Good afternoon. This is your midday market update from City AM.
The crypto community woke up in a state of shock this morning to news that the world’s largest crypto exchange had been hacked.
Binance reported that an eye-watering $6.3bn had been stolen from the company. The price of Bitcoin tumbled more than five per cent from its peak on Thursday as the firm’s customers found themselves unable to withdraw funds.
To put the incident into perspective, this is the biggest-ever crypto theft – and some are describing it as the biggest-ever bank heist in history. At $6.3bn, the sum stolen dwarfs the second-largest on record, last year’s $1.5bn taken from Bybit, and is bigger than the next largest 20 thefts combined.
Bye-bye Binance?
Despite the huge loss, this doesn’t look like it will be big enough to bring down Binance.
The multinational crypto exchange has reassured customers that they will be made whole, and withdrawals will be allowed again as soon as the firm is confident it has dealt with vulnerabilities associated with the attack.
Binance says it has worked with law enforcement and blockchain partners to freeze at least half of the stolen coins “on-chain”, meaning it expects to be able to recover them. The firm also has a $1.2bn insurance fund designed to be drawn down in emergencies such as this one.
A preliminary investigation by Binance identified the source of the hack to be “a compromised DevOps engineer’s laptop,” which allowed the attacker to “submit unauthorized withdrawal transactions,” according to a company statement on X.
A group of elite North Korean hackers known as Trader Traitor are thought to be behind the heist. North Koreans are also thought to have been behind last year’s Bybit hack, as well as a number of other high-profile heists.
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Canary in the coalmine?
The incident underscores the vulnerabilities of crypto exchanges, which go some way in undoing the decentralised advantages that are supposed to be associated with cryptocurrencies.
Unlike stock exchanges, customer deposits are all held in one place, making them an attractive target for hackers — while the growing power of AI models is making the job that bit easier.
The attack “illustrates the risk concentration inherent in large, centralised intermediaries,” according to Cristiano Ventricelli, vice president of digital assets at Moody’s Ratings.
“Stronger institutional controls can reduce some vulnerabilities, but the scale of assets under custody can amplify the impact of a successful breach.
“The broader credit and industry implications will depend on the ultimate losses, affected counterparties, asset recovery, and importantly, whether the incident leads to wider disruption or loss of confidence across the digital-asset ecosystem.”
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