Behind the $3.6B Recovery of Bitfinex Hack Funds
On-chain data uncovering the impact on Bitcoin and LEO
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This week we keep it concise and analytical. We provide perspective on what happened behind the scenes of the $3.6B worth of funds recovered from the Bitfinex hack. Using on-chain data we obtain fascinating insights on how this event affected Bitcoin and Bitfinex’s LEO token.
This week we switch up the usual metrics given a substantial increase in large transactions. If you missed exchange flows data make sure to check it here on the ITB analytics platform.
Weekly Large Transactions Volume — Aggregate amount sent in on-chain transfers of over $100k. This metric is a valuable proxy to the level of institutional activity.
- Bitcoin registered a robust increase in institutional activity this week, with over $1.5 trillion transferred throughout transactions of over $100k
- Both BTC and ETH saw large transactions volume climb by 50%, indicating notable growth from institutional investors
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin’s fees grew 17.8% along with higher volume
- Ethereum’s fees decreased by 11.2% as NFT volumes cool off, with average transaction fees down to a still-high $30, but down 50% from it’s highest point
Behind the $3.6B Recovery of Bitfinex Hack Funds
Following a chain of bizarre events in crypto, such as the Wonderland debacle, this week the U.S. government seized $3.6 billion in Bitcoin previously stolen from Bitfinex back in 2016. While headlines focused on the peculiar couple arrested for laundering these funds, an event of this magnitude has led to ripple effects across the market. Using on-chain data we discuss key findings to better understand the actions behind the noise and the repercussions for both Bitcoin and Bitfinex.
Timeline of events — First off, let’s review what took place:
- August 2016 — nearly 120,000 Bitcoin (worth $72M at the time) were stolen from Bitfinex, making it the second largest exploit in Bitcoin terms
- 2016–2020 — years pass with barely any activity from addresses linked to the Bitfinex hack
- July 2020 and April 2021 — linked addresses make several transactions worth hundreds of millions
- February 1, 2022 — these addresses make various transactions many of them of 10,000 BTC. A total of 94,643 BTC (approximately $3.6 billion) is transferred to a new address
- February 8, 2022 — the U.S. Department of Justice announces they have obtained over 94,000 Bitcoin and arrested a couple laundering funds from the Bitfinex hack
These transactions had a significant impact on-chain.
The U.S. government becomes the 5th largest holder of Bitcoin in a single address. Though there are likely entities with larger Bitcoin holdings spread through several addresses, the DOJ’s address with the seized funds has become the fifth with most Bitcoin, behind three exchange addresses and an unidentified one.
Moreover, the transactions that took place on February 1st led to a yearly high on the net inflows into large holders (classified by IntoTheBlock as those with over 0.1% of circulating supply).
While it’s still unclear what the DOJ will do with the funds, the market has been reacting to these news. Particularly, Bitfinex’s LEO token saw a massive spike in price following the announcement — though it had already been climbing a week in advance.
Curious activity — The LEO token reached a new all-time high after the U.S. government seized the stolen funds, but before it was public information
- Bitfinex specifies in the LEO whitepaper that at least 80% of funds it were to recover from previous hacks would go to buy and burn LEO tokens
- This would imply inflows of $2.8B into the LEO token, which had a market cap of $3.2B prior to the recovery of funds
- Interestingly LEO began climbing a week in advance of the DOJ announcing it had recover the funds
By diving into on-chain data for LEO, we observe activity for the ERC-20 token grew since the DOJ took control of the 94,000 Bitcoin.
From $60k daily volume to $560k — LEO daily on-chain transaction volume averaged just $63k throughout January and climbed to $566k the day funds were recovered
- While relatively small volume, this represents a nearly 10x increase in volume
- Then on February 4, LEO transaction volume soars to over $3M
- The average transaction size that day was of $94k, suggesting activity was dominated by a few addresses making large transactions
Compelling, but this does not necessarily mean we should start pointing fingers at people. LEO’s buyback was specified in the whitepaper and the transactions linked to the hackers’ address are public on the blockchain.
Could it be possible that some giga-brains cracked this before the announcement?
P.S. this week we focused on serious on-chain data surrounding the recovery of the Bitfinex hack, but its hard not to talk about the subject without bringing up the dank memes and some-what disturbing videos from the couple arrested for laundering the funds. If you’ve missed these, here’s a solid compilation.
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