Hacking incidences usually mean bearish trends for cryptos. The day before Bithumb was hacked, Bitcoin was actually on its way up. But despite Bithumb losing $31 million, Bitcoin was able to regain its price the next day. If you will ask Litecoin founder Charlie Lee, he said this is something to be expected.
Lee said that “whenever there’s some bad news like an exchange hack, the prices drop like 5 percent”. He added that “Five percent is a lot in the stock market world, but it’s like nothing in the crypto space”. Bitcoin from $6,700 level dropped to around $6,500 right after the South Korean cryptocurrency exchange Bithumb was hacked. It was the second incident of hacking in South Korea in less than two weeks.
Why Bitcoin Made a Comeback So Easy?
So why did Bitcoin made a comeback so easy considering that Bithumb is one of the largest crypto exchanges in the world? One, Bithumb mentioned that they are stopping withdrawals and they are moving everything into cold storage. This move helped a lot in order to get the price of Bitcoin back up. With Bithumb’s swift action, it prevented further damage.
And also, Bithumb paid the investors what they lost. The exchange made sure that it is going to pay back the investors with its own money what they have lost. And for this reason alone, it has provided the confidence that the crypto investors are looking for.
And also, Lee mentioned that even if there is a hack, it doesn’t affect the fundamentals of the coins. Lee even compared hacks to a bank robbery. He says that even if there’s a robbery that occurred, this doesn’t mean that it can affect the price of gold.
Lee said that “So same with bitcoin”. He added that “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”
Tether Has Enough US Dollar
Another thing that has allowed the entire market to come back right away is the news that the cryptocurrency firm Tether has enough US dollar reserves when it comes to backing its digital coins. This report gave investors some peace of mind with fear that the firm doesn’t really have enough US dollar to back their cryptocurrency.
Lee mentioned that “The past few years people have been scared that Tether has been printing their Tether coins out of thin air and buying bitcoin with it, which might be the cause of last year’s run up”. He added that “And if they actually do have the USD backing that means that the run-up is created by real demand and not fake demand. That’s really good news”.
There was even a report speculating about the possibility that there really is price manipulation that has caused the bull-run in 2017. Bitcoin started at around $1,000 in 2017 only to reach an all-time high of almost $20,000.
Crypto exchange attack isn’t something new. In fact, Japan was forced to self-regulate and to come up with new rules when it comes to operating crypto exchanges to protect investors. Brian Kelly who is the founder and CEO of BKCM, an investment firm that is primarily focused on cryptocurrencies said that it is advised for investors to keep their cryptos in cold storage.