How To Own Crypto And Not Get Stiffed 

Position Yourself For The Stablecoin Revolution…

While Avoiding Hacks, Scams, and “Wrench Attacks”

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Josh Jones was living the crypto dream.

With his boyish grin and entrepreneurial spirit, Jones had done very well for himself. He always had a knack for spotting opportunities. In 1996, long before the internet became central to everyday life, Jones and his classmates at Harvey Mudd College founded DreamHost, a successful web-hosting company. He also invested in Netflix when it was still just mailing DVDs, and rode it to thousands of percent gains. But his most prescient investment came in 2012, when he poured $250,000 into Bitcoin when it was trading below $15 per coin.

That investment ballooned as the price surged, turning Jones into a multimillionaire. Ever the opportunist, he doubled down on crypto, creating Bitcoin Builder, a brokerage platform that capitalized on the panic surrounding Mt. Gox – the infamous Japanese crypto exchange that collapsed following a massive hack in 2014.

Mt. Gox had already halted withdrawals after the breach, trapping users’ funds. Panic set in, and many desperate users began selling their “trapped” Bitcoin – passing the risk to someone else – at steep discounts on various online forums, hoping to salvage something from the impending disaster.

Recognizing this chaos as an opportunity, Jones quickly created Bitcoin Builder, effectively turning the crisis into profit. His platform matched desperate sellers who were willing to unload their Mt. Gox-trapped coins at deep discounts with opportunistic buyers (including Jones himself) hoping that the exchange’s issues would be resolved. At its peak, Bitcoin Builder processed more trades daily than any other exchange worldwide, netting Jones up to $500,000 a day.

But Jones’s affinity for high-stakes bets and public boasting – he openly discussed his company’s success in the Wall Street Journal and had been publically dubbed a “Bitcoin billionaire” several times – made him a target.

The attack came unexpectedly…

On the evening of February 21, 2020, Jones lost service on his cellphone. He initially dismissed it as a glitch, but he quickly grew concerned when his service didn’t return. What happened next would haunt him for years.

A hacker had orchestrated what’s known as a “SIM swap”  – a malicious move where criminals trick (or sometimes bribe) a telecom company into transferring a victim’s phone number to a SIM card they possess. Armed with control of Jones’ phone, the attacker was able to access his digital wallets and began siphoning $46 million worth of Bitcoin and other cryptocurrencies – with Jones powerless to do anything to stop it.

Jones watched helplessly as his fortune was whisked away into unknown wallets, likely scattered across the globe.

Desperately, he turned to social media website Reddit for help from the online crypto community. He begged miners to halt the transactions before they were finalized, but his pleas were met with mockery rather than assistance. Commenters pointed out the painful irony – Jones had profited enormously from others’ misfortunes on Mt. Gox, only to suffer a similar fate himself.

Unlike most victims of cryptocurrency theft, Jones found a rare reprieve. Refusing to go down without a fight, he launched a lawsuit against T-Mobile, his cell phone provider, accusing them of gross negligence for enabling the SIM swap. In a stroke of exceptional luck, Jones recovered $33 million of his stolen assets through a legal settlement.

But Jones’ partial victory underscores a chilling reality: the vast majority of crypto crime victims never see their lost assets again.

The cryptosphere is awash with horror stories of individuals losing life-altering sums to various scams and thefts. And SIM swap attacks are only one of many tricks thieves use.

Cryptocurrency criminals also employ sophisticated phishing techniques, deceiving victims into willingly handing over their private keys. Others rely on social engineering – exploiting human psychology to manipulate targets into revealing sensitive information. And some crypto thieves resort to the brutal method known as “wrench attacks,” physically threatening or harming crypto owners until they surrender their digital assets. One such attack occurred just last month, when the father of a crypto entrepreneur was abducted and held for ransom in Paris. Police ultimately rescued the victim and arrested five suspects… but not before they severed one of the victim’s fingers.

According to blockchain intelligence firm Chainalysis, nearly $20 billion in cryptocurrency has been stolen since 2011, including $2.2 billion last year alone. And the nature of blockchain technology – immutable and final – means that stolen cryptocurrencies are rarely recoverable. Transactions, once completed, are etched permanently into digital ledgers and are almost impossible to reverse. And unfortunately, as the crypto industry grows, so is the incentive to pull these crimes off.

Josh Jones’s experience serves as a stark warning for would-be investors: the digital frontier offers tremendous opportunities… but also carries significant risk. Blindly chasing returns without the proper precautions can lead to financial ruin.

