Anthony Pompliano has warned that losses linked to a Coldcard hardware-wallet security flaw must not be described as a hack of Bitcoin, after the value of funds taken from affected wallets rose above $86m.
The Bitcoin investor and entrepreneur said on 2 August that inaccurate reporting of the incident could confuse investors at a time when sentiment across the cryptocurrency market is already fragile. He stressed that the problem involved third-party wallet technology used to protect individual holdings, rather than Bitcoin’s network, consensus rules or transaction ledger.
Pompliano said there was a risk that mainstream coverage would reduce the episode to a “Bitcoin was hacked” narrative. Such a description, he argued, would be technically wrong and could further damage confidence in digital assets during an already difficult market period.
The incident relates to insufficient randomness in the generation of recovery phrases by some Coldcard devices. Recovery phrases, also known as seed phrases, are used to restore access to cryptocurrency wallets. If they are generated with too little unpredictability, attackers may be able to calculate or reproduce them.
Coldcard manufacturer Coinkite released corrected firmware after discovering that several device models could generate seeds with reduced entropy. Entropy is a measure of how unpredictable a seed is.
According to the firmware changelog for the limited-entropy fix, seeds created on the Coldcard Mk3 may have contained about 40 bits of entropy. Later models may have generated around 72 bits, compared with the intended target of 128 bits.
Public blockchain monitoring suggests that the number of affected funds has continued to grow as more vulnerable wallets are identified. A dashboard known as Coldcard Sweep Watch recorded at least 1,360 BTC being swept from identified wallet clusters. Using its reference price, the stolen bitcoin was valued at approximately $85.76m, a figure described as a verified minimum rather than the total amount potentially at risk.
The reported losses have also been described as exceeding $86m as the investigation and identification of affected wallets continue.
An analysis of the Coldcard exploit said attackers took advantage of weak seed entropy, identified the generations of devices believed to be affected and advised users with vulnerable recovery phrases to move their funds to wallets created with new seeds.
Chainalysis said the attacker stole about $30m within 10 minutes after targeting the largest wallets first. The speed and concentration of the theft demonstrated how quickly a weakness in self-custody technology can become a major financial and confidence shock.
However, Bitcoin’s underlying network has continued to operate normally. The incident highlights the difference between the decentralised protocol and the products used to create, store and protect the private keys that give users control of their bitcoin.
Pompliano said the episode had arrived at an especially sensitive time for the market. He compared the impact of a security incident in such conditions to throwing a match on gasoline, warning that it could lead to anger, disputes within the industry and blame being directed at the wrong targets before confidence eventually returns.
He also urged affected users to concentrate on recovering their funds and encouraged the wider Bitcoin community to respond to misinformation with accurate technical explanations rather than emotional reactions.
Coinkite’s guidance is for affected owners to install the corrected firmware, generate completely new seeds, check their receiving addresses and transfer their funds using newly created recovery phrases. Updating the firmware alone does not repair seeds that were generated with insufficient entropy, meaning migration to a new wallet is the main protection for users whose recovery phrases may have been exposed.
The episode has also underlined the need to distinguish between different types of cryptocurrency risk. Protocol failures, custody problems, exchange collapses and individual security errors can all affect investors, but they do so in different ways.
Market observers remain focused on whether Bitcoin can recover from its broader downturn. Grayscale has outlined two possible routes out of the bitcoin bear market, involving factors including liquidity, policy developments and renewed demand. Against that backdrop, the Coldcard incident has added another source of fear to a market already looking for a lasting catalyst and clearer direction.
