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The crypto industry started its Friday in a jubilant mood, with Coinbase Global Inc.’s announcement that US securities regulators were poised to dismiss a legal case against the nation’s largest digital-asset exchange.
The happy vibe didn’t last long, however: Less than three hours later and halfway around the world, the exchange Bybit disclosed that it had been hacked in what analysts say was the biggest-ever theft in the industry with almost $1.5 billion worth of tokens looted.
The ensuing whiplash in market prices — not to mention the moods in the crypto trading trenches – served as yet another stark reminder of the unique and ever-present risks lurking in this market. And it also emboldened critics of President Donald Trump’s fervent efforts to reverse his predecessor’s regulatory scrutiny of an industry that’s become more and more entwined with the traditional financial system.
“Deregulated markets sound good until you have this type of attack,” said Hilary Allen, a professor at American University’s Washington College of Law who studies crypto markets. “In the short term, we are seeing a lot of cheering for the peeling away of a lot of regulations. But be careful what you wish for.”
Traders booting up their computers on Friday morning were greeted by news that the Trump-era Securities and Exchange Commission, pending commissioner approval, was poised to permanently dismiss its lawsuit against Coinbase for running an unregistered exchange, brokerage and clearing agency.
Shares of the largest US crypto exchange shot up on the news, surging almost 6% in premarket trading. The crypto market went along for the ride, pushing Bitcoin toward the $100,000 level for the first time in more than two weeks. Ether, the second largest token, jumped more than 4%.
The gains proved to be fleeting.
Vigilant crypto market observers soon began noticing huge, suspicious withdrawals of Ether from another, Dubai-based exchange called Bybit, one of the largest in the world with more than $36 billion in daily average trading volume.
Bybit quickly confirmed that it had been robbed. CEO Ben Zhou explained the caper in crypto jargon undecipherable to most of the world, but all too clear to digital-asset enthusiasts: “Hacker took control of the specific ETH cold wallet we signed and transfered all ETH in the cold wallet to this unidentified address.”
Zhou then went on a livestream on X in an effort to alleviate concerns. Clad in a black T-shirt with the exchange’s logo, and taking gulps from a can of sugar-free Red Bull energy drink, he told more than 200,000 viewers that “your money is safe and our withdrawals are still open.” Bybit was lining up bridge lending to cover what he described as a “massive bank run” on the exchange, using Bybit’s own tokens as collateral.
Such deluges of withdrawal requests have proven disastrous to crypto companies in the past, most famously with the implosion of Sam Bankman-Fried’s FTX exchange in 2022.
These days, they are somewhat less concerning due to proof-of-reserves data available online. Bybit, which is not available in the US, had roughly $16.2 billion in assets on its exchange prior to being hacked, according to reserves data from CoinMarketCap, making the stolen Ether and Ether derivatives equivalent to roughly 9% of its total assets.
Still, the incident pulled the rug out from under an early rally in the sector amid what Alexis Sirkia, chairman of Yellow Network, described as “panic selling and liquidity disruptions.”
Bitcoin slid almost 5% from its highs of the day, trading below $95,000 as stock markets closed in New York. Ether, the token targeted in the Bybit hack, lost more than 8% from its high of the day. Smaller altcoins and so-called memecoins fared even worse, with Dogecoin tumbling 10% from its day’s high.
“Today’s events just demonstrate crypto and memes are not just highly volatile, and not just susceptible to scams and frauds, but susceptible to these types of hacking incidents where investors’ money can just simply be stolen,” said Benjamin Schiffrin, director of securities policy at the advocacy group Better Markets. “We hear now Congress talking explicitly about providing a light-touch regulation for the crypto industry. And I think light-touch regulation is not going to prevent people from losing money in incidents like today’s.”
As the tokens traded on its exchange gave up their gains, so did the stock of Coinbase. The shares wiped out all of the early rally to close down more than 8%, the worst drop of the year that took the stock to its lowest price since November.
The market had moved on from the victory lap the company had taken following its SEC announcement, highlighted by an almost 1,000-word post on X by Coinbase CEO Brian Armstrong. That tweet included a watercolor-like image of a Wild West gunslinger with the Coinbase logo on the back of his black vest; he’s squaring off against a white-hatted opponent with the SEC’s logo on his chest.
“I think the scale of both together on the same day is a big hit, and reminder that crypto has major systematic risks,” Shuyao Kong, cofounder of blockchain startup MegaETH, said of the Coinbase and Bybit news.
Reflecting on the day’s events, Coinbase’s chief legal officer Paul Grewal said: Former SEC Chair “Gary Gensler spent four years attacking a lawful industry instead of creating regulation that protects consumers. Thankfully the new SEC administration understands why rulemaking — led by comprehensive digital assets legislation from Congress — is the only way forward.”
Meanwhile, one line from Armstrong’s tweet still resonated loud and clear, even after the events that followed it: “As Bain in The Dark Knight says,” he wrote, “you merely adopted the dark; I was born in it.”
[Bloomberg]