A cyberheist at a little-known virtual currency exchange helped wipe billions of dollars off the value of bitcoin and other digital currencies.
The price of bitcoin slumped more than 7% after South Korea's Coinrail announced that it had been targeted by cyberthieves. In a statement Monday, the exchange said that it had a suffered a security breach in which hackers stole about 30% of its virtual currencies.
Coinrail said it had temporarily suspended trading in digital currencies and was fully cooperating with investigators to try to track down the missing funds. The exchange did not disclose the value of tokens stolen. The theft was of less well-known cryptocurrencies rather than bitcoin itself.
South Korea has emerged as a hotbed for trading in virtual currencies over the last year. Coinrail is one of its less-well-known trading platforms.
Related: What is bitcoin?
Still, the news sent shock waves through virtual currency markets. As well as bitcoin, prices for other commonly traded digital currencies like ethereum also plunged. Nearly $30 billion in cryptocurrency wealth was wiped in about seven hours of trading, according to data provider Coinmarketcap.com.
Bitcoin was trading at around $6,750 in early afternoon trading in Asia. That's near its lowest level in about two months and around half the price at which it started the year.
"Investors have been increasingly worried about cybersecurity issues," said Adrian Lai, founding partner at Hong Kong-based investment firm Orichal Partners. "At this stage, obviously, the standard is not high enough."
Coinrail isn't the only virtual currency exchange to fall victim to a cyberheist in recent months.
Related: So, why shouldn't I buy bitcoin?
In January, Japan's Coincheck said hackers stole $530 million worth of virtual currency from its users in what ranks as the biggest such theft on record. That prompted a Japanese authorities to step up scrutiny of exchanges.
Lai said the Coinrail hack intensified an already negative mood in cryptocurrency markets. The Wall Street Journal reported Friday that US investigators were demanding several bitcoin exchanges hand over trading data as part of a probe into potential manipulation of futures markets.
-- Jake Kwon contributed to this report.
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.
Cryptocurrencies have a mysterious allure – but are they just a fad? | Robert Shiller Read more
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.”
Bitcoin was trading at about $6,750 on Monday afternoon – down from an all-time peak of almost $20,000 in the week before Christmas. In February, it fell to $5,900.
Bitcoin price chart Bitcoin price chart
South Korea is one of the world’s major cryptocurrency trading centres, and is home to one of the busiest virtual coin exchanges, Bithumb.
There have been a series of thefts from cryptocurrency exchanges in recent months. Japan’s Coincheck was hacked in January, with more than $500m-worth of digital currency stolen. It started reimbursing customers in March, but faces two class-action lawsuits. In December, the South Korean exchange Youbit shut down and filed for bankruptcy after being hacked twice.
Naeem Aslam at online trading platform ThinkMarkets said: “The question is: is there any limit to these hacks? After every few months, we are seeing the same pattern emerging. This is the result of loose regulatory control and regulators must step in to protect the consumers. Anyone who wants to do anything with exchanges should be forced to adopt high-grade security and regular security upgrades.”
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The Wall Street Journal (£) reported on Friday that US regulators were investigating potential price manipulation at four major cryptocurrency exchanges. The investigation comes six months after CME Group launched bitcoin futures. Coinbase, Bitstamp, itBit and Kraken have been asked to share trading data related to the futures contracts.
Analysts said bitcoin volatility was fading, after the price increased threefold between mid-November and mid-December. David Jones, the chief market strategist at trading platform Capital.com, said this was driven by increased publicity as bitcoin went from being a niche IT interest to becoming mainstream, but added that the hype has now gone.
He noted that Facebook and Google had banned cryptocurrency adverts. “Plenty of latecomers to the cryptocurrency rally have had their fingers burnt, have taken their losses (or are still sitting on them) and have vowed never to return,” Jones said. “Activity amongst the wider public has slowed. Arguably, the introduction of a listed futures contract for bitcoin has also calmed the wilder market moves.”
The Bitcoin price has today dropped 12%, taking its year-to-date losses to an eye-watering 50%, after South Korean exchange Coinrail warned users it’s reviewing its system due to a hacking attempt.
Meanwhile, rival cryptocurrencies Ethereum and Ripple are both down over 10% today.
The latest blow comes as the Bitcoin price struggles to find a floor amid regulatory concerns, dwindling transactions, sky-high power consumption, and criticism from the world's established financial industry.
However, Bitcoin holders aren't broke yet — overall, the Bitcoin price is up over 100% on this time last year when it was trading for less than $3,000.
Here are the five biggest concerns for Bitcoin and cryptocurrencies right now.
CoinDesk
Bitcoin woe number one...
