Ether’s value experienced a nearly 6% decline despite crypto exchange Bybit reportedly purchasing $740 million worth of the cryptocurrency from the open market. This downturn was unexpected by some traders who anticipated a price recovery following a hack on February 21. They assumed Bybit’s need to cover losses would propel prices higher, but this did not come to pass.
Bybit CEO Ben Zhou revealed the transaction involved malicious source code that stealthily altered the wallet’s smart contract logic to funnel funds. The North Korean state-affiliated hacker group, Lazarus, believed to be behind the attack, typically bides its time before liquidating stolen assets as those wallets are tracked and blacklisted by central platforms.
Analysts highlighted that significant buying pressure was unavoidable, given the enormous size of the transaction, which no OTC desk or exchange could fully absorb. The leading 10 exchanges’ 2% order book depth for ETH only accounts for around $52 million, making Bybit’s $700 million market acquisition particularly challenging.
Vance Spencer, co-founder of Framework Ventures, noted that temporary bridge loans were granted to Bybit, implying that a future open market purchase of over 400,000 ETH is necessary. This belief was shared by others like Lewi from Perennial Labs, who anticipated a potential short squeeze driving Ether’s price upward.
Between February 21 and February 23, Ether’s price rose 6.7%, revisiting the $2,850 resistance level. However, this gain vanished on February 24 when the price fell to $2,650, coinciding with news that Bybit had recovered more than 50% of the stolen Ether. Traders betting on Bybit’s aggressive market purchases closed their positions after realizing their expectations were mistaken.
Ether futures open interest decreased from 8.82 million ETH to 8.52 million ETH, indicating that traders unwound leveraged positions. This aligns with anticipated outcomes since a 6.7% price swing necessitates 15x leverage to entirely erase a margin deposit.
The hack on Bybit spotlighted vulnerabilities in the Ethereum ecosystem, especially in complex multisig setups utilizing the Ethereum Virtual Machine. The situation emphasized the intricate technology and insufficient defensive solutions compared to straightforward hardware wallets, exposing risks to institutions managing vast sums.
Ether holders are also apprehensive about the relatively low staking yield of 2.4%, coupled with a 0.6% inflation rate in ETH supply growth. In comparison, Solana presents a staking yield of 4%. Previously optimistic analysts had speculated on the inclusion of staking in US spot Ether ETFs, still under SEC review.
In essence, Ether’s price decline may be attributed not only to the fallout from the Bybit hack but also to the misplaced optimism among leveraged traders and unrealized expectations about staking’s introduction in US spot ETFs.
