Steven Gleiser - May 9, 2019
Playing for fiat profit on cryptocurrency prices is an extremely risky game. It is full of unknowns in small cap markets that powerful buyers and sellers can flip on a single transaction. The space has seen its fair share of flash crashes, as well as irrational exuberance. With that being said, hacks provide a unique opportunity for those who are willing to take the risk – something no one here will ever encourage you to do, especially if you are trading based on our opinions. The Binance hack yesterday was unique in that it provided an opportunity to turn a quick profit on 2 different coins simultaneously.
Generally, when an exchange is hacked, a single cryptocurrency gets hit because the hackers target certain kinds of wallets within the exchange. Nevertheless, with the rise of the IEO – initial exchange offering – in which people can buy the cryptocurrency that the exchange issues, the “buy the hack” game has morphed.
Binance is a great example to illustrate just how much more complex this post-IEO “buy the hack” game is. Yesterday, when hackers stole 7,000 BTC from Binance, the prices of 2 cryptocurrencies were directly involved in the aftermath of the heist: Bitcoin – BTC – and Binance’s own coin – BNB.
The prices of both coins got hit following the hack. BTC prices dipped due to the expectation of a mass sale of 7,000 coins. The dip was short-lived, and Bitcoin emerged from it with a run that took it above the $6,100 USD mark for the first time since November 2018.
It seems that the “buy the dip” crowd definitely scored yesterday on BTC, but what about BNB? Looking at the price of Binance’s coin, we can also see a sudden dip shortly after the hack was announced, and then a correction upwards. The price trend on BNB, however, is still declining. That makes sense because BNB is a direct representation of the exchange’s health, and Binance took a hit yesterday.
With 2 different cryptocurrency prices directly at play following a single hack, the possibilities go beyond a simple “buy the hack” strategy. Although buying both coins immediately after their prices took a hit following the news of the heist, would have been profitable, there were better options out there. How about buying BTC while simultaneously short-selling BNB, and using those proceeds to double down on BTC? That could have been a more profitable strategy, for example – especially for those who are thinking about fiat returns.
There might be a number of other opportunities involving BTC and BNB that traders could have exploited. That is food for thought. If you are a trader or you are interested in trading, you must consider the added complexity and the different trading combinations you can come up with in a post IEO world. One thing is certain: There will be more exchanges that will get hacked. If they have their own coin, your “buy the hack” game just got significantly more complex. So, take advantage of the Binance hack to monitor the market and understand the forces at play before you recur to a knee-jerk “buy the hack” trade next time around.
*Bitcoin Chaser and its staff are not responsible for any trade you make based on this or any other article. Make sure you do your own research before you trade.