Bybit Hack Shakes Crypto Market, Ethereum Prepares for Pectra Update, and SEC Eases Up On Crypto

Takeaways

• Bybit suffered a $1.5B hack that triggered $5.5B in outflows, leading to emergency measures to secure withdrawals: The exchange is developing new software to recover funds and is exploring all avenues, including a potential Ethereum rollback. The FBI confirmed North Korean hackers were behind the attack.
• It’s a new era at the SEC: Over the past week, the financial regulator dropped investigations into Gemini, Coinbase, Uniswap Labs and others, marking a notable departure from its aggressive regulation by litigation approach toward crypto and decentralized finance.
• Ethereum's Pectra upgrade was activated on the Holesky test network this week, marking the first phase of stress-testing before full deployment: Despite initial delays, developers plan a Sepolia trial and a potential April launch, promising major improvements to the network.
• OKX settled with US authorities for failing to secure a money transmitter license and facilitating over $5B in suspicious transactions: The settlement requires a payment of over $500M in penalties and forfeitures amid ongoing regulatory probes.
• Spot bitcoin ETFs recorded a record daily outflow of nearly $938 million on Tuesday: This, combined with Bitcoin’s slide below $85,000 signals a shift in investor sentiment amid wider risks over tariffs and sticky inflation.

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Bybit Hit With More Than $5.5B in Outflows After $1.5B Hack

Following a massive security breach, Bybit experienced outflows of more than $5.5 billion, triggered by a nearly $1.5 billion hack from North Korean actors. Bybit CEO Ben Zhou described the incident during an X Spaces session, explaining that the hack drained nearly 70% of clients’ ether, forcing the company to secure a loan to process mounting withdrawal requests. The FBI later confirmed North Korean hackers were behind the attack.

Despite reserves intended to cover user funds, the crisis intensified when a Safe wallet, used for secure cold storage, was temporarily shut down to safeguard its system, leaving about $3 billion in USDT inaccessible. In response, Zhou’s team worked through the night to develop new software based on Etherscan for manually verifying transaction signatures, enabling them to move stablecoins back into circulation amid a bank run.

The exchange has been engaged with authorities, including Singaporean regulators and Interpol, and has even considered the radical idea of an Ethereum rollback if community consensus favors recovery of the stolen funds. Although this approach has sparked significant debate amongst the crypto community.

The price of ethereum has had a volatile week since the hack, dropping quickly, then recovering before dropping again amid a wider crypto market pullback. As of Thursday, the price of bitcoin dropped to around $84,500, ether to $2,300, and solana to $138 amid lingering worries over the impact of US tariffs, inflation, and slowing GDP growth.

SEC Drops Investigation into Gemini, Coinbase, Uniswap and Others

It’s a new era at the SEC. Over the past week, the financial regulator dropped investigations into Gemini, Coinbase, Uniswap Labs and others, marking a notable departure from its aggressive regulation by litigation approach toward crypto and decentralized finance.

The move is widely seen as part of a regulatory shift under the leadership of acting chair Mark T. Uyeda, who has made significant changes in the agency’s approach to crypto oversight. Uyeda has appointed Republican commissioner Hester Peirce to lead a crypto task force that is now collaborating with industry players to craft crypto-specific rules.

Gemini president and co-founder Cameron Winklevoss announced on X the SEC has dropped its case against the company and proposed a series of reforms for the agency moving forward.

“On Monday, the SEC informed our litigation counsel @JackBaughman27 that it has closed its investigation into @Gemini, and will not be pursuing an enforcement action against us. This comes 699 days after the start of their investigation and 277 days after they sent us a Wells Notice.

“While this marks another milestone to the end of the war on crypto, which already includes the SEC’s withdrawal of the Coinbase lawsuit and the closing of investigations into OpenSea, Robinhood, and UniSwap, it does little to make up for the damage this agency has done to us, our industry, and America.

“The SEC cost us tens of millions of dollars in legal bills alone and hundreds of millions in lost productivity, creativity, and innovation. Of course Gemini is not alone. The SEC’s behavior in aggregate towards other crypto companies and projects cost orders of magnitude more and caused unquantifiable loss in economic growth for America."

Read Cameron's full X post here.

Ethereum’s Pectra Upgrade Enters Critical Testing on Holesky Testnet

The highly anticipated Pectra upgrade for Ethereum was activated on the Holesky testnet at the start of the week, marking a pivotal step in stress-testing its new features before a planned rollout. Launched at epoch 115,968, the upgrade is designed to simulate real-world conditions in a controlled environment, enabling developers to identify and resolve potential issues.

The Ethereum team reportedly plans to deploy Pectra on the Sepolia testnet next week. Should issues on Holesky persist, the Sepolia phase might be postponed to allow additional debugging and refinement. Once both test environments meet performance standards, a mainnet activation is expected sometime in April.

The Pectra upgrade introduces several enhancements to improve Ethereum’s scalability, security, and user experience. Some of the key changes include improvements in crypto wallet functionality and account abstraction and a significant increase in the maximum validator stake from 32 to 2,048 ETH. The upgrade also includes a doubling of the maximum blob count (a means of reducing the memory required to carry transaction data) to boost rollup scalability.

OKX Settles US Charges, Pays Over $500M in Penalties

OKX has resolved a US Department of Justice investigation by settling charges related to its failure to obtain a money transmitter license. Its affiliate, Aux Cayes FinTech, has agreed to pay over $500 million in penalties and forfeitures. The DOJ alleged that OKX facilitated more than $5 billion in suspicious transactions and criminal proceeds.

In addition to the DOJ action, the American division, OKcoin, received a subpoena from the Commodity Futures Trading Commission in February last year, citing fraudulent conduct in digital asset transactions. Internally, OKX circulated documents in January 2024 to encourage whistleblowing on potential policy violations, establishing a new ethics and compliance helpline for staff. While the company did not specify which state’s money transmitter license was required, it has not yet offered further comment on the settlement.

US Spot Bitcoin ETFs See Record $937M Outflow in One Day

Tuesday proved to be a tumultuous day for the crypto market as investors poured out of US-listed spot bitcoin ETFs. In total, 11 ETFs recorded a cumulative net outflow of $937.78 million, the highest daily redemption since January 2024. This sell-off coincided with bitcoin dropping to three-month lows below $87,000, while spot ether ETFs also witnessed outflows totaling $50 million.

Some have linked the decline in ETF inflows to the reduction in the CME Bitcoin futures premium, which has fallen to 4%, its lowest level in nearly two years. General shifts in investor sentiment could also be cited as a reason for the outflows, with investors suddenly taking a "risk-off" approach to the market which typically does not favor crypto. Fidelity’s FBTC led the outflows with $344.65 million, followed by BlackRock’s IBIT at $164.37 million, while the remaining ETFs experienced smaller outflows.

-The Gemini Team