Following Porter’s Daily Journal series from last week on the growth of crypto stablecoins, we’ve heard from several readers asking for guidance on how to invest in this trend.

So, in this week’s The Big Secret On Wall Street, we’re going to do just that. We’ll share not only what we recommend owning to benefit from this trend… but also how to own it safely.

Why Digital Gold Is Leading The Stablecoin Revolution

In 2024, stablecoin usage grew by more than 30% to nearly $28 trillion in total transaction volume worldwide. As Porter noted, this figure already exceeds the total annual transaction volumes of Visa (V) and Mastercard (MA) combined.

Yet despite this impressive milestone, the direct investment options in stablecoins remain extremely limited. These include investing in stablecoin issuers… firms that invest in stablecoin integration… blockchains that host stablecoin transactions… or DeFi (decentralized finance) blockchain protocols that utilize stablecoins. Yet each of these options comes with significant risks and limitations.

There is currently only one publicly-traded stablecoin issuer – Circle Internet (CRCL) – which just started trading following its initial public offering (“IPO”) early this month. However, the stock has already soared more than 700% above its IPO price and is trading at an extreme price-to-earnings ratio of over 200. Buying shares at these elevated levels carries significant risk.

Several public companies are also exploring the issuance of their own stablecoins to streamline transactions and reduce costs. These include Walmart (WMT), Amazon (AMZN), JPMorgan Chase (JPM), and Visa. However, these initiatives will only account for a small fraction of total revenue for large companies like Walmart and Amazon, offering limited upside. Meanwhile, lower-cost stablecoins are likely to disrupt the existing businesses of fee-based payment processors and banks.

The two most prominent stablecoin-hosting blockchains – Ethereum and Solana – have experienced serious technical and operational challenges. Ethereum, despite its widespread use, continues to struggle with scalability issues, resulting in high transaction fees during periods of peak activity. Solana has suffered repeated network failures, including a catastrophic 20-hour paralysis in February 2023 due to a faulty software update. Each introduces additional risk to investors.

Finally, DeFi platforms – such as Aave and Compound – can offer compelling yields via stablecoins. But they are highly technical and riddled with significant vulnerabilities that pose serious risks for inexperienced investors.

Given these less-than-ideal options for direct investment in stablecoins, we believe the safest way for most investors to gain exposure to this trend is simply to own Bitcoin.

Bitcoin benefits from stablecoin adoption through multiple direct and indirect channels. 

Stablecoins like Tether’s USDT and Circle’s USDC facilitate nearly half of global Bitcoin trading volumes. In this way, stablecoin adoption acts as a leading indicator for Bitcoin price movements. Increasing stablecoin market capitalization typically precedes Bitcoin rallies, as fresh capital entering the crypto space often funnels directly into Bitcoin investments.

Bitcoin already has clear regulatory status as a commodity under the Commodity Futures Trading Commission (“CFTC”). And the expansion of stablecoin usage in traditional financial institutions – accelerated by regulatory frameworks such as the GENIUS Act, which recently passed the U.S. Senate – further legitimizes the entire cryptocurrency ecosystem, and expands Bitcoin’s accessibility to new institutional participants.

Tether, the largest stablecoin issuer, directly accumulates Bitcoin with its profits. It currently holds over 100,000 Bitcoin worth over $10 billion, and continues to allocate 15% of its quarterly net income to additional Bitcoin purchases. This creates a direct pipeline from stablecoin revenue growth to Bitcoin buying. As stablecoin adoption grows, this profit-sharing mechanism creates significant long-term demand for Bitcoin.

Finally, while U.S. stablecoins must be backed with U.S. dollar assets, there will certainly be other stablecoins that are backed by Bitcoin and that provide holders with a yield that’s derived from Bitcoin-backed lending. All of these new forms of money will ultimately create more demand for Bitcoin.

So, our advice is simple: Buy Bitcoin. That’s all you need to do right now. The coming stablecoin revolution will eventually provide some great investment-grade alternatives, but they don’t exist yet.

That said, if you’re willing to take more risk, you could consider buying a small position in Circle as well. But with it trading at a P/E ratio of around 200, we wouldn’t bet the farm.

The Safest Way To Own Bitcoin Today

Now that we’ve covered what to buy, we need to discuss how to buy it.

Many investors begin their crypto journey by buying and holding Bitcoin directly through exchanges like Coinbase. On the surface, exchanges offer simplicity – easy trading, direct Bitcoin ownership, and quick access. Yet this convenience comes with substantial risks.

