By Ankika Biswas and Johann M. Cherian
(Reuters) – The recent surge in bitcoin prices has crypto wallet recovery companies' phones 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 a blockchain and investors can choose to access their holdings through a locally stored software wallet or a hardware wallet, to avoid risks associated with owning cryptocurrencies with an exchange. , as in the case of the old FTX.
Losing access to a crypto wallet is a well-known problem. Investors forgetting their intricate passwords is a major 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 random words, known as “seed phrases”, for added security; both are known only to the user. If investors lose 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 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 portfolios. Six of them contacted a recovery services company 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 purely economics,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:).
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“People who lose their cryptocurrencies for one reason or another, or those who don't have access to their cryptocurrencies, are highly incentivized to get them back.”
The world's largest cryptocurrency has risen 161% over the past two quarters, on hopes of an interest rate cut by the US Federal Reserve and optimism around the launch of exchange-traded funds ( ETF) of spot bitcoins.
RISE IN RECOVERY APPLICATIONS
A Swiss-based company that uses Nvidia (NASDAQ:) graphics processing unit cards to run artificial intelligence models to access stranded wallets saw requests increase tenfold in the first quarter, compared to the same period of the previous year.
“We have seen an increase (in requests to unlock wallets) every time the price changes dramatically,” said a senior executive at the firm who did not want to be identified.
ReWallet, a Germany-based wallet recovery service provider, saw a 334% increase in requests in the previous quarter and saw a record number of requests in early March, when bitcoin prices hit an all-time high.
The firm estimates that around 20% of the total 19 million bitcoins in circulation, as of March 13, are likely idle and are now worth around $237 billion.
US-based Wallet Recovery Services saw a 30% increase in requests this year through mid-April.
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 are only paid upon recovery.
ATTEMPTS TO RECOVER INVESTORS' WALLETS
“I was just worried that I would no longer have access (to my wallet) and lose my bitcoins forever,” said one investor living in Germany, who asked not to be identified. “Of course, the high price of bitcoin was an incentive to finally address this.”
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Another Switzerland-based investor, who also requested anonymity, said: “I had secured the wallet with passphrases and couldn't remember them. I tried again and again and created several lists with possible alternatives, but unfortunately without success.”
Recounting ReWallet's recovery of his bitcoin holdings, now worth more than $300,000, he said: “It was an indescribably great feeling. I will be retiring in a year and a half and now feel financially well-positioned.”
Speaking about investors' struggles, Ralf Wintergerst, CEO 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 involve using multi-signature wallets or other decentralized recovery mechanisms to distribute responsibility and improve security.”
