Bitcoin’s Run-up: Opportunity or Risk? A Cybersecurity Perspective

At the time of writing, Bitcoin has surpassed a value of $95,000 per token. This rapid run-up has driven a renewed focus on Bitcoin and other cryptocurrencies, with crypto-fans being inspired by visions of enormous profit potential while hoping that decentralized currencies could become primary forms of payment.

The extraordinary attention may prompt investors to consider adding cryptocurrencies to their portfolios. However, the cryptocurrency world comes with significant risks from a cybersecurity perspective that investors should be aware of. This article explores the recent Bitcoin hype, outlines the cyber-risks associated with cryptocurrency, and offers tips on how to protect yourself from scams and cyber-threats. Coldstream does not currently recommend cryptocurrency investments; however, we are providing this informational piece to empower our clients with information so they can make educated investment decisions.

Bitcoin: Then and Now

Bitcoin, the world’s first well-known cryptocurrency, has captivated investors since its launch in 2009. Originally intended to serve as a secure peer-to-peer electronic cash system, it was quickly seized upon by speculators. Named the best investment of the year by Forbes in 2013 and the worst investment of the year by Bloomberg in 2014[1], it and other digital currencies have been the source of controversy and debate in the investment world. Most recently, the SEC approval of Bitcoin ETFs in January 2024 and Ethereum ETFs in July 2024 has lent an air of legitimacy to cryptocurrency trading and investing.

The recent surge of Bitcoin to over $95,000 per token has fueled a fresh round of interest as new investors look to seize upon perceived opportunities. Prominent figures in finance and technology, alongside extensive media coverage, have amplified Bitcoin’s appeal. However, as excitement builds, so too does the potential for risky behaviors and overreliance on hype rather than due diligence.

Cybersecurity Risks and Scams in the Cryptocurrency Market

Cryptocurrencies like Bitcoin come with a unique set of risks compared to traditional investments due to their nature as digital assets and their decentralized framework. The cryptocurrency ecosystem remains largely unregulated, which has enabled various frauds, such as those based on social engineering and wallet takeovers. Here’s an overview of key risks every investor should be aware of:

1. Phishing and Social Engineering

• • Bad actors will fake websites, emails, and social media profiles to impersonate legitimate exchanges or wallet providers. These phishing attacks lure investors into revealing private keys or personal information. Phishing scams often target those who are new to the crypto space, capitalizing on their unfamiliarity with security practices.

2. Fake Investment Opportunities

• • As Bitcoin’s price soars, scammers are increasingly promoting fake “investment platforms” or “high-yield crypto investment programs.” These schemes promise quick, substantial returns with little risk, often resembling Ponzi schemes. Once funds are transferred, investors quickly find their assets have disappeared. There is generally no recourse in these situations.

3. Impersonation and Pump-and-Dump Schemes

• • Scammers will frequently impersonate well-known financial experts or celebrities to convince individuals to invest in new cryptocurrencies or “crypto projects” that are part of pump-and-dump schemes. Please see our communication discussing a variation of this scam that impersonated Coldstream employees. The price of assets is artificially increased as investors buy in, and then once the price reaches the levels the scammers are looking for, they exit their positions, leaving their investors with worthless assets.

Safeguarding Your Cryptocurrency Investments

Though the risks are real, there are ways to mitigate them for investors who choose to purchase cryptocurrency assets. Here are some cybersecurity practices every investor should consider:

1. Use Reputable Exchanges and Wallets

• • Choose exchanges and wallets with strong reputations, robust security protocols, and positive user reviews. Focus on platforms that use two-factor authentication (2FA or DFA) and follow industry best practices for protecting funds.

2. Be Skeptical of Investment “Opportunities”

• • If something sounds too good to be true, it probably is. Avoid any investment offering guaranteed returns, especially those promising significant profit within a short period. Always conduct due diligence before committing any funds to a particular cryptocurrency.

3. Educate Yourself About Phishing Tactics

• • Phishing remains one of the most prevalent methods used by hackers. Be wary of unsolicited emails, texts, or social media messages offering crypto deals or promotions. Only access your accounts through official websites and applications that have proven track records in the industry.

4. Practice Good Security Hygiene

• • Use strong, unique passwords for all cryptocurrency-related accounts. Enable two-factor authentication and be cautious with public Wi-Fi networks, as hackers can intercept data on these networks to gain unauthorized access to accounts. For more information on how to protect your assets, please see our article on cybersecurity.

The Bottom Line

While Bitcoin’s recent rise is noteworthy, it’s essential to approach cryptocurrency investment with a balanced view, recognizing both its potential and its risks. Cryptocurrencies originated to provide a secure form of digital cash, not as investment assets. Their worth lies in the value people assign to them. The cryptocurrency world can be volatile, with the potential for rapid swings in price.

We caution investors in particular about the digital threats looming over cryptocurrency transactions and trades. At Coldstream, we are committed to providing you with the most up-to-date information to assist with your investment journey: please don’t hesitate to reach out to your wealth management team with any questions about crypto or other alternative investments.

None of the information provided constitutes an opinion or a recommendation or a solicitation of an offer to buy or sell any particular security and/or cryptocurrency. Coldstream materials are not intended to provide, and should not be construed to constitute, complete accounting, insurance, investment, legal, or tax advice. Questions and comments may be directed to your advisor. Coldstream does not provide any specific tax or legal advice; you should consult your tax, legal, or other advisors before implementing any changes to your current financial situation.

[1] “The History of Bitcoin” by Julie Pinkerton; U.S. News & World Report; Oct. 23, 2024; https://money.usnews.com/investing/articles/the-history-of-bitcoin