These include threats like the phishing, social engineering, and SIM swaps we described earlier – that cost Josh Jones tens of millions of dollars and countless others billions each year. Unfortunately, these threats are becoming more frequent and more sophisticated as crypto adoption grows.

Victims of these scams typically have no recourse. The exchanges often have no liability. And even Coinbase, one of the largest and most regulated exchanges, holds insurance covering less than 1% of customer funds, providing scant protection against severe losses even if the company is at fault.

By contrast, Bitcoin exchange-traded funds (“ETFs”) offer significant security. Managed as regulated securities, ETFs benefit from comprehensive Security And Exchange Commission (“SEC”) regulations that mandate clear disclosures, rigorous fraud prevention measures, and investor protections like the Securities Investor Protection Corporation (“SIPC”) insurance coverage of up to $500,000 per account – far exceeding protections available at crypto exchanges.

As a convenient alternative to exchanges, some Bitcoin investors opt for self-custody via software wallets, attracted by direct control over their private keys – the cryptographic codes required to access Bitcoin.

While this method ensures no reliance on third parties, it introduces severe vulnerabilities. Software wallets, which connect directly to the internet, are susceptible to hacking, phishing, and malware. In addition, managing private keys requires meticulous attention. Research indicates that around 20% of all Bitcoin – worth hundreds of billions – is permanently lost due to forgotten or mishandled private keys or seed phrases.

Hardware wallets – physical devices designed to store private keys offline – are frequently recommended as the most secure way to hold Bitcoin directly. And when used properly, they are incredibly secure. However, even these devices come with some serious risks. 

For example, hardware wallets can be physically stolen or damaged, and the infamous “wrench attack” we mentioned earlier – where criminals physically coerce individuals into revealing private keys – is an ever-present threat. These devices also typically require significant technical proficiency to set up and manage – and if you make a mistake or lose your seed phrase, your Bitcoin can be lost forever.

Multi-signature (“multi-sig”) wallets – which require multiple keys for access – greatly improve security, but also amplify complexity and can increase the likelihood of costly mistakes.

Bitcoin ETFs circumvent these vulnerabilities entirely by employing institutional-grade custody. These arrangements employ multiple custodians, sophisticated security protocols, and 24/7 monitoring systems that are virtually immune to hacking. Professional custodians provide safeguards that individual retail investors simply cannot replicate, effectively eliminating the technical burdens and security concerns associated with self-managed Bitcoin storage.

In addition to increased security, Bitcoin ETFs also offer notable financial and administrative benefits. For example, ETF investments qualify for favorable capital gains treatment, subjecting long-term holdings (those held for more than one year) to lower tax rates compared to frequent direct Bitcoin transactions, each of which constitutes a taxable event. ETFs also dramatically reduce tax reporting burdens and simplify compliance, a huge advantage for retail investors.

ETFs have become highly cost-effective. Most providers currently charge annual fees of 0.25% or less, while most major brokerages now offer low- or no-commission trading. In contrast, direct Bitcoin ownership often entails hidden costs – exchange fees, security measures, and wallet maintenance. For large accounts, ETFs can deliver considerable long-term cost savings.

Given these benefits, we believe Bitcoin ETFs are the ideal way for most investors to own Bitcoin until more user-friendly self-custody options are available.

That said, there is one significant risk to owning Bitcoin in an ETF – confiscation risk. “Bitcoin Maxis” (maximalists) like to say, “not your keys, not your coins,” meaning if you don’t hold your Bitcoin directly, there is a risk it can be taken from you. If you live in a country with less favorable politics, this potential risk may outweigh the benefits of owning Bitcoin in an ETF, and you may want to consider using a hardware wallet to hold your Bitcoin directly. 

However, given the current political and financial environment – including the overwhelming support of Bitcoin and crypto by the Trump administration and many in Congress, as well as the growing institutional ownership of Bitcoin ETFs – we rate this as an extremely low risk in the U.S. today. 

In short, while Bitcoin Maxis typically recommend direct ownership of Bitcoin, we believe most investors – particularly those who aren’t technically proficient – are generally better off owning Bitcoin through an ETF.

The reason is simple… For retail investors, owning Bitcoin through an ETF represents the most secure, regulated, and straightforward way to own Bitcoin, and has clear advantages over the alternatives.

We generally recommend the Franklin Bitcoin ETF (EZBC), with an expense ratio of just 0.19%, however, there are several Bitcoin ETFs from providers like iShares (IBIT), Fidelity (FBTC), and Bitwise (BITB) with similarly low fees.