Top Line
After crypto markets crashed last month on concerns over Chinese regulation, the currency plunged again Tuesday morning after the U.S. Department of Justice announced it had seized $2.3 million worth of Bitcoin as part of an investigation into a ransomware attack that shut down the nation's largest gas pipeline. This has sparked fears that U.S. authorities may step up scrutiny of cryptocurrencies, a trend that has previously triggered multiyear bear markets.
On Tuesday morning, the market plunged more than 11%.
Key Facts
As of 9:45 a.m. EDT, the global cryptocurrency market had plummeted more than 11% in the past 24 hours, dropping below $1.5 trillion, its lowest since the May flash crash, when it fell to $1.3 trillion from a high of more than $2.5 trillion at the start of the month.
The sell-off began on Monday after reports emerged that the Department of Justice had seized an unspecified amount of cryptocurrency in connection with a May 8 cyberattack on the Colonial Pipeline and intensified overnight, wiping out more than $150 billion in market capitalization by 9:45 a.m. EDT on Tuesday.
The Department of Justice announced on Tuesday that it had seized 63.7 bitcoin, worth roughly $2.3 million, from extortionists affiliated with the online hacking group Darkseid by examining bitcoin's public ledger, locating transactions and using private keys to access the tokens.
It's unclear how the Justice Department obtained the private keys, but experts say include Dr. Nicholas Weaver, a cybersecurity professor at the University of California, Berkeley, suggested that federal authorities effectively foiled the hackers, marking unprecedented government intervention in the cryptocurrency industry.
The developments have rocked all major tokens, with Bitcoin, Ether and Binance Coin falling 10%, 12% and 14% respectively on Tuesday morning.
Points to note
More government involvement. On Sunday, two senators on the Intelligence Committee suggested lawmakers should take steps to better regulate and track cryptocurrencies. “The only way to beat an epidemic of ransomware is to find patterns,” Sen. Roy Blunt (R-Missouri) said in an interview with NBC News. Meet the PressCalling cryptocurrencies a “preferred method of paying ransoms” for hackers, the lawmakers said they should not be allowed to operate “behind the scenes.”
Main Background
Experts have long warned that increased regulation could stunt a major crypto market upswing, and the past few weeks have proven that to be the case. The market crashed in mid-May after Chinese regulators cracked down on the crypto industry, warning financial institutions not to offer crypto services and restricting Bitcoin mining due to concerns about excessive speculation. Cryptocurrencies have struggled to recover, and last weekend Chinese authorities began deleting the accounts of crypto influencers on the popular social media platform Weibo, citing “laws and regulations” alone. Still, the last time regulatory concerns caused the market to crash (over 80% in 2018), the market managed to recover; the market is still up about 50% from its peak in early 2018.
tangent
Also on Tuesday, Laffer Investments, a British asset management and consulting firm with $32 billion in assets, Reuters The firm exited its Bitcoin investments in April when the price of Bitcoin surpassed an all-time high of $63,000, as it became more risky after Bitcoin's 1,100% rise in a year. “In the long term, we remain interested in digital assets and the role they play in real-world wealth preservation,” the firm said, “and in the short term, we felt Bitcoin became more risky given the sharp rise in its price.”
References
US recovers millions of dollars worth of Bitcoin paid during Colonial Pipeline attack (Forbes)
Senators call for crackdown on use of cryptocurrency for ransom payments after gas line and meat processing plant hacks (Forbes)
