Can The Crypto Market Survive Huge Thefts? Bitcoin, NEM Seem Unfazed By $500M Hack

Chuck Jones
Written by Chuck Jones

The threat from hacking is one of the 12 reasons I believe that Bitcoin’s price could fall to $1,000 or less.

There have been numerous successful cryptocurrency thefts over the years with the latest, and potentially the biggest, being late last week. Coincheck, one of Japan’s largest cryptocurrency exchanges, disclosed that 500 million NEM tokens were sent “illicitly” outside its exchange. A NEM is valued at just over $1 so the theft is north of $500 million.

(Editor 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.)

Cryptocurrency prices fell but have recovered

Not surprisingly NEM’s value fell after the theft was announced. It dropped from $1.07 to just under a dollar and is currently at $1.02. As long as the theft doesn’t force NEM tokens to be unusable, and the hackers certainly don’t want that, the reasons for owning and using them hasn’t changed.

Coincheck has said that it knows where the tokens were sent and that it might be possible to recover them. This may help explain why NEM’s price has regained most of its losses.

NEM
NEM price chart pre and post theft. Source: coinmarketcap.com/Forbes

Bitcoin’s price also fell when the NEM theft was disclosed but quickly recovered. It is the largest cryptocurrency by market cap at just under $200 billion, depending on its latest trade, and its visibility helps guide the cryptocurrency market.

Bitcoin price drop and recovery from the NEM theft. Source: coinmarketcap.com/Forbes

Mt. Gox had been the largest hack of cryptocurrencies

Probably the most well-known and largest theft of Bitcoins was Mt. Gox, a Bitcoin exchange in Japan. It was handling over 70% of all Bitcoin transactions but was hacked in February 2014 and 850,000 Bitcoins were stolen. At the time they were valued at $450 million and would currently be worth about $10 billion.

The cryptocurrency market is much larger now than when Mt. Gox was hacked in 2014 and forced into bankruptcy. The NEM theft is 6% of all NEM tokens and is the 10th largest cryptocurrency by market cap at approximately $9 billion. NEM’s total market cap is about 1.5% of all cryptocurrencies $587 billion market cap according to coinmarketcap.com. Even if the NEM tokens are not recovered, it appears that the cryptocurrency market can weather even large thefts.

Just last month Youbit, a South Korean Bitcoin exchange, was hacked. Almost 4,000 Bitcoins or 17% of its assets worth about $48 million were stolen. A Reuters article said that all customers cryptocurrency assets would be marked down by 25%. That isn’t very comforting to cryptocurrency investors.

Below is a chart from EY LLC that shows some of the cryptocurrency hacks over the past six years.

Various cryptocurrency thefts Source: EY LLC/Forbes

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About Chuck Jones
I cover technology companies, worldwide economies and the stock market. I provide independent research of technology companies and was previously one of two analysts that determined the technology holdings for Atlantic Trust (Invesco's high net worth group), a firm with $15 billion under management. Before joining Atlantic Trust I was the Internet Security Software analyst for Smith Barney (where I authored the most comprehensive industry report “Internet Security Software: The Ultimate Internet Infrastructure”) and an Enterprise Server Hardware analyst at Salomon Brothers. Prior to becoming an equity analyst, I spent 16 years at IBM in a variety of sales and manufacturing positions. I have a B.S. in Industrial Engineering from Stanford University and a Postgraduate Diploma in Economics from the University of Sussex, England.