The crypto sector kicked off Friday on a high note following Coinbase Global Inc.’s announcement that U.S. securities regulators were likely to drop a legal case against the major digital asset exchange. However, the optimism was short-lived as news broke just a few hours later that Bybit, a prominent cryptocurrency exchange based in Dubai, had suffered a significant hack, reportedly amounting to the largest theft in the industry’s history with nearly $1.5 billion worth of tokens stolen. This sudden shift in events not only caused a turbulent reaction in market prices but also highlighted the persistent risks inherent in the cryptocurrency market. Additionally, it reignited criticism of former President Donald Trump’s attempts to relax regulations on an industry increasingly integrated with traditional finance. “Deregulated markets may sound appealing until an incident like this occurs,” stated Hilary Allen, a professor at American University’s Washington College of Law who focuses on cryptocurrency markets. “Currently, there’s a lot of enthusiasm surrounding the easing of regulations, but it’s wise to proceed with caution.”
### Coinbase’s Legal Case and Market Reactions
As traders logged into their systems on Friday morning, they encountered news that the Securities and Exchange Commission (SEC), during the Trump administration, was set to permanently dismiss its lawsuit against Coinbase for operating as an unregistered exchange, brokerage, and clearing agency—pending commissioner approval. The announcement propelled shares of the largest cryptocurrency exchange in the U.S. nearly 6% higher in premarket trading. This surge positively impacted the broader cryptocurrency market, pushing Bitcoin closer to the $100,000 mark after a two-week hiatus, while Ether, the second-largest cryptocurrency, climbed more than 4%. However, these gains proved to be short-lived.
### Bybit Hacking Incident
Market participants soon observed suspiciously large withdrawals of Ether from Bybit, one of the largest exchanges globally with over $36 billion in daily trading volume. The exchange promptly confirmed the breach. CEO Ben Zhou detailed the incident using technical jargon familiar to crypto enthusiasts, stating, “The hacker gained control of the specific ETH cold wallet we signed and transferred all ETH in that wallet to an unidentified address.” To reassure users, Zhou held a livestream on X, addressing over 200,000 viewers while consuming a sugar-free Red Bull. He asserted that “your money is safe and our withdrawals remain operational.” Bybit was preparing to secure bridge lending to counter what he described as a “massive bank run,” using the exchange’s own tokens as collateral. Such high volumes of withdrawal requests have historically led to disastrous outcomes for crypto firms, notably the collapse of FTX in 2022. Currently, such events are of less concern due to the availability of proof-of-reserves data online.
### Market Impact and Reactions
Prior to the hack, Bybit reportedly had around $16.2 billion in assets, making the stolen Ether and related derivatives represent about 9% of its total holdings. Nevertheless, this incident disrupted an initial rally in the sector, prompting what Alexis Sirkia, chairman of Yellow Network, characterized as “panic selling and liquidity disruptions.” Bitcoin fell nearly 5% from its earlier highs, trading below $95,000, while Ether, specifically targeted in the Bybit breach, dropped over 8%. Smaller altcoins and memecoins suffered even greater losses, with Dogecoin declining 10% from its peak for the day. “These events illustrate that cryptocurrencies and memes not only exhibit extreme volatility and vulnerability to scams, but they are also subject to hacking incidents where investors’ funds can be easily stolen,” remarked Benjamin Schiffrin, director of securities policy at Better Markets. “Currently, Congress is discussing the possibility of light-touch regulation for the crypto space, but such an approach will not prevent financial losses in incidents like today’s.”
### Coinbase Stock Reaction
As the value of tokens traded on Bybit plummeted, Coinbase’s stock followed suit, erasing all initial gains to finish the day down over 8%, marking its most significant decline of the year and reaching its lowest valuation since November. The market seemed to have moved past the celebratory atmosphere surrounding the SEC announcement, which had been highlighted by a lengthy post on X from Coinbase CEO Brian Armstrong. His tweet featured a whimsical illustration of a Wild West gunslinger adorned with the Coinbase logo, facing off against a white-hatted figure representing the SEC. “The simultaneous occurrence of these events serves as a stark reminder that the crypto market is fraught with systemic risks,” commented Shuyao Kong, co-founder of blockchain startup MegaETH. Reflecting on the day’s developments, Coinbase’s chief legal officer Paul Grewal lamented that former SEC Chair Gary Gensler spent four years criticizing a legitimate industry rather than establishing regulations to protect consumers. He expressed optimism that the new SEC administration recognizes the necessity for rulemaking guided by comprehensive digital asset legislation from Congress. Meanwhile, one line from Armstrong’s tweet continued to resonate strongly despite the day’s tumultuous events: “As Bain in The Dark Knight says, you merely adopted the dark; I was born in it.”
