Stocks traded lazily higher again this morning as investors await tomorrow’s reveal of the May Consumer Price Index (CPI). Economists expect an already “hot” CPI increase of 0.4% month-over-month.
Anything higher than that is sure to send bulls running. Even simply meeting expectations might be enough to do it, too. In response, traders are laying low until the data is made public.
“US stocks have largely been stuck in a range since mid-April and don’t seem likely to be breaking out anytime soon,” explained Edward Moya, senior market analyst at Oanda.
“Investors want to see how hot pricing pressures get and how much downside in equities will occur once the Fed’s taper tantrum begins.”
Analysts believe the short-squeezes should level off soon as well, and more importantly, they won’t damage the broader market.
“Given the low risk of a broad contagion, we view the fallout of the recent short squeeze to be limited,” said Maneesh Deshpande, global head of equity derivatives strategy at Barclays.
“The current short squeeze is more localized probably because the number of stocks with high short interest has come down dramatically.”
So instead, investors have switched their focus to Bitcoin. Crypto’s top coin surged through the early morning hours after bouncing off key support at $30,000 last evening. Many altcoins followed suit.
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It’s a welcome sight for Bitcoin holders following the digital currency crash that ripped most coins from their record highs over the last month.
Since mid-May, however, the crypto market has been struggling to recover. FUD (fear, uncertainty, and doubt) generated by a Chinese crypto “ban” (that didn’t actually introduce any new restrictions) initially sunk Bitcoin into the $30,000-$40,000 range.
But experienced crypto traders saw it as a major buying opportunity. And just as Bitcoin was beginning to break out, the US Department of Justice (DOJ) crushed any and all bullish momentum.
The media reported that the DOJ confiscated 75 Bitcoin from the Colonial Pipeline hackers. The group of cyber-crooks managed to shut down the gas pipeline’s entire operation with a ransomware attack in early May. To get things running again, Colonial Pipeline paid a 75 Bitcoin ransom to the hackers worth $5 million at the time.
Two days ago, though, a DOJ representative said that “the FBI successfully seized criminal proceeds from a Bitcoin wallet.”
This instantly wounded investor confidence in crypto. If the FBI could access a Bitcoin wallet, does that mean the government has managed to “solve” Bitcoin’s encryption?
“There is no place beyond the reach of the FBI to conceal illicit funds that will prevent us from imposing risk and consequences upon malicious cyber actors,” said FBI Deputy Director Paul Abbate in a statement.
The story perpetuated by the media sure made it seem like the FBI hacked a Bitcoin wallet. But the truth is that there was no hacking involved. The FBI didn’t manage to unravel Bitcoin’s encryption, either. Nor did they track down the individuals responsible and force them to provide access to their Bitcoin hardware wallet via a physically entered PIN number.
In reality, the pipeline hackers had their ransom sent to what’s essentially a “software wallet,” hosted on a remote server. Unlike hardware wallets, which are kept offline and protect crypto assets from any online attack, remote server software wallets are far less safe. Whoever has control of the remote server has control of the private Bitcoin keys, which then provide the wallet holder control over the Bitcoin.
So, the FBI managed to identify where the hacker’s custodian wallet was located and then subpoenaed the remote server (located in California) hosting that wallet. No actual hacking of any sort occurred. The FBI merely tracked down a server and seized it.
This means that, despite the media’s claims, cryptocurrencies remain safe to hold long-term (if stored properly). Moreover, the government won’t be able to simply confiscate Bitcoin from investors (again, if stored properly on a hardware wallet) on a whim.
The most concerning piece of the puzzle is the fact that a group of sophisticated hackers thought it would be kosher to keep their massive 75 Bitcoin ransom on a custodial wallet, hosted by a remote server. They surely knew this wasn’t a safe place to keep it. In many ways, it almost seems like they wanted it to be reclaimed by the feds.
I’m not going to cast any aspersions about the FBI in this article, nor will I suggest that any sort of conspiracy is at play. But the conditions surrounding this whole ordeal are highly suspicious. Hopefully, this is a simple case of negligence on the part of the cyber-criminals. The alternative would imply something far more nefarious, especially as the central banks of the world continue to devalue their fiat currencies.
In the end, the headline here is that cryptocurrencies are still a safe, rock-solid option for investors seeking inflationary protection. Nobody, not even the FBI, will be able to access your crypto holdings digitally if you take the proper precautions – something a super-slick hacker group was supposedly unable to do.