Binance hack: Every crypto crisis has made the market grow up

The US$6.3bn Binance hack has rattled crypto markets, but Nigel Green argues history shows each major crisis has ultimately left the industry stronger, safer and more institutional.

Words by Nigel Green, deVere group CEO and founder

The US$6.3 billion hack at Binance late last week is the worst security breach the crypto industry has suffered. It will very likely end the way every previous crisis has ended, with a tougher, more professional market that eventually trades at higher prices than before.

I don’t say that to play down what’s happened.

North Korea’s hackers have walked off with billions, and Bitcoin has dropped more than 4% to around US$78,000. Binance temporarily froze withdrawals after the attack, although some have now resumed, and investors are understandably rattled.

But anyone who has followed this market for the past decade has seen versions of this before, and the pattern after each one has been remarkably consistent.

Crypto crises have a habit of forcing change

In February 2014, Mt Gox, which had handled the majority of the world’s Bitcoin trading at its peak, collapsed after losing around 850,000 Bitcoin. Many people at the time wrote Bitcoin off entirely.

Instead, regulators in Japan, where Mt Gox was based, went on to introduce licensing for exchanges, and custody standards started to take shape. Within three years, Bitcoin was trading well above its pre-collapse level.

In 2016, hackers stole around 120,000 Bitcoin from Bitfinex. The industry responded with better cold storage practices and a more serious approach to separating customer funds from day to day operations. The following year, Bitcoin had its biggest rally to date.

Then came FTX in November 2022, the most damaging episode of all, because it was fraud at the very top of a major platform. Bitcoin fell below $16,000, and the obituaries were written again.

What followed was the arrival of spot Bitcoin ETFs in the US in January 2024 and full implementation of the EU’s MiCA regulations. A wave of pension funds, wealth managers and listed companies entered the market through regulated routes, and Bitcoin went on to trade above $125,000.

Even the Bybit theft early last year was followed by tighter controls across exchanges and new record prices within months. That was a US$1.5 billion hack by the same North Korean unit now blamed for the Binance attack.

Each of these shocks exposed a specific weakness, the market punished it hard, and the industry responded, usually with regulators pushing from behind.

Every round left crypto with stronger rules and deeper institutional involvement. It also brought bigger pools of capital willing to commit, because the infrastructure had improved.

What the Binance hack exposed

Last week’s weakness is clear enough. Binance’s initial investigation pointed to a compromised DevOps engineer’s laptop as one route into its systems, although the company subsequently said it had uncovered additional points of breach. Most of the stolen funds moved in around 20 minutes.

A platform holding about $162.8 billion for 335 million registered users should have had far more standing between one device and the vault.

I’d expect that gap to close fast. Regulators in the major markets will likely impose stricter standards on staff vetting, device security and how large withdrawals are authorised.

Exchanges that want to keep institutional business will move ahead of those rules rather than wait for them. Security spending across the sector was already rising, and this attack will push it sharply higher.

The response itself has also shown how far the market has come since Mt Gox. Around $3 billion of the affected assets was frozen within hours, largely because Tether, Circle and Ripple were able to lock stablecoins tied to the theft. Investigators also began tracing the rest across public blockchains.

In 2014, nobody could have done anything like that.

Binance says it will cover every loss and has already replaced about 95% of the stolen tokens using company funds. It has also pledged an updated proof of reserves. If it follows through, it will show the largest platforms now have the financial depth to absorb a blow that would have finished most exchanges a few years ago.

None of this touches the Bitcoin network itself, which carried on settling transactions throughout. The damage sits with a company’s security, and companies can be forced to do better.

Where crypto goes from here

The likely result is a shift in where and how digital assets are held. More capital should flow through regulated products backed by institutional custody, and more long-term holders will keep their keys offline.

Exchanges will increasingly be judged on how well they guard assets as well as on fees and liquidity. Each of those changes makes the market sturdier and more attractive to the large investors who drive its long term growth.

There will be more volatility in the coming days. The key things to watch are how smoothly Binance restores withdrawals across all assets and whether outflows remain orderly.

Looking further out, this hack is likely to be remembered the way Mt Gox, Bitfinex and FTX are remembered now.

Each was a painful episode that forced the industry to raise its standards and set up the next stage of its growth.

Nigel Green is the group CEO and founder of deVere Group, an independent global financial consultancy.

The views, information or opinions expressed in the commentary in this article are solely those of the author and do not represent the views of Stockhead.

Stockhead does not provide, endorse or otherwise assume responsibility for any financial advice contained in this article.

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