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Thousands of crypto investors may never see their money again after exchange founder's death

QuadrigaCX granted creditor protection while it searches for $250M in cryptocurrency (CBC)
QuadrigaCX granted creditor protection while it searches for $250M in cryptocurrency (CBC)

Thousands of Bitcoin investors will likely be left holding the bag after a Nova Scotia judge granted QuadrigaCX, one of Canada’s biggest cryptocurrency exchanges, creditor protection on Tuesday.

Gerald Cotten, QuadrigaCX’s 30-year old co-founder, died suddenly in India due to complications from Crohn’s disease in December. The problem is, he apparently stashed around $180 million on digital wallets and didn’t share the passwords with anyone – not his business partners, and not even his wife.

“Despite repeated and diligent searches, I have not been able to find the passwords,” said widow Jennifer Robertson, according to court documents.

QuadrigaCX is safe from creditor lawsuits for 30 days while it tries to crack the code and come up with clients’ funds. Ernst & Young has been appointed to help manage the company’s finances during the process.

The exchange remains shuttered, leaving angry customers wondering when – or if – they will ever get their money.

Court documents show Cotten filed a will 12 days before his death. There is even some speculation – which has not been proven – that his death may be an elaborate scam designed to bilk investors out of hundreds of millions of dollars. At the very least, it’s a case of very poor estate planning.

Either way, it’s a black eye for an asset class struggling for legitimacy.

“We believe in the future of cryptocurrency, however we think that incidents like this hurt the growth and adoption,” Adam Goldman, President and Founder of cryptocurrency exchange Bitbuy, told Yahoo Finance Canada.

Regulators around the world are paying close to attention to the rise of cryptocurrencies like Bitcoin. Most purists want governments to keep their hands out of their digital wallets, but some think intervention is warranted.

“Many industry participants including Bitbuy operate with a forward-looking approach regarding regulation, and welcome more official guidance from the government,” says Goldman.

An uncertain future

QuadrigaCX customers have been trying to get their money back for months. Still, many remain undeterred and continue to trade cryptocurrencies. Goldman says thousands have migrated to Bitbuy.

QuadrigaCX’s future appears far from certain. It posted a message for customers on its site after the hearing.

“We are sure you have many questions. We are in the early stages of a long process and we do not have all the answers right now,” the post said.

“What we can tell you is that the CCAA process will allow QuadrigaCX to keep all options open to attempt to maximize the funds available for the company’s stakeholders.”

A motion for the appointment of representative counsel for the affected users of QuadrigaCX will be heard in the Supreme Court of Nova Scotia at 9:30 on Thursday, February 14.

Lack of regulation

Canadian Securities Administrators are urging Canadians to be cautious about investing in trading platforms through its awareness campaign. Cryptocurrency exchanges are not currently regulated, but CSA is working on a plan.

“We are currently working with IIROC to develop an appropriate regulatory framework for platforms trading crypto-assets that are securities/derivatives,” CSA told Yahoo Finance Canada.

“Additionally, we continue to work with firms that are operating crypto-asset trading platforms and that are required to be registered as dealers and/or recognized as marketplaces.”

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