The potential hack of Coinrail — which trades some 50 cryptocurrencies and is, just, in the world's top 100 exchanges — is the latest high profile Bitcoin heist in recent months and will renew fears many have over Bitcoin's safety as an investment and trading commodity.
South Korea has emerged as a key market for cryptocurrencies, and earlier this year was the third-biggest market in the world for Bitcoin trades, behind Japan and the US, according to the digital currency website Coinhills.
Some of the biggest Bitcoin hacks in recent years have happened in the country, with Bithumb, which was at the time, South Korea’s largest cryptocurrency exchange and the world’s fifth largest at the time, was hacked in July last year.
The data of almost 32,000 users data was compromised which allowed hackers to log in and transfer coins.
A few months later, in December, another exchange, Youbit, lost around 4,000 Bitcoins — some 17% of its assets.
While the potential Coinrail hack is unlikely to be on the same scale as either of last year's breaches it will shake the confidence of many potential Bitcoin investors at a troubled time for cryptocurrencies.
Coinrail said it has accounted for 70% of its cryptocurrency reserves in a statement posted to its website. The exchange moves around $2.6 million each 24 hours, according to CoinMarketCap data.
Coinrail said it has frozen all exposed NPXS, NPER and ATX coins and other cryptocurrencies are now being kept in a cold wallet.
Coinrail
Bitcoin woe number two...
Governments around the world are beginning to act on Bitcoin and cryptocurrency regulations — something the market and Bitcoin evangelists view with caution.
Regulatory crackdowns and the US Securities and Exchange Commission's Bitcoin price manipulation probe have knocked investor confidence in Bitcoin this year.
The SEC investigation, which Bloomberg reported last month, is the U.S.’s latest effort to crack down on the booming Bitcoin and cryptocurrency industry and will look into illegal practices that can influence prices.
On Friday the Wall Street Journal reported U.S. government investigators demanded several bitcoin exchanges hand over trading data, putting the price on the back foot ahead of today's sell off.
Federal prosecutors are working with the U.S. financial regulator that oversees derivatives tied to Bitcoin, the Commodity Futures Trading Commission.
In March, Japan’s Financial Services Agency ordered two exchanges to halt operations for a month and penalized four others.
Elsewhere, the Philippines’ Securities and Exchange Commission said in January it is crafting rules to regulate cryptocurrency transactions to protect investors and reduce the risk of fraud.
Coinrail is a cryptocurrency exchange in South Korea, and it announced on Sunday, June 10, that there had been a hacking attempt. Its website said, “70% of its total coin/total reserves were safe” and, “Two-thirds of the coins confirmed to have been leaked are covered by freezing / recalling through consultation with each coach and related exchanges.”
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
[Author’s note: There is no official price for Bitcoin, so I use round numbers. I use CCs as an acronym for cryptocurrencies.]
This hack has led to Bitcoin, Bitcoin Cash, Ethereum, Ripple and other cryptocurrencies falling 5% or more and ending two weeks of relatively low volatility. Bitcoin had been trading around $7,600 when in the space of 30 minutes it fell to less than $7,300 and has been trading in a $100 range over the past 15 hours.
Coindesk.com
In checking coinmarketcap.com over the past 24 hours Bitcoin is the least impacted with a fall of just under 5% . The next nine largest cryptocurrencies by market cap have dropped by 5% to 11%.
Coinmarketcap.com
At least the third hack of a South Korean exchange in the past year
In July last year Bithumb, South Korea’s largest cryptocurrency exchange and the world’s fifth largest at the time, was hacked. Information on 31,800 customers was compromised. While there wasn’t direct access to customer accounts the hackers gleaned enough personal information to “voice phish” additional details from customers to transfer cryptocurrencies out of them.
In December last year Youbit, a South Korean Bitcoin exchange, was attacked. Almost 4,000 Bitcoins or 17% of its assets worth about $48 million were stolen. A Reuters article said that all customers CC assets would be marked down by 25%, but Youbit wound up filing for bankruptcy.
Coinrail is the latest South Korean cryptocurrency exchange to be compromised. While it isn't known if North Korea is responsible for these incidents, it is widely believed they are very active to obtain cryptocurrencies so that they can be exchanged into hard currencies.
Technical rebound tripped up by hack
Last week Robert Sluymer, Managing Director and Technical Strategist at Fundstrat Global Advisors, published a report detailing what he believed could be positive technical developments suggesting the first stage of a three-stage bottoming process is developing. Short-term momentum indicators are beginning to bottom.”
While he added that this could be premature, I don’t think another hacking incident was on his mind about Bitcoin’s price movement. These types of incidents are a major obstacle for Bitcoin and other cryptocurrencies to become widely accepted.
