Why is Crypto Down Today? Market Crash Triggered by Largest Hack in History

TLDR:

• Crypto markets experienced a significant downturn with $544 million in liquidations over 24 hours, triggered by a $1.4 billion hack of Ethereum-related tokens from Bybit exchange
• Major cryptocurrencies including Bitcoin, Ethereum, and XRP saw price drops ranging from 0.45% to 3.50% in the past day
• A separate scandal involving LIBRA memecoin and Argentina’s president Javier Milei has raised concerns about manipulation in the memecoin market
• Ethena Labs, a DeFi protocol, assured users its USDe stablecoin remains solvent despite exposure to Bybit, later reducing exposure to zero
• Bybit CEO Ben Zhou confirmed withdrawals remain open but warned of processing delays due to high congestion

The Crypto market crashed today following a major security breach at cryptocurrency exchange Bybit which triggered a broad market decline, resulting in hundreds of millions in liquidated positions across the crypto sector.

The hack, which resulted in the loss of $1.4 billion worth of Ethereum-related tokens, has sent ripples through the digital asset marketplace.

Data from analytics firm Coinglass reveals that the market downturn led to the liquidation of $544 million worth of open positions within 24 hours. These mass liquidations have created uncertainty among traders and investors, contributing to the current bearish market conditions.

The stolen assets from Bybit included Lido Staked Ether (STETH), Mantle Staked Ether (mETH), and other cryptocurrencies. In response to the security breach, Bybit CEO Ben Zhou has confirmed that withdrawals remain operational but warned users to expect longer processing times due to increased network congestion.

The impact of the hack quickly spread across major cryptocurrencies. Bitcoin experienced a decline of 0.45%, while Ethereum fell by 1.5%. XRP saw a more pronounced drop of 3.50% within the same 24-hour period.

Ethena Solvent

The market turbulence has affected various sectors of the crypto ecosystem, including DeFi protocols. Ethena Labs, which operates the yield-bearing stablecoin USDe, moved quickly to address concerns about its exposure to Bybit. The protocol initially reported approximately $30 million in exposure through financial derivatives on Bybit but later announced it had reduced this exposure to zero.

Ethena Labs emphasized that its reserve fund, which held around $46 million as of the fourth quarter of 2024, provides additional security for USDe holders. The protocol also clarified that none of USDe’s cryptocurrency backing is held directly on Bybit, but rather with an off-exchange custodian called Copper.

The market downturn comes amid other challenges facing the cryptocurrency sector. Economic tensions between the United States and several countries, including China and Canada, have added to the bearish sentiment. Additionally, Bitcoin has faced pressure from Exchange-Traded Fund (ETF) outflows from asset managers.

Former Alameda Research co-founder and current Pharos CEO Tara McAulay has expressed concerns about the market conditions, suggesting the possibility of a decline similar to the market crash of 2020.

Memecoin Scandals

The memecoin market has also faced its own controversies. The recent LIBRA scandal, involving Argentina’s president Javier Milei, has raised questions about market manipulation within the memecoin sector. The token, which was promoted as a means to fund Argentina’s development, experienced a rapid rise and fall.

The Bybit hack has highlighted ongoing security concerns in the cryptocurrency industry. Despite the exchange’s size and reputation, it became the target of one of the largest cryptocurrency thefts in recent history.

The incident has prompted many investors to reassess their risk management strategies. The rapid spread of the market decline demonstrates the interconnected nature of cryptocurrency markets and their vulnerability to large-scale security breaches.

Market Impact

Trading volumes across major exchanges have increased as investors react to the market movements. The surge in activity has contributed to network congestion and slower transaction processing times across multiple platforms.

DeFi protocols and other crypto platforms have moved to reassure users about their security measures and exposure to affected entities. Many have emphasized their use of separate custodians and additional safety measures to protect user assets.

Exchange representatives and market analysts continue to monitor the situation closely as the full impact of the Bybit hack unfolds. The incident serves as a reminder of the importance of robust security measures in the cryptocurrency industry.