The recent surge in bitcoin prices has the phones at crypto wallet recovery firms ringing off the hook, as retail investors locked out of their digital vaults make frantic calls to regain access to their accounts.
Cryptocurrencies exist on a decentralized digital ledger known as blockchain and investors may opt to access their holdings either through a locally stored software wallet or a hardware wallet, to avoid risks related to owning crypto with an exchange, as in the case of the former FTX.
Losing access to a crypto wallet is a well-known problem. Investors forgetting their intricate passwords is a primary reason, but loss of access to two-factor authentication devices, unexpected shutdowns of cryptocurrency exchanges and cyberattacks are also common.
Wallet passwords are usually alphanumeric and the wallet provider also offers a set of randomized words, known as “seed phrases”, for additional security – both these are known only to the user. If investors lose the passwords and phrases, access to their wallets is cut off.
With bitcoin prices regaining traction since last October and hitting a record high of $73,803.25 in March, investors seem to be suffering from a classic case of FOMO, or the fear of missing out.
Reuters spoke to nearly a dozen retail investors who had lost access to their crypto wallets. Six of them contacted a recovery services firm and managed to regain access to their holdings.
“What would be driving this trend is the fact that bitcoin prices are at $60,000, not $30,000… it’s just pure economics,” said Steve Sosnick, chief strategist at Interactive Brokers.
“People who are missing their crypto for one reason or another, or those who don’t have access to their crypto, are very much incentivized to get it back.”
The world’s largest cryptocurrency has surged 161 per cent in the past two quarters, on hopes of a cut in interest rates by the US Federal Reserve and optimism around the launch of spot bitcoin exchange-traded funds (ETFs).
A Switzerland-based firm that uses Nvidia’s (NVDA.O) graphic processing unit cards to run artificial intelligence models to access stranded wallets saw requests jump tenfold in the first quarter, compared with the year-ago period.
“We have seen a spike (in requests to unlock wallets) every time the price changes dramatically,” said a top executive at the firm who did not want to be named.
ReWallet, a Germany-based wallet recovery services provider, saw a 334 per cent jump in requests in the previous quarter and logged a record-high number of requests in early March, when bitcoin prices touched an all-time peak.
The firm estimates that about 20 per cent of the total 19 million bitcoins in circulation, as of March 13, are likely inactive and now worth around $237 billion.
US-based Wallet Recovery Services saw a 30 per cent bump in requests this year as of mid-April.
Recovery services provided by firms do not come cheap. ReWallet and WRS charge a 20 per cent fee on the wallets’ contents, with the caveat being they get paid only upon retrieval.
“I was simply worried that I would no longer have access (to my wallet) and thus lose my bitcoins forever,” said an investor living in Germany, who declined to be named. “Of course, the high bitcoin price was an incentive to finally tackle this.”
Another Switzerland-based investor, who also requested anonymity, said, “I had secured the wallet with passphrases and couldn’t remember it. I tried again and again and created various lists with possible alternatives, but unfortunately without success.”
Recounting ReWallet’s retrieval of his bitcoin holdings, now worth over $300,000, he said, “It was an indescribably great feeling. I’m retiring in one-and-a-half years and I now feel financially well positioned.”
Speaking about investors’ struggles, Ralf Wintergerst, chief executive of German security technology firm Giesecke+Devrient said, “Looking ahead, there is a growing trend towards solutions that mitigate the key management problem inherent in self-custody.”
“This could entail the use of multi-signature wallets, or other decentralized recovery mechanisms to distribute responsibility and enhance security.”
