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Wallet recovery firms are abuzz as stranded cryptocurrency investors panic in the bitcoin boom
By Ankika Biswas and Johann M Cherian
(Reuters) – The recent surge in bitcoin prices has put crypto wallet recovery firms on the phones, 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 a blockchain, and investors can choose to access their holdings via a locally stored software wallet or a hardware wallet, to avoid the risks of owning cryptocurrencies with an exchange, as is the case with ex FTX.
Losing access to a crypto wallet is a well-known problem. Investors forgetting their complex passwords is one of the main reasons, but loss of access to two-factor authentication devices, unexpected closures of cryptocurrency exchanges, and cyberattacks are also common.
Wallet passwords are usually alphanumeric, and the wallet provider also offers a series of random words, known as “seed phrases”, for additional security – both are known only to the user. If investors lose passwords and phrases, access to their wallets is cut off.
With bitcoin prices recovering since last October and reaching a record high of $73,803.25 in March, investors appear 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 company and managed to regain access to their assets.
“What could 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 cryptocurrencies for one reason or another, or those who don’t have access to their cryptocurrencies, are very incentivized to get them back.”
The world’s largest cryptocurrency has risen 161% over the past two quarters, thanks to hopes of an interest rate cut by the US Federal Reserve and optimism over the launch of bitcoin spot Exchange Traded Funds (ETFs).
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BOOM IN RECOVERY REQUESTS
A Switzerland-based company that uses Nvidia’s graphics processing unit cards to run artificial intelligence models to access locked wallets saw requests increase tenfold in the first quarter, compared to the same period a year ago .
“We have noticed a spike (in requests to unlock wallets) whenever the price changes dramatically,” said a senior company executive who wished to remain anonymous.
ReWallet, a Germany-based wallet recovery provider, reported a 334% increase in requests in the previous quarter and reported a record number of requests in early March, when bitcoin prices hit an all-time high .
The firm estimates that about 20% of the total 19 million bitcoins in circulation, as of March 13, are likely dormant and are now worth about $237 billion.
US-based Wallet Recovery Services has seen a 30% increase in requests this year since mid-April.
The recovery services provided by companies are not cheap. ReWallet and WRS charge a 20% fee on the contents of the wallets, with the caveat that they only get paid upon recovery.
ATTEMPTS TO RECOVER THE INVESTORS’ PORTFOLIO
“I was simply worried that I would no longer have access (to my wallet) and thus lose my bitcoins forever,” said one German-based investor, who wished to remain anonymous. “Of course, the high price of bitcoin was an incentive to finally address this issue.”
Another Swiss-based investor, who asked to remain anonymous, said: “I had protected the wallet with passphrase and couldn’t remember it. I tried several times and created various lists with possible alternatives, but unfortunately without success.”
Recounting ReWallet’s recovery of his bitcoin holdings, now worth over $300,000, he said: “It was an indescribably good feeling. I’m retiring in a year and a half and now I feel well positioned financially.”
Speaking about investors’ woes, Ralf Wintergerst, CEO of German security technology company Giesecke+Devrient, said: “Looking ahead, there is a growing trend towards solutions that mitigate the key management problem inherent in self-custody “. “This could involve the use of multi-signature wallets or other decentralized recovery mechanisms to distribute responsibility and improve security.”
(Reporting by Ankika Biswas and Johann M Cherian in Bangalore; Editing by Pooja Desai)