Bitcoin Fortunes Lost Due To Misplaced Passwords

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Bitcoin Fortunes Lost Due To Misplaced Passwords

Whitney Tilson’s email to investors discussing that misplaced passwords lock millionaires out of their bitcoin fortunes; man offers Newport council £50m if it helps find bitcoins in landfill; managing risk during the pandemic.

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Q4 2020 hedge fund letters, conferences and more

Misplaced Passwords Lock Millionaires Out Of Their Bitcoin Fortunes

1) In yesterday's e-mail, I shared an article that showed how the price of bitcoin was being massively inflated via a fraudulent cryptocurrency called "Tethers." If you need another reason to avoid bitcoin, consider these two articles about people who've lost fortunes because they forgot or misplaced the passwords to their digital wallets. What total bozos!

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It would be hard to find a better example of my No. 1 Immutable Law of the Universe: "If you are a dumba**, there will be consequences!" (This was the theme of the commencement address I gave at my alma mater, Eaglebrook School, in June 2016. You can watch it here – I'm proud to see that it has nearly 14,000 views – and read the transcript here.)

Here's the New York Times article: Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes. Excerpt:

Stefan Thomas, a German-born programmer living in San Francisco, has two guesses left to figure out a password that is worth, as of this week, about $220 million.

The password will let him unlock a small hard drive, known as an IronKey, which contains the private keys to a digital wallet that holds 7,002 Bitcoin. While the price of Bitcoin dropped sharply on Monday, it is still up more than 50% from just a month ago, when it passed its previous all-time high of around $20,000.

The problem is that Mr. Thomas years ago lost the paper where he wrote down the password for his IronKey, which gives users 10 guesses before it seizes up and encrypts its contents forever. He has since tried eight of his most commonly used password formulations – to no avail.

Man Offers Newport Council £50m If It Helps Find Bitcoins In Landfill

And here's The Guardian with an even crazier story out of the U.K.: Man offers Newport council £50m if it helps find bitcoins in landfill. Excerpt:

A computer engineer who claims he accidentally threw away a hard drive containing a virtual currency worth tens of millions of pounds has promised to give a local council a quarter of the fortune if they help him dig it out of a rubbish tip.

James Howells, 35, says the hard drive of his old laptop contains bitcoins worth about £200m but is languishing in a landfill site in Newport, south Wales.

Bloomberg columnist Matt Levine had this hilarious commentary:

Financial backing from a hedge fund! Imagine those pitch meetings, wandering around Mayfair trying to get hedge funds to agree to sift through acres of garbage to find some Bitcoins. "You'll want our special situations team." If anyone has a copy of his pitch deck for this trade, I need it desperately.

I assume it would lay out the plan for digging up the garbage, and the sources and uses of funds. There'd be a financial model showing that, even accounting for paying off the local council and discounting for the possibility that the hard drive has rotted away, you'll make at least a 30% expected return on your investment. There'd be a page on the capital structure and payment waterfall. You'd need a deep dive into the landfill's record-keeping system, with aerial maps showing the grid and schematic diagrams of the cross-section. Then a technical section on how you put a rusted garbage-covered hard drive into a computer to get the Bitcoins off of it. At the back of the deck you'd have a page on "The Team," with little pictures and bios of the guys who are going to dig up the garbage.

To be clear, these aren't isolated exceptions. In fact, according to the New York Times article:

Of the existing 18.5 million Bitcoin, around 20% – currently worth around $140 billion – appear to be in lost or otherwise stranded wallets, according to the cryptocurrency data firm Chainalysis. Wallet Recovery Services, a business that helps find lost digital keys, said it had gotten 70 requests a day from people who wanted help recovering their riches, three times the number of a month ago.

Managing Risk During The Pandemic

2) I've done a fair amount of traveling since the pandemic hit: three weeks in California in June to climb El Capitan in Yosemite (among many other peaks), two weeks in October outside Las Vegas rock climbing in the Red Rock Canyon Conservation Area, three weeks in Kenya visiting my family over the recent holidays, and the nine-day ski trip I'm currently on.

I suppose some would argue that, in taking these trips during a pandemic, I am being reckless and/or selfish.

I actually think carefully about all forms of risk... and I just added this section to the chapter entitled "Calamity No. 5: The Death, Serious Injury or Illness of Yourself or a Loved One" in my forthcoming book, The Art of Playing Defense:

Managing Risk During the Pandemic

As I write this in January 2021, the coronavirus pandemic is at its worst point ever, with over 130,000 Americans hospitalized and more than 4,000 dying every day.

