Gerald Should Have Shared His Password

You remember Bitcoin, right? The flashy cryptocurrency that no one understood but everyone was talking about in 2017? It hasn’t been making as much noise lately, mostly due to the fact that the price has fallen from a high of nearly $20,000 per bitcoin to less than $3,500 over the past 14 months.

Well, it’s back in the news again, but this time it has nothing to do with price, investment potential or an opportunity for the average person to actually make use of it.

On January 15th, it was revealed that a gentleman named Gerald Cotten passed away on December 9th in India from complications stemming from Crohn’s disease. His passing might have gone unnoticed were it not for the fact that he was founder and sole employee of a cryptocurrency exchange that held over $125M of investor funds in various cryptocurrencies, mostly Bitcoin. Unfortunately, it seems Mr. Cotten was the only person able to access the funds, which is a massive problem. Without the password to his computer and the “recovery key” for the digital funds, $125M of other people’s money is locked up tight with no way to get to it, at least for now.

It’s a fascinating story on many levels, not the least of which is the rumors that have popped up over the last few days that Mr. Cotten may have faked his own death.

It’s also a cautionary tale.

The lessons we can learn are many. First, this is a prime example of the need for, and benefits of, proper regulation. Cryptocurrencies are still quite new and largely unregulated. Second, it speaks to the risks of investing in a largely unmapped landscape. How many of Mr. Cotten’s clients were even aware this kind of risk existed? Third, and most importantly, it highlights the risk of having a single point of failure.

A perfect example of this is me and my family. My wife stays home to raise our two kids, Jack and Gwen. Monday through Friday, I take a nine-hour vacation at the office while she stays home and does the hard work. As the sole provider, what happens if I can’t work?

Another example is holding too much of one stock, as Jared has written about before. This specific risk is compounded if the stock also happens to be the company you work for.

One principle we constantly preach is having margin, or flexibility, when it comes to your finances. When we’re creating a financial plan, it’s usually an ideal. “If everything goes exactly according to plan…” which it never does. The last thing you want is a brittle financial plan that can be undone by one unfortunate, and unplanned for, event.

That’s why it’s crucial to have another set of eyes review your finances. It’s why, as we’re creating plans for our clients, we spend time auditing them. “Geoff, what am I missing here? “Jared, tell me what you see that I don’t.” We want to ensure we’re accounting for any risks, any single points of failure.

Our hope is that all our clients’ financial plans will go exactly as planned. The reality, of course, is that many of them won’t.

That’s why we plan.

Author Ryan Smith, CFP®, RICP®

More posts by Ryan Smith, CFP®, RICP®

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