Cryptocurrencies Poised for a Comeback Despite Bithumb Hack, Says Charlie Lee
The latest hack of a South Korean cryptocurrency exchange does not change the market fundamentals for bitcoin or other digital currencies, Charlie Lee told CNBC in an interview on Wednesday. What’s more, the Litecoin founder believes cryptos are poised for a comeback – the only question is when.
Charlie Lee Weighs In
Cryptocurrency prices declined by as much as $8 billion Wednesday on news that South Korea’s Bithumb exchange was attacked. As Lee pointed out to CNBC, investors’ initial reaction was typical given the sentiment-driven nature of the market. The hack of Bithumb or any other digital currency exchange does not affect bitcoin’s underlying value.
“If the exchange does not protect the coins well enough and gets hacked, it doesn’t really change the fundamentals of the coin they are protecting,” he said.
With respect to security, exchanges still have “a lot to improve,” Lee said before adding that strides were being taken to prevent further attacks from taking places. In the case of Bithumb, the company reportedly spent 10 billion won on new security measures recently and beefed up its IT staff far beyond the threshold required for financial institutions.
The latest Bithumb heist resulted in the loss of nearly $31 million of cryptocurrency. The exchange halted deposits and withdrawals and shifted existing balances into cold storage as it investigated the matter. The attack caught the attention of South Korea’s financial regulators, who announced plans to expedite stricter regulations governing digital currency exchanges.
Typical Bear Market
Despite bitcoin’s massive correction over the past six months, it is still doing “really well,” Lee said, reminding investors that bear markets in cryptocurrency are nothing new. However, the difficulty with bitcoin is determining how long the bearish reversal will last.
“This one could be a three to four year market or it could recover tomorrow,” he said.
Analysts have offered a multitude of explanations for bitcoin’s half-year price collapse. Some are convinced that it was caused by the introduction of futures contracts, which allow traders to more easily short the market when this option was virtually impossible before. Others have pinned the blame on bitcoin whales, whom they say have been gradually winding down their positions since the futures contracts launched in December.
Speculation that Tether (USDT) has been artificially inflating bitcoin’s value through Bitfinex has also been posited as a potential cause for the six-month price collapse. The company’s recent audit, which has been labeled “phony” by many in the blockchain community, has only fueled accusations of impropriety. However, as Hacked’s James Waggonner pointed out, Bitfinex would have had to spend millions just to inflate bitcoin’s value by four basis points.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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