Crypto Traders React to Bybit’s Massive Hack

Crypto traders experienced significant fluctuations on Friday. While Coinbase celebrated the SEC dropping its lawsuit, Bybit suffered the biggest theft in crypto history, losing $1.5 billion.

The Dubai-based exchange, handling $36 billion in daily trades, confirmed the breach promptly. CEO Ben Zhou announced on X that hackers took over an Ethereum cold wallet and drained it to an undisclosed address.

The hack caused Bitcoin to drop over 3%, falling from $98,000 to roughly $96,000 according to CoinGecko.

Concerns about crypto security mounted alongside the SEC’s deregulation move, which left exchanges more vulnerable to attacks. Hilary Allen, a professor at American University, cautioned, “Deregulated markets sound good until you have this type of attack. In the short term, we are seeing excitement for the removal of many regulations. But be cautious of what you wish for.”

ZachXBT, an on-chain detective, tracked the stolen Ethereum to wallets associated with North Korea’s Lazarus Group, infamous for previous significant crypto thefts, including the WazirX and Radiant Capital attacks.

The Lazarus Group employs a long and intricate laundering process, complicating fund recovery efforts. It often holds onto stolen assets for years before cashing out. Despite securing a loan to cover withdrawals, Bybit will need to purchase Ethereum to settle its debts, creating market dynamics that could keep pressure on Bitcoin prices.

Bybit Experiences Withdrawal Rush

Traders noticed abnormal outflows from Bybit before the official announcement. Following Zhou’s statement, he went live on X to address concerns.

Zhou confirmed, “The hacker took control of the specific ETH cold wallet we signed and transferred all ETH in the cold wallet to this unidentified address.”

Bitget CEO Gracy Chen reassured users that customer funds were safe, stating, “Bybit is a respectable competitor and partner. Although the loss is huge, it is only their annual profit. There is no need to panic.” However, panic ensued, leading to over 350,000 withdrawal requests in just 10 hours, overwhelming Bybit’s processing capacity.

Despite having $16.2 billion in reserves, the loss of $1.5 billion in Ethereum and derivatives wiped out about 9% of total assets. Zhou continued to assure users of the exchange’s solvency, yet traders remained anxious.

To manage the crisis, rival Bitget lent Bybit 40,000 ETH (approximately $106 million). Zhou acknowledged the record number of withdrawal requests.

North Korea’s Lazarus Group and Security Implications

Experts from Chainalysis indicated that Lazarus uses stolen crypto to fund North Korea’s missile programs. The group remains a target for U.S. and U.N. sanctions but continues to adapt its tactics.

In 2021, Lazarus stole $400 million from centralized exchanges. Interestingly, Bitcoin now represents less than 25% of the total cryptos stolen, with Ethereum increasingly becoming a favored target.

The laundering techniques have evolved, improving concealment methods. Chainalysis reported that only 21% of stolen funds were mixed in 2019, increasing to 65% by 2021.

Chainalysis also identified about $170 million still held by North Korea from various hacks.

Zhou later reassured users that all withdrawals have been processed within 12 hours of the incident and promised a full incident report with new security measures soon.