A massive crypto hack just gave investors a reminder that the industry still hasn't solved the cybersecurity issues that have plagued it since its inception.
But that likely won't slow Wall Street's embrace of crypto and the technology that underpins it.
Crypto exchange Binance said Thursday it had been hit by hackers who stole more than $6.3 billion worth of Bitcoin, Ethereum, and stablecoins such as USDC and Tether, among other tokens. Blockchain securities researchers including Chainalysis identified a North Korea-based hacking group as the likely perpetrator. Binance in statements on X said it would cover any losses with its own funds and that "user funds are safe."
Details of how the hack was pulled off are still emerging, but the attack highlighted why crypto has long been such an alluring target.
Traditional ways of moving money and other assets often take days, involve intermediaries, and have ways of stopping or even reversing transfers. But Bitcoin and other cryptocurrencies can transfer almost instantly -- and irreversibly -- and can be quickly laundered among thousands of wallet addresses to hide where the funds have gone.
The Binance hack doesn't appear to have a direct impact on the major spot Bitcoin exchange-traded funds, which use Coinbase Global or other firms as their custodians. The largest such funds include BlackRock's iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the Grayscale Bitcoin Trust.
Each of those funds in documents says their Bitcoin custodian keeps a substantial portion of the cryptocurrency offline in so-called "cold" wallets, protecting against a hacker gaining access. A smaller amount of Bitcoin is still typically kept in hot wallets to allow for the creation and redemption of shares.
Still, if a hacker somehow did gain access to the Bitcoin in these funds, their prospectuses make clear that the investors could experience a loss. The iShares prospectus, for example, notes that the Bitcoin isn't protected by the insurance that typically protects securities and deposits from theft. While its custodian, Coinbase, does have an insurance policy that could cover some losses, it isn't enough to cover the whole fund. Fidelity's and Grayscale's prospectuses have similar disclosures.
The risk isn't entirely theoretical. The Federal Bureau of Investigation in 2024 put out an alert warning that North Korean cyber actors "conducted research on a variety of targets connected to cryptocurrency exchange-traded funds (ETFs) over the last several months."
Grayscale, in a statement Friday, said its products and customers were unaffected by the Binance hack and that "safeguarding digital assets is the foundation of how we serve investors."
Coinbase didn't respond to a request for comment. The company wasn't hit by the hack and on social media said it was reaching out to Binance to offer help and was blocking compromised crypto wallets from sending the currencies.
"Crypto has been through many tough times, and has always come out stronger on the other side. This won't be any different," said Coinbase CEO Brian Armstrong in a post on X.
President Donald Trump's administration has been one of the biggest boosters of U.S. crypto adoption, and on Friday, there was little indication that would change.
Commodity Futures Trading Commission Chairman Michael Selig in a CNBC interview said that the theft of crypto rather than, say, cash from a bank would make it easier for law enforcement to track the stolen funds.
Crypto proponents could use the theft as an argument to push for a revival of legislation like the Clarity Act, an industry-supported bill that would have taken most crypto trading out of the purview of securities regulators, said Mark Hays, an associate director at investor protection group Americans for Financial Reform and Demand Progress.
"They'll say 'Yes, this is awful, but this is why we wanted a more robust regulatory framework in the first place,'" Hays said. "The truth is it's not clear any of the proposals would have prevented this from happening."
As to the hack's effect on crypto prices or on Wall Street's headlong adoption of blockchain technology for stocks and other traditional assets, good history lessons can be found in what happened after previous major hacks, said Clear Street analyst Owen Lau.
Crypto exchange Mt. Gox collapsed in 2014 after losing more than $350 million in Bitcoin to theft. The loss of confidence damaged prices and trading volumes for a while, but Bitcoin prices soon went on to new heights, Lau noted.
Similarly, Wall Street firms that are on the path to "tokenizing" traditional assets aren't likely to give up those plans because of the Binance hack, Lau said.
Traditional Wall Street firms in the past year have announced or rolled out projects that would "tokenize" stocks and other securities, allowing them trade over blockchains in a similar fashion to Bitcoin and other cryptocurrencies. The idea is to allow them to transfer and settle almost instantly 24/7 rather than over the full business day it takes now.
In some cases, those efforts include blockchains that are only open to approved, institutional participants.
"The conversation with the senior level [of a firm] will get much more difficult," Lau said. "But I don't think it will slow them down in any sense."
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