal among young men (he was 30 years old).
Others have taken their suspicions in a different direction, wondering whether the money was ever even there in the first place.
Researchers have recently called attention to the less than perfect practices going on behind the scenes from the get-go, suggesting that QuadrigaCX might have been nothing more than a get rich quick exit strategy.
The strongest of this theory is that when the wallets assumed to be holding over 26,000 Bitcoins were finally recovered, they were found to be empty. All the user funds purported to be inside them had been moved out some months before Cotten’s death.
QuadrigaCX has since been unable to explain why.
In response, cryptocurrency exchange Kraken recently offered a $100,000 reward to any information that could lead to the missing bitcoins. However, no one’s come forward with any information worthy of the reward so far.
So where do things stand with QuadrigaCX and the missing funds?
Ultimately, there are too many unanswered questions to know how this tragedy will play out.
Instead, a better question we could be asking ourselves at this juncture is what lessons has the world of learned about cryptocurrency trading? A few come to mind.
First, the exchanges set up to trade cryptocurrencies can be as volatile as the currencies themselves.
While there are certainly exchanges that appear to be on more solid footing that QuadrigaCX was, this wasn’t the first such incident. Mt. Gox collapsed in 2014 after thieves made off with hundreds of thousands of Bitcoins. Many coins have since been recovered, but the details of returning them to their owners have yet to be sorted out at this point.
Second, be wary of any startup where too much power lies in the hands of a single individual.
In the case of QuadrigaCX, the company was designed to collapse without Cotten’s involvement. This is particular grievous, given that even Eugene Rochko, the “Benevolent Dictator for Life” running social media platform Mastodon, has planted contingencies in the off-chance that he “gets his by a bus.”
Third, all users and investors should pay attention to early warning signs. It’s easy to get caught up in the excitement and bubble and suppose that hints of trouble were simply ripples passing under the boat.
In the case of QuadrigaCX, there were clear signals that not all was well, even before the collapse. For months, users reported longer than expected delays in withdrawing their funds. Others were unable to do so at all, even after multiple attempts.
Ultimately, the greatest part of the fiasco was Cotten’s approach to management. Apart from leaving no contingencies, one member of a law firm that worked with QuadrigaCX described him in the following manner:
“Mr. Cotten solely took over QuadrigaCX and operated the exchange as if it had no investors, no shareholders, no regulatory agencies and no law that applied to it — no corporate law, no securities law, no anti-money-laundering law and no contract law.”
That’s not the kind of description you want to read about a CEO of any company.
Of course, too few of us read the signs. I certainly brushed them off and even pooled currencies from other platforms onto QuadrigaCX not long before it went bust, because in spite of things, as a Canadian, I felt comfortable trading my coins through a Canadian exchange.
The future for users of QuadrigaCX?
All that’s left for us at this point is to keep waiting. There’s been promises of action, but months of inaction.
Who knows, maybe in the ongoing mystery-filled afterlife of QuadrigaCX, things will become truly worthy of a novelization. Cotten will return back from the dead and resurrect his platform, or perhaps he was never really gone and is now living on some tropical.
For the rest of us, there’s the long, grueling process of “wait-and-see.”