Vaccinations are ramping up rapidly, however, so by the time you read this, it may be mostly behind us and life will have returned to normal (I hope!) – if so, feel free to skip ahead.

Some argue that because fewer than 20% of Americans who have died of COVID-19 are under age 65 – and most of these folks had comorbidities such as obesity, hypertension and/or diabetes – that young, reasonably healthy people don't need to worry about catching the virus because, even if they do, they likely won't have any symptoms or, at worst, will simply have a few days of feeling like they have the flu.

This is bad thinking (and risk management) for two reasons: First, there are many cases in which young healthy people suffer serious long-term consequences such as extreme fatigue, loss of taste and/or smell, and even heart damage. While it's not known how common these outcomes are, there's clearly a "fat tail" risk that simply doesn't exist for, say, the common flu.

More importantly, young people with the virus (especially asymptomatic ones who don't know they have it) can spread it, which keeps the pandemic raging – and, ultimately, infecting vulnerable people, many of whom become sick, have to be hospitalized, and even die.

So, no matter what your age and health, you should treat the virus very seriously and do your best to avoid getting (and spreading) it.

To do so, start by following the basic measures espoused by Dr. Anthony Fauci and the Centers for Disease Control and Prevention ("CDC"): Wear a mask, maintain social distancing, avoid crowds and poorly ventilated spaces, and wash your hands often.

These recommendations are obvious and, for most people, fairly easy to implement. I'm still able to meet up with friends, go jogging, and play tennis, for example – I just do all of these activities outdoors.

Unfortunately, however, the response to the pandemic has been politicized, which has led tens of millions of Americans to believe that it's nothing to worry about and/or a hoax and/or that wearing a mask is an unacceptable infringement on their freedom. This is madness!

Worse yet, tens of millions of Americans (likely many of the same folks) aren't planning to get vaccinated when they become eligible. According to Gallup's latest polling, 35% of Americans say they'd refuse an FDA-approved vaccine, even if it were offered at no cost. And, sadly, there's a huge partisan split: only 17% of Democrats versus 55% of Republicans would say no. I sure hope these surveys are wrong, because it would be a national tragedy if this terrible pandemic is prolonged by many months, accompanied by hundreds of thousands of incremental, unnecessary deaths, due to false information and conspiracy theories leading many folks to eschew a vaccination.

Even if you have the good sense to follow the basics, however, there are still a lot of tough decisions everyone has to make pretty much every day: do you take a ride in a friend's car? Outdoor tennis is probably safe, but what about indoors? Do you spend a holiday with your parents? The list of tricky questions is endless...

There are no blanket answers to these questions, as every person has a different risk tolerance, personal situation (age, health, interaction with vulnerable people), and environment (flare-ups in your area).

I tend to have a pretty high tolerance for risk, plus I don't have many risk factors: I'm not old yet (I'm 54), am in superb health, and – living on the Upper East Side of Manhattan – have access to the best doctors in the world. Thus, I've been willing to take risks that I wouldn't recommend to others, such as flying out West to go rock climbing last June and October and taking my family to Kenya to spend three weeks with my parents and sister over Christmas.

There is one area, however, in which I've recently changed my mind – and behavior. I'm a passionate pickup basketball player – pre-pandemic, I'd been playing two to three times a week for decades with a group of friends. That all came to a full stop last spring, when the pandemic walloped New York City.

But then the number of cases, hospitalizations, and deaths here plunged by more than 90%, so in the fall my friends and I played basketball a few times outdoors in Central Park. And then, in November and December, a dozen of us rented a gym and played for a couple of hours on Sunday nights.

This was probably the highest-risk thing I'd done since the start of the pandemic: It was indoors, we were all sweating and breathing hard, and we were right in each other's faces playing defense – with no masks. But I decided to take the risk because the virus was at such low levels in New York City.

However, when I came back from Kenya this month and the Sunday night games resumed, the environment had changed dramatically: Cases, hospitalizations, deaths, and the percentage of people testing positive had soared to six to 10 times above the levels at the beginning of November! Thus, even though I'd already paid for eight Sundays in January, February, and March, I decided to sit out until we all got vaccinated or the COVID-19 numbers fell by a lot.

This example underscores a key principle of risk management: It's not enough to identify risks and take steps to mitigate them on a one-time basis, up front. It's also important to monitor changing risk levels and, if necessary, make adjustments.

Best regards,

Whitney

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