By now you’ve heard about the hacks of Bithumb and Coinrail that have happened within weeks of each other.
The easily-spooked traders in the crypto space immediately started to sell their cryptos on the news of these events. This was especially the case for Bitcoin.
However, less than a week after the second hack, Bitcoin has recovered somewhat, and is back to trading sideways at the $6,700 level. Traders didn’t have grand knee-jerk reactions and cause it to shave thousands of dollars off its price.
Here, we’ll discuss reasons why traders seemed to shrug off these hacks – kinda.
Off the rails
We reported that the Coinrail attack occurred during the weekend of June 8. The bandits made off with 70% of the exchange’s digital assets.
The sleuths moved their spoils to what is called a cold wallet. These cold wallets are not connected to the internet. Observers think that as much as $40 million of alt coins were made off with by the culprit or culprits.
Less than two weeks later, news of the Bithumb hack went viral. While one would think that news of two hacks in as many weeks would cause a massive selloff, that didn’t happen.
We reported that Bithumb, the second-largest exchange in South Korea by trading volume, announced in a tweet that it suffered a breach in which at least $30 million in cryptocurrency was lost.
We noted that almost immediately after the Bithumb attack, Bitcoin took a marked dip, shedding more than $100 of its value and more than $2 billion in its market capitalization.
Are crypto traders growing immune to hacks?
Prior to the Coinrail attack, Bitcoin was trading above $7,000. Observers thought that it was well on its way to getting back above $10,000, which is a level the crypto hasn’t seen since the beginning of the year.
News of the Coinrail attack caused Bitcoin’s price to fall below $7,000 and the subsequent Bithumb attack further aggravated the crypto being to get back above $7,000.
Still Bitcoin, and other cryptos managed to recover relatively quickly from the bad news of the hacks.
To CNBC, Charlie Lee, Litecoin’s founder, said the rebound was to be expected.
“Whenever there's an exchange hack, people get scared and the price drops. It happens all the time. Whenever there's some bad news like an exchange hack, the prices drop like 5%. 5% is a lot in the stock market world, but it's like nothing in the crypto space."
Response makes all the difference
Almost immediately after finding it had been hacked, Bithumb responded. It saw that it was missing digital assets between Tuesday evening and Wednesday morning of this week. It responded by suspending deposits.
It also noted on its Twitter account that it was changing its wallet system and asked its customers not to make any more deposits until they were notified.
Bitcoin guru Brian Kelly noted that Bithumb officials also halted withdrawals and they put everything into cold storage.
In addition, and pretty much unheard of, the exchange paid back investors for their losses with the exchange’s own money.
In a statement, Bithumb said:
“Any losses, we have reserves. We're going to pay for them. Nobody loses money.”
Fundamentals make a world of difference
Lee pointed out that when an exchange is hacked, it doesn't affect the fundamentals of the underlying coins. He compared an exchange hack with a bank robbery, saying that if a bank gets broken into and gold is stolen, the price of gold is impacted.
"So same with bitcoin. If an exchange doesn't protect their coins well enough and it gets hacked, it doesn't really change the fundamentals of the coin that they're protecting."