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Crypto giant Binance's historic $6.3 billion heist is a warning to investors
Binance, the world's largest cryptocurrency exchange, is thought to have suffered the largest crypto heist in history. It's a warning for investors to consider reducing their exposure to the digital asset
An unnamed engineer at Binance is probably seeking alternative employment, after being responsible for losing their employer $6.3 billion. Their compromised laptop gave hackers a route into the inner workings of the world's top cryptocurrency exchange.
The crypto heist, which is thought to be the largest single theft in history, has been blamed on the North Korean hacking group implicated in last year's theft of $1.5 billion from the Dubai-based Bybit exchange.
Binance, which was founded in China in 2017 but currently operates without a headquarters, says it will cover the losses out of its own funds rather than impose them on customers. Roughly $3 billion of the stolen money was in stablecoins, crypto assets that can be frozen by centralised issuers. The remaining billions will probably be slowly laundered through multiple shady dealers before ultimately finishing up in the pockets of Pyongyang.
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After Binance, is cryptocurrency a safe investment?
Cryptocurrencies such as bitcoin are structured to function like “digital cash”. Advocates say this allows wealth to be moved without the need for permission from governments or the banking system. But that “permissionless” structure is a two-edged sword. Much like cash, stolen bitcoin is very difficult to recover. That makes crypto a compelling target for organised, state-backed hackers, says Pranav Kiran on Breakingviews. Investors are “oddly placid” about the growing risks. Bitcoin has wafted down a few percentage points in the days since the hack, barely a hiccup for such a volatile asset.
It is equally strange that crypto fans – by nature a paranoid bunch – are willing to put so much trust in a system of offshore exchanges with patchy custody, capital and cybersecurity rules. The danger is compounded by the fact that the likes of Binance simultaneously act as brokerage, custody and trading platforms. That is different to traditional markets – a trading venue like the London Stock Exchange does not also hold assets for its users.
Bitcoin, down 29% against the pound over the past 12 months, was already having a bad year. Cryptocurrencies face growing competition from other offerings in the “degenerate economy”, a term coined by investor Howard Lindzon to describe a group of platforms and assets that dangerously commingle investment, gambling and entertainment.
One poll found that 61% of US users viewed cryptocurrencies as a “way to make quick money”, say Vicky Ge Huang and Krystal Hur in The Wall Street Journal. Many of these traders have since ditched crypto in favour of the new fad: prediction markets that let users punt on everything from sports results to US elections.
Digital assets still have plenty of convinced supporters, says Lionel Laurent on Bloomberg. Even traditional financiers are open to the argument that they might offer a hedge against inflation. But with AI turbocharging cybersecurity risks, the time has come to ask “if it would be wiser to reduce one's exposure to crypto”.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
