Author: Currency Market Trader
On February 21, a black swan event suddenly occurred in the cryptocurrency market: the Bybit exchange wallet was hacked, resulting in a loss of up to $1.5 billion, setting a record for the largest security incident in history. Since the stolen crypto assets were mainly Ethereum and its pledge certificates, ETH plunged more than 5% during the session, dragging down the broader market.
Although Bybit, the party primarily responsible for the security incident, has announced full compensation for users' losses, the impact of the theft on the industry and the market is not over yet.
First of all, whether Bybit has enough of its own assets to make up for the asset gap caused by the theft of coins is still an open question. Taking Binance's assets in January as a reference, its reserves corresponding to $100 billion in customer assets are $8.7 billion. Then Bybit's $15.7 billion in customer assets should correspond to $1.37 billion in reserves. This means that the pressure to fully compensate customer assets is still huge. At present, whether it is through internal fund scheduling or external financing to fill the funding gap, Bybit needs to audit the asset status of the exchange and publicize the results in order to restore market confidence as soon as possible. Otherwise, Bybit may face the risk of a run again, which will trigger market panic.
Secondly, the main reason for the attack on Bybit wallet was that hackers obtained Safe.Global's AWS S3 or CloudFront account/API key, thereby tampering with the front-end JavaScript file stored in S3 and implanting malicious code targeting Bybit's cold wallet address. Many professionals believe that this security incident may involve insider cooperation. As one of the important multi-signature wallet service providers in the Web3 field, SAFE currently still manages more than $100 billion in crypto assets, which has caused great concerns in the market about the spillover of security risks. In addition, when using an external wallet system, Bybit did not conduct a secondary review of important transactions, and its security awareness was weak, which led to a crisis of trust among users in decentralized exchanges. Therefore, it may take a long time to solve the series of problems caused by the theft of coins and rebuild market confidence.
In addition to the concentrated outbreak of internal risks, the impact of macro risks is also one of the important reasons for the continued decline of the crypto market. Against the backdrop of Trump's fiscal spending cuts and wielding the tariff stick, the U.S. stock market continued to fluctuate, with the median decline of the seven technology giants in the past week reaching 13%. This makes it difficult for the crypto market to enjoy the liquidity spillover of the U.S. stock market. Therefore, while the U.S. stock market plummeted, the Bitcoin ETF also suffered a record outflow. Without policy (national reserve Bitcoin) benefits or technological breakthroughs (improvement in fundamentals) as a hedge, the crypto market will continue to be under pressure from the decline of the U.S. stock market.
However, despite the lack of innovation in the crypto market, the valuations of most application-related tokens are below 80% of the historical percentiles, and the prices are still below 90% of the historical percentiles, which means that the valuations of most projects have returned to the level of Bitcoin at $15,500. The extremely low valuations have already reflected the sluggish fundamentals in advance. In addition, despite the huge resistance to establishing a national reserve of Bitcoin, Trump has begun to fulfill his campaign promise to "reverse the SEC's attitude towards crypto regulation" since last week.
First, in the past week, the US SEC withdrew its lawsuit against Coinbase and terminated its investigation into projects such as Robinhood Crypto, OpenSea, Uniswap Labs, and Tron. In response to the US SEC's abandonment of its investigation into Uniswap, Hayden Adams, co-founder of Uniswap, said that the SEC's previous investigation lasted three years, wasted a lot of time and millions of dollars, and had a significant impact on the company. The human, material, and financial pressures that must be borne in these lawsuits are not something that ordinary companies can afford. This means that many small and medium-sized projects are basically closed down once they are targeted by the SEC. With the end of the era of brutal regulation, the living environment of blockchain projects will be greatly improved.
Secondly, President Trump will host the first White House Cryptocurrency Summit and deliver a speech on March 7. The summit will be hosted by David Sachs, the White House crypto director, and managed by Bo Heins, the executive director of the task force. At that time, founders, executives, investors of well-known projects and members of the President's Digital Asset Task Force will gather together. The goal of the summit is to develop a clear regulatory framework, promote innovation, and protect economic freedom. After the summit, Trump may sign a series of executive orders to promote the development of the crypto market. Although these policy benefits are difficult to reverse the market downturn in the short term, the top-level design of crypto regulation and the acceleration of technological innovation will create favorable soil for a new round of bull market.
In this round of adjustments, Meme coin is undoubtedly the hardest hit area in this round of valuation cuts. The two most typical representatives, Ai16z and TRUMP, have plummeted 89% and 88% respectively in the past month. This also verifies the market law in the past: the market value growth driven by emotions will eventually be backfired by the ebb of emotions. Therefore, how fast Meme coin rises, how tragic it will be when it falls. It is worth noting that this decline is likely not a conventional technical adjustment, but a signal of a comprehensive ebb of Meme coin. There are two main reasons: First, after TRUMP, Mile's LIBRA and the Central African Republic's CAR both showed the phenomenon of "dying in the light", which means that the game of pure capital game is no longer sustainable. Second, the largest launch platform of Meme coin, the average daily agreement fee this week is only 1.47 million US dollars, a decrease of 90.4% from the historical peak of 15.38 million US dollars. In 2022, the signal of the comprehensive ebb of NFT also started with the 90% plunge in OpenSea's revenue. More importantly, after the hype logic of NFT was falsified by the market, NFT has not had a decent rebound since 2022. In other words, investors who are currently trapped by Meme may never have a chance to get out of it.
According to Coinmarketcap data, there are currently 11.29 million crypto tokens included in the platform, of which 99.2% have a daily trading volume of less than 50 million US dollars. According to data disclosed by Coinbase CEO Brian Armstrong, the current market adds up to 1 million new tokens per week. From historical experience, when the market entry threshold continues to decrease and the supply of targets continues to increase, funds usually flow to the top projects, and these projects will also receive a higher valuation premium. The current issuance mechanism of the crypto market is even crazier than the registration system of Hong Kong and US stocks, and the trend of the market moving towards Hong Kong and US stocks will eventually be unstoppable. Therefore, in the long run, only by adhering to fundamentals can long-term asset appreciation be achieved.
In the previous article, we mentioned that this decline has evolved from killing valuations to killing logic, marking the arrival of a deep bear market, and the market downturn will last for a long time. However, the most obvious feature of this week's adjustment is that strong currencies began to make up for the decline and low positions began to resist the decline, which means that the embryonic form of a staged bottom has appeared. Of course, grinding the bottom is also a very long stage. Be patient and wait for the arrival of a new cycle.
