Just as the FTX-saga was finally winding-up with deposits being returned to victims, crypto was jolted by another shocker as Bybit disclosed that it was hacked with a ~$1.5bln theft of one of their Ethereum cold-wallets, with Lazarus group (North Korea) being named as the culprit.
With over 400k ETH stolen, this markets the largest crypto theft of all time, and puts the Bybit hacker as one of the largest ETH holders in the world, ranking above the likes of Vitalik, Fidelity, and the Ethereum foundation.
As a sign of how far crypto has come along, what would have been a mini-catastrophe with massive contagion in years past was masterfully handled over the span of 24 hours, with Bybit’s management making timely and clear public statements to assuage public concerns, while allowing ~$5.5bln in withdrawals to proceed without gating mechanisms. Furthermore, the entire crypto community rallied to the cause and extended short-term loans to the exchange to cover any short-fall, allowing both the incident and crypto prices to recover without much lasting impact (yet).
The lingering question remains with what happens to the 400k of ETH that are now sitting in tainted wallets, as the OFAC will likely have to begin sanctioning actions to prevent the stolen capital from being taken back out into the system. This will not be an easy endeavour, as the purported hackers have started to bridge and wash their holdings cross-chain and across various AMM protocols, risking the chance of a more comprehensive sanction affecting the Ethereum acceptance with regulated entities. To complicate matters, some have also suggested a chain ‘roll-back’ / fork (ala 2016) to invalidate the hacker’s holdings, but that carries its own hornet’s nest of centralisation and feasibility concerns that are unlikely to reach any conclusion in the meantime.
In terms of the ETH short, while speculation was running wild on how that would be covered ‘at market’, Bybit just announced that they had closed that ‘gap’ through their various measures, effectively putting an end to the saga for now.
On more positive news, just hours before the announced hack, Coinbase announced that SEC was finally dismissing their legal case against the exchange after a long and dragged out battle. Furthermore, the regulator had also recently approved the first stablecoin security offering (YLD), which promises to pay holders a floating interest of SOFR — 50bp. We should expect to see more proliferation of these stablecoin offerings as savings alternatives with crypto payment and transfer platforms becoming more mainstream.
Back over in TradFi, US stocks had a tough end to the week (-1.5%) with poor economic prints (weak Citi economic surprise, U-Mich sentiment), soft Walmart earnings (weak consumers), data center spending concerns (on cancelled Microsoft leases), a $2.7T option expiry, reconciliation bill concerns, a supposed new strain of coronoavirus being discovered, and worries over an AfD (right wing) election win in Germany.
The main beneficiary was fixed income, which saw treasury yields fall by over 10bp on the week on slowdown worries, with the 1st interest rate cut now priced fully for the July meeting, and June seeing a 70% chance.
Looking ahead, the ‘slowdown’ narrative will likely dominate the narrative in the near-term, with stocks and bonds trading back in positive tandem with correlation nearing the highs of the past 12 months. ‘Bad data is now good’ once again as markets refocus their attention on Fed eases, and provide tailwinds to both gold and BTC in the near future.
The largest event of the week will likely be Nvidia earnings, where markets are pricing for yet another record-breaking quarterly revenue of $38.32 billion, good for a 73% YoY increase. Good luck and good trading this week friends!
