Coinbase CEO speculates on QuadrigaCX exchange loss

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The recent QuadrigaCX exchange situation still lies in question as people wonder about further details. Coinbase cofounder and CEO, Brian Armstrong, recently provided some interesting thoughts. It is important note that Armstrong expressed multiple times that his conclusions on the matter are purely based on speculation and guesswork.

QuadrigaCX recap

On February 4th, Bloomberg reported on the QuadrigaCX exchange complication. The exchange’s CEO passed away in India back in December 2018. The deceased CEO, Gerald Cotten, held the access to about $145 million in the exchange’s crypto asset funds. No other staff reportedly had access to those funds.

According to Crytpo.IQ’s examination of the events, however, a few details did not appear to add up.

The outlet reported:

A death certificate was attached to the court document [QuadrigaCX’ court document], but it is not an official death certificate. It is a statement of death from a funeral home. QuadrigaCX users called the funeral home and did not receive an answer. The funeral home’s database did not have a record of Cotten’s death.”

Crypto.IQ also pointed toward several other oddities, including the timing of Cotten’s will preparation and his trip to India.

Case updates

A Coindesk article from February 12th detailed the exchange owed its customers about $190 million in crypto and fiat funds. Courts assigned Ernst & Young Inc. (EY) to monitor the case, according to a court monitor report.

The report included:

On February 6, 2019, Quadriga inadvertently transferred 103 bitcoins valued at approximately $468,675 to Quadriga cold wallets which the Company is currently unable to access. The Monitor is working with Management to retrieve this cryptocurrency from the various cold wallets, if possible.”

The court monitor report added that EY made preparations to send the remaining on-exchange crypto assets into cold storage, held under EY’s watch. Additionally, EY “identified and secured various Quadriga electronic devices reportedly owned or used by Mr. Cotten within the Quadriga operation,” such as laptops and cell phones, according to the report.

In a February 21st update, CoinDesk reported the mentioned funds were successfully sent to cold storage, according to information from a second court monitor report. The mentioned funds sent roughly equaled 51 bitcoin, 33 bitcoin cash, 2,032 bitcoin gold, 822 litecoin and 951 ether, the court monitor report stated.

Brian Armstrong’s take

On February 21, Coinbase cofounder and CEO Brian Armstrong hopped on Twitter to discuss some of his (and his team’s) speculatory findings. Armstrong stated that they conducted internal research, such as blockchain analytics for example, to gain further insight into the situation. He said:

We identified clusters that look like QCX’s ‘cold storage’, were controlled by a human (manually), and balances were moved out by early 2018; QCX was one of the oldest exchanges in existence (founded in 2013). If they planned an exit scam, it likely would have been timed better.”

Listing a Reddit source, Armstrong also included that QuadrigaCX suffered a major bug hit in June of 2017, costing the exchange millions of dollars. “This is when we start to see movement of funds to “cold storages,” Armstrong added. Looking at cold storage transaction trends, Armstrong speculated the exchange might have been struggling to stay above water, possibly trying to “trade their way out of a hole; (again just a guess here).”

He then suggested Quadriga may have lost its liquidity and felt the effects of the 2018 crypto bear market. Armstrong suspected the events may have been the result of poor management, followed by an attempt to camouflage it.

Continuing, Armstrong posited the mentioned information might imply that some of Quadriga’s staff knew the exchange potentially was insolvent. It true, Armstrong concluded the CEO’s death might have been an opportunity to let the Quadriga company go under. He additionally noted Quadriga faced customer asset withdrawal difficulties, dating back to the middle of 2018.

Concluding his thoughts, Armstrong said:

So maybe after about a month of debate (Dec – Jan), management decided to cut losses and release a statement claiming that access to money was lost with CEO’s death? […] While this story isn’t perfect, it does seem plausible. I do want to emphasize that these are our best guesses based on the available data. As the case unfolds we might find out we were incorrect.”

Some of the Twitter comments following Armstrong’s tweets expressed an important notion – not to jump to any conclusions and not to take the above as fact, but merely speculation, as Armstrong himself stated.

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