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Bitcoin: What Can We Learn from the Latest Bithumb Hack that Few are Paying Attention To

Author: CoinLive News Team Jun 21, 2018 at 07:05

On Wednesday, about $31 million worth of cryptocurrencies were stolen by hackers at Bithumb, a South Korea-based exchange that has become the sixth largest in the world. The hack is far from the worst episodes we've seen such as Mt. Gox or Coincheck, when $530 million were stolen in a mega cyberheist. The majority of the media attention has been caught up on the actual hackng event and what were the reasons behind the third hack of the exchange in 12 months

However, at CoinLive, we want to divert our attention to another factor, often overlooked, despite it holds quite a lot of informational value. Did you notice that the price of Bitcoin was largely undeterred following the Bithumb hack? That's certainly not the familiar behavior we've been accustomed in recent times, where each notable hacking episode was accompanied by a substantial wave of selling pressure, as the market entered in panic selling mode, what's often referred as a reactive market.  

To gain further insights on what comprises a reactive market, we published a case study back in April on Binance's failed hacking attempt and the subsequent Bitcoin reaction, where the mere anticipation of stolen funds led to an immediate panic selling response, as can be seen in the chart below. One can learn quite a few new things from that report. 

This time, however, the negative news on the Bithumb hacking only had a temporary effect in the price of Bitcoin, with the initial dumping of the digital currency followed by an equally vigorous rebound to evaporate all the Bithumb-led losses. 

Another powerful signal that further reinforces the notion of a tentative transition into more constructive dynamics is the fact that the Bitcoin market barely reacted to the negative report published by the Bank of International Settlements, often referred as the Bank of Central Banks, after stating that 'BTC could bring the internet to a halt' as part of a poorly researched report in a failed attempt to bring down the kind of digital currencies. We published a report about the sarcasm of the crypto community following the negative BIS report on the threat that Bitcoin represents to the internet. You can't make this stuff up... 

What Are the Main Takeaways from the Market Reaction Seen?

First and foremost, the hacking is telegraphing an immediate positive message, that is, the market as of today is sending us tentative clues that we might be transitioning, short-term talking (may last days, weeks or months, we never know), from a position of fragility - where any significant intraday noise has negative short-term repercussions on sentiment - to more relentless dynamics, where traders and investors, rather than over-reacting by liquidating a position on the first sign of trouble ahead, they hold firm to its bullish conviction on the asset class. When we start to see the market ruling out negative news and overplaying positive ones, that's a price action clue worth taking note of. 

One must be reminded that for the market to act the way it did after the Bithumb hacking, higher levels of confidence must be present that result in limiting the potential losses. This leads us to another potential assumption. The fact that the drop in Bitcoin was rather short-lived in nature suggests that the number of participants with an interest to remove Bitcoins from their portfolios is decreasing. We certainly need further evidence, which must be collected by being a patient observant of the markets on a daily basis. When these events occur, they leave behind certain clues that should not be shrugged off. The more recurring positive counter-intuitive moves in Bitcoin, the greater the confidence in the market to reinforce the idea of a change in dynamics. 

If enough participants believe that the market is gearing towards a different behavior in the price patterns Bitcoin shows, the more it tends to behave in the manner most conducive to extract profits off the current bias and clues it provides, which leads to the sense of prudence gradually dissipating as the ambition to extract more profits increases, which in turn creates a self-fulfilling prophecy where the overall market inertia transitions as the order flow favor the buy-side action.

In the case study of Binance's failed hacking attempt, even before we knew the malicious intentions by hackers, and the majority were led to believe it was still a mere technical glitch, yet the panic selling was well underway, one of the quotes describing the state of affairs in the Bitcoin market came from Adam Button, Chief Editor at ForexLive, who wrote: "If you can't hodl through a technical glitch, you can't hodl for long." In the case of Bithumb, the steadiness of Bitcoin paints the opposite picture. 

To further strengthen the idea that Bitcoin's price action post the Bithumb's is a relevant short-term signal not to dismiss, the mainstream media was busy justifying the latest mass-selling of Bitcoin back in June 11 as a response to Coinrail's hacking, a cryptocurrency exchange based in South Korea that lost cryptocurrencies worth around $40 million in the cyber attack. Let's assume for a second that the catalyst that caused the panic selling was indeed Coinrail news, which we will never know although we find it rather 'force-fitting', don't you find it perplexing that when a much more popular exchange - sixth in the world by volumes - gets hacked, the price of Bitcoin is actually trading higher than pre-news within a few hours?

Why Bitcoin's Price Action Post Bithumb News Hints a Tentative Transition in Dynamics?

  • Actions in the price of Bitcoin suggest that the market, in the short term, is more guided by a forward sense based on the fundamentals of the technology, improvements in the ecosystem (custodial solutions, scalability) than the daily FUD.
  • Traders appear to start dismissing the intraday noise (Bithumb hacking, BIS report) to instead find that the levels Bitcoin trades at may have started an accumulation campaign, which may last days, weeks, no one knows.
  • We have also seen positive news stories such as the confirmation of ETH not classified as a security by the SEC are over-played and market movements exaggerated vs negative news, as the perception shifts into fear of missing out. 
  • Intraday traders that would sell quickly in response to negative news seem to be more patient to hold onto their positions, which may suggest a reduction of weak-handed players.
  • The volume candles on the hourly chart ever since the latest sell-off that ended back on June 13, the volume on the buy-side has been rising across the main exchanges rather than drying up after a few rising days.

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