There has been a sharp drop in the price of bitcoin and other virtual currencies after South Korean cryptocurrency exchange Coinrail was hacked over the weekend.
A tweet from Coinrail confirming the cyber-attack sent the price of bitcoin tumbling 10% on Sunday to two-month lows.
The world’s best-known cryptocurrency lost $500 (£372) in an hour, dropping to $6,627 on the Luxembourg exchange Bitstamp, while most other digital currencies also recorded large losses.
The latest attack highlights the lack of security and weak regulation of global cryptocurrency markets.
Coinrail later said in a statement on its website that its system was hit by “cyber intrusion” on Sunday, causing a loss for about 30% of the coins traded on the exchange. It did not quantify the value, but the local Yonhap news agency estimated that about 40bn won (£27.8m) worth of virtual coins was stolen.
Coinrail said: “Seventy percent of total coin and token reserves have been confirmed to be safely stored and moved to a cold wallet [not connected to the internet]. Two-thirds of stolen cryptocurrencies were withdrawn or frozen in partnership with related exchanges and coin companies. For the rest, we are looking into it with an investigative agency, related exchanges and coin developers.”
Police have begun an investigation, according to the Korea Herald, which cited a spokesperson as saying: “We secured the access history of Coinrail servers and we are in the process of analysing them.”
“These are people that see something moving up and start buying — they jump on the bandwagon,” says Campbell Harvey, a finance professor at Duke University and an investment strategy adviser for Man Group.
“Initially in the crypto space, you had people who really understood the technology. Then there was a typical bandwagon investor situation and you know how it ends — and it did.” But how many have gained — and lost — from the bitcoin bubble? Exclusive data from blockchain research company Chainalysis seen by the FT provides some tantalising answers.
The Chainalysis data quantifies this distinct shift in the make-up of bitcoin owners from longer-term investors — those who held the asset for more than a year — to short-term investors who have traded more recently, by analysing how regularly coins have changed hands.
Last November — before December’s pricing peak — the amount of bitcoin held for investment was roughly three times that held by traders. However, by April 2018, the data show the amount held by investors — about 6m bitcoin — was much closer to the amount held by short-term speculators, with 5.1m bitcoin.
Indeed, Chainalysis estimates that longer-term holders sold at least $30bn worth of bitcoin to new speculators over the December to April period, with half of this movement taking place in December alone.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
