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Blockchain analysis: QuadrigaCX has no cold wallet bitcoin reserves

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Evidence also suggests that QuadrigaCX has been operating like a Ponzi scheme.

  • It's tough to prove a negative with complete certainty, but analysis suggests that QuadrigaCX does not have any large bitcoin reserves.
  • Funds have been moving around when they shouldn't have been.
  • Analysis suggests that QuadrigaCX has been operating similar to a Ponzi scheme for a while now.

Canada-based cryptocurrency exchange QuadrigaCX has dramatically flamed out of existence.

QuadrigaCX founder Gerald Cotten allegedly died in India last December, taking the exchange's cold wallet private keys to the grave and locking away most user funds. This assertion has formed the foundation of QuadrigaCX's filings for creditor protection because it still owes its users some CAD$190 million.

For some perspective on how big this is, if everything goes falls apart and the money's not found, QuadrigaCX would be one of the top five biggest exchange losses in cryptocurrency history, behind CoinCheck's half billion dollar NEM whoopsie, and possibly others like BitGrail, depending on how you measure the losses.

QuadrigaCX maintains it will be able to pay back creditors if it can avoid bankruptcy and regain access to its cold storage. However, blockchain analysis says the exchange doesn't actually have any cold wallets, and that it's just been crediting withdrawals with new deposits like a Ponzi scheme, while funds were periodically siphoned to places unknown.


Funds have been moving out of QuadrigaCX's supposedly inaccessible wallets, throwing doubt onto the exchange's claims. Meanwhile, an in-depth analysis from ZeroNoncense has found that the exchange has reportedly been operating like a Ponzi scheme for a long time now.

Essentially, it was just paying back user withdrawals with other user deposits.

"QuadrigaCX more than likely never held enough $BTC to account for the customer funds," ZeroNoncense concludes.

The cold wallets are the crux of the issue. QuadrigaCX claims to have crypto reserves held in cold wallets, so it can refund users if it manages to regain access to them. And if you find those cold wallet addresses, you can verify the exchange's claims, and users can get some idea of whether they can get their money back.

So, the goal right now is to find QuadrigaCX's cold wallet addresses. It's not looking good though because there seems to be no evidence that those cold wallets even exist.

A damning lack of evidence

In an affidavit, QuadrigaCX has claimed to have assets including about US$91 million of bitcoin, almost $50 million of Ether and more. But ZeroNoncense's careful sifting of the blockchain for these funds has come up empty.

This analysis essentially takes the form of identifying QuadrigaCX's main hot wallet "cluster" through an analysis of user transactions. This is done by verifying some transactions that are 100% guaranteed to have been to or from QuadrigaCX, and then working backwards from there.

These so-called cluster addresses are a common feature of exchanges that generate a new wallet address for each user's individual funds and can be tied together with a strong degree of certainty.

"There is no evidence that a cold wallet for QuadrigaCX is currently in existence," ZeroNoncense said. "No withdrawal transaction has been sourced to a significant pool of bitcoins (i.e., cluster address) that were not positively identified (objectively) as belonging to another exchange. In addition, thorough analysis of QuadrigaCX’s main hot wallet cluster address has failed to provide evidence that there has been any movement of bitcoins to an outside wallet address (or cluster address) that contains any significant holding of bitcoins."

Show me the money

Essentially, when you look at the known QuadrigaCX wallets, there's no movement to or from them to any repository of funds like you'd expect. And when you go the other way, and start looking for these pools of tens of thousands of bitcoin, Ether and more that the exchange claims to have, you don't find anything that ties back to the exchange.

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Typically you would expect a lot of back-and-forth between the exchange's hot wallet cluster and its cold storage, and Cotten himself has previously said there has been, but there's no sign of this ever happening.

It's difficult to prove a negative – in this case that QuadrigaCX does not have cold wallet reserves – but the lack of evidence in this case is quite damning.

"Via thorough inspection of several dozen verified Bitcoin withdrawals and deposits, the estimated aggregated total number of bitcoins in QuadrigaCX’s possession is south of 1,000 $BTC, with 1,000 being a very generous estimate at this point in time," ZeroNoncense says. "Chain analysis shows that the vast majority of holdings in the wallets and addresses that QuadrigaCX owns have already been liquidated or moved to an exchange."

QuadrigaCX's stark lack of reserves stands in sharp contrast to the amounts that have been periodically moved out of the exchanges. Indeed, even while QuadrigaCX was reportedly shuffling customer funds like a Ponzi scheme, its wallets were showing an outflow of tens of millions of dollars in crypto to other exchanges. These seem to have picked up as 2018 wore on.

While QuadrigaCX's bitcoin reserves have not been found, a user on Reddit believes they've found the exchange's Litecoin holdings. The good news there is that it exists. The bad news is that the amounts don't match the numbers claimed in the affidavit, and funds have continued moving out of those wallets even after Cotten's disappearance.

There's nothing 100% certain about any of the findings to date except that things don't add up, and QuadrigaCX is going to have some explaining to do.

Disclosure: At the time of writing, the author holds ETH.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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