ZB Shorts — The June 19th Crypto Crash

Crypto has had plenty of peaks and troughs, ups and downs. However, the crash experienced on June 19th was one that wiped the entire value of a cryptocurrency that was starting to gain some momentum in the digital world. Suddenly, the very Bitcoin that had been steadily climbing in value throughout the course of the year tumbles back down to the very beginning — $0.01. Here’s the tale of how it all happened…

Mt Gox is the biggest Bitcoin exchange in the world on June 19th 2011. Ahead of the curve in some respects, Mt Gox is one of the very first — and arguably the first — online Bitcoin exchange, leading the way in what now is a fully flourishing section of the market. However, It’s about to be targeted for all thatit’s worth by hackers, in a move that is so bold and consequential that the US Department of Justice investigates the matter in the quest to point the finger at a party — or individual as it turns out — to blame. Headed by Jed McCaleb, Mt Gox held an equivalent of Bitcoin that was well into the tens of millions.

The unusual turn of events begins as a significant number of selling orders are placed on Bitcoin. Mysteriously, they all start coming in at once, at a volume that is well beyond what is typically observed and certainly enough to arise suspicion at Mt Gox HQ. Those at Mt Gox were already on high alert — earlier in the week, over $400,000 worth of Bitcoin was stolen from the exchange, and there was a sustained attack against accounts on the platform throughout the week. But even this level of selling set alarm bells ringing.

It soon becomes clear that Mt Gox has been hacked. The credentials for a user on the Mt Gox platform have been obtained, their account compromised, and a huge amount of ‘sell’ orders created across multiple trading accounts. So skilled is the extent of the hack, each trade is completed to be underneath
the maximum sales threshold, as to remain as far under the radar as possible. The hack is somewhat iconic, as it wasn’t necessarily that Bitcoin were stolen that is the main talking point. More, it is that the price of a Bitcoin was manipulated, via access of a Mt Gox auditor’s login credentials, to be $0.01. 2,000Bitcoin were then purchased, and a total market crash followed in the form of huge selling orders.

Surprisingly, Mt Gox remained in operation until 2014, however it was unable to truly recover from the damage caused by such hacks. In February 2014, Mt Gox ceased trading under another cloud of
dysfunction. Owing to its position as one of the leading exchanges at the time, the value of Bitcoin was directly affected by the issues faced by the platform and over the course of the month it lost approximately 36% of its value.

Today, the impact of such hacks is undoubtedly still felt. There are close to 1,000,000 Bitcoin permanently lost, and never to be recovered. However, crashes like we saw in 2011 have accelerated the push towards stalwart levels of security, and in 2022 almost every exchange worth its salt holds exemplary security procedures and goes to extra lengths to ensure the safety and security of its users’ assets.

Bitcoin has bounced back from every one of its crashes in its 14 years of existence, however no crash has ever seen Bitcoin lose as much value as that observed in June 2011. In one single day, it lost 99% of its overall value and crashed to being worth one solitary penny. The next stage in Bitcoin’s story will surely be to eradicate these dramatic crashes from its life cycle. However, while we still observe small dips in value and volatility in the market, it would take something truly monumental for Bitcoin to crash
like it did all those years ago.

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