Bybit Recovers from $1.4B Hack with Security Overhaul and Liquidity Rebound, Highlighting Custodial Risks for Crypto Traders
Bybit, the world’s second-largest cryptocurrency exchange, suffered a $1.4 billion hack in February 2025, among the largest in the industry. Hackers stole liquid-staked Ether (stETH), Mantle Staked ETH (mETH), and ERC-20 tokens. Approximately $280 million has become untraceable, raising concerns about the risks of custodial crypto storage. The North Korean Lazarus Group is suspected, using decentralized platforms like THORChain to launder funds. Bybit responded with a robust security upgrade: nine audits (internal and external), implementation of 50 new security measures including enhanced cold wallet protocols, multiparty computation, consolidated hardware security modules, and operational updates under full supervision. The exchange also obtained ISO/IEC 27001 certification, ensuring stronger data encryption. Bybit’s LazarusBounty initiative continues to trace assets, awarding over $2.3 million in bug bounties and maintaining a $140M fund for recovery. Liquidity has mostly rebounded: Bitcoin market depth returned to pre-hack levels and altcoin liquidity reached over 80% recovery, aided by a Retail Price Improvement (RPI) feature that stabilizes markets during stress. The incident triggered increased industry debate about the safety of custodial exchanges versus non-custodial wallets, highlighting solutions with greater user autonomy and security (e.g., Best Wallet and the $BEST token). Bybit emphasizes ongoing security vigilance, warning that hackers now target human error more than system flaws. For crypto traders, this event underscores the need for robust self-custody solutions, and for platforms, the importance of transparency, resilience, and rapid recovery after security breaches.
Neutral
The $1.4B Bybit hack initially triggered concerns about custodial risks and caused short-term volatility. However, robust recovery efforts—including strong security upgrades, enhanced transparency, and rapid liquidity restoration—have quickly stabilized market activity on Bybit. The event highlights ongoing risks with custodial exchanges, which may encourage some traders to shift to non-custodial solutions, but the platform’s recovery and continuing improvement in trading conditions temper potential bearish sentiment. As of now, Bitcoin and altcoin market depth on Bybit have mostly recovered, and no lasting negative price impact is indicated. Thus, the overall effect on crypto prices, particularly ETH and BTC, is neutral, with risk management and exchange resilience in focus for traders.