Given the extent of the hack that took place on Friday morning, bitcoin’s price expectedly dropped sharply, going south by $4,000 within hours. However, the asset avoided the kind of catastrophic collapse seen during some of the industry’s previous exchange failures and hits.
Former Binance CEO Changpeng Zhao has now offered an explanation for why the damage to BTC may have been relatively limited.
BTC Stands at $77K
We are not trying to claim that BTC didn’t drop. It did. We reported that its price slumped from over $80,000 to $76,100 (later that day), losing over $4,000 of value in hours. Although that’s no small amount, a deeper look could actually show that it’s not as painful as it could or should have been.
Binance said the incident resulted in the theft of approximately $6.3 billion worth of crypto assets from compromised hot wallets. Further updates informed that roughly $3 billion was frozen on-chain by the exchange and other partners, while Binance promised to cover the entire loss using its SAFU fund and corporate treasury. It also stressed that user balances would remain fully protected.
The immediate market-wide shock and the actual USD value of the hack were significant, but BTC’s price remained stable after the initial reaction. Zhao weighed in on the asset’s movements and why it didn’t plunge more dramatically, arguing that although the hack was indeed the largest in USD terms, the comparison becomes very different when measured in bitcoin.
Mt. Gox Anyone?
Zhao referred to the collapse of Mt. Gox over a decade ago, which involved roughly 650,000 BTC. More importantly, he noted that all of those units represented more than 5% of bitcoin’s total supply at the time, making the incident substantially larger relative to the size of the market now.
He also argued that investors should therefore consider more than the dollar value of stolen assets. Other important factors include the percentage of crypto supply involved, the number of users affected, how much of their assets were lost, and ultimately who absorbs the losses.
CZ contrasted the incident with Mt. Gox and the 2022 failure of FTX, where a huge proportion of customers and their assets were caught up in the collapses. Binance has committed to absorbing the $6.3 billion loss itself rather than passing it on to its user base.
Binance asserted that it had already set aside more than $6.3 billion of company funds, including $5 billion held in the same assets affected by the breach, covering approximately 80% of the losses. It also said it will purchase the remainder through market and OTC channels, and recent on-chain data confirmed this.
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