Jefferies Flags Quantum Risk to Bitcoin
Jefferies is reportedly dropping Bitcoin from its model portfolio, citing the emerging threat quantum computing poses to its underlying cryptography. The move suggests some institutional capital is beginning to price in quantum risk, shifting the narrative beyond typical concerns like regulation or ETF flows.
The strategist behind the move was Christopher Wood, Jefferies' global head of equity strategy, who detailed the change in his "Greed & Fear" newsletter. The portfolio's 10% Bitcoin allocation, first added in late 2020, was entirely reallocated, split evenly between physical gold and gold-mining stocks. The specific threat comes from Shor's algorithm, a quantum computing process that can efficiently find the prime factors of large numbers. This capability would render the Elliptic Curve Digital Signature Algorithm (ECDSA), which secures Bitcoin wallets, obsolete by allowing an attacker to derive a private key from a public key. A significant portion of circulating Bitcoin is particularly vulnerable because their public keys are permanently exposed on the blockchain. This includes early "Pay-to-Public-Key" (P2PK) addresses, like those believed to hold Satoshi's estimated 1 million BTC, and any addresses that have been reused after sending a transaction. Research estimates that over 31% of Bitcoin's circulating supply, worth over $415 billion, has some degree of quantum exposure. However, most cryptographic researchers believe a "cryptographically relevant" quantum computer (CRQC) is still at least a decade away. Breaking Bitcoin's 256-bit elliptic curve encryption would require a machine with an estimated 1.9 billion stable logical qubits; today's most advanced quantum computers have a few thousand noisy physical qubits. The more immediate concern is a "harvest now, decrypt later" attack. This involves adversaries recording currently secure Bitcoin transactions and storing the encrypted data, waiting for the day quantum computers are powerful enough to break the encryption and retroactively steal funds from wallets with exposed public keys. To counter this, developers are working on post-quantum cryptography (PQC), with lattice-based cryptography being a leading candidate for new signature standards. However, transitioning the entire decentralized Bitcoin network to a new cryptographic standard is a monumental task, estimated to require a 5-to-10-year process of development, testing, and community consensus to implement without disrupting the network.
