Glassnode: How will the crypto market develop after Bybit caused the market to crash?

summary

• Bybit suffered one of the largest hacks in the history of cryptocurrency, losing 403,996 ETH (about $1.13 billion) from its cold wallets due to a smart contract vulnerability. The vulnerability led to panic withdrawals, with total exchange outflows of Bitcoin and stablecoins reaching about $4.3 billion.

• Sentiment quickly deteriorated, sparking a broad sell-off. Bitcoin’s monthly performance fell to -13.6%, while Ethereum (-22.9%), Solana (-40%), and Meme Coins (-36.9%) erased months of gains, resetting market momentum to April 2024 levels.

• The price decline pushed Bitcoin back into the actual supply “space” between $70,000 and $88,000, an area of ​​low-cost base density. This weakness, initially driven by long-term holder selling, was exacerbated by the Bybit hack, adding to the downward momentum.

• As prices fall below short-term holders' cost basis, new demand investors come under pressure and begin to incur significant losses. Historically, this marks a period of seller exhaustion, however, a continued lack of demand could extend the current downtrend.

Historic hacker attack shakes markets

On February 21, 2025, one of the largest exchange hacks in cryptocurrency history rocked the market, with Bybit suffering a serious security breach. The attacker stole 403,996 ETH (about $1.13 billion) from the platform’s Ethereum cold wallets, exploiting smart contract permissions to reroute the funds to an unidentified address.

Bybit CEO Ben Zhou explained that the attack was carried out through a "Musked UI," in which a fraudulent interface tricked signatories into approving malicious transactions. Despite the severity of the breach, Bybit assured users that other cold wallets remain secure and withdrawals are still possible.

The hacker’s transactions show that the stolen assets are not limited to Ethereum, and multiple assets have suffered significant losses:

• Ethereum (ETH): 403,996 ETH hacked

• Staked Ethereum (stETH): 91,076 stETH hacked

• mETH: 8,000 mETH hacked

• cmETH: 15,000 cmETH hacked

The hack resulted in the theft of nearly $1.48 billion, rattled markets and raised concerns about exchange security, fund safety and potential market-wide selling pressure.

Market impact and exchange outflows

After the hack, market volatility increased, panic withdrawals occurred, and users rushed to protect their assets, causing Bybit reserves to drop significantly.

By February 24, 2025, Bybit's BTC, USDT, and USDE reserves experienced a large outflow of funds:

• Bitcoin (BTC): 21,248 BTC net outflow (70,604 BTC → 49,356 BTC)

• Tether (USDT): $1.76 billion USDT net outflow ($3.25 billion → $1.5 billion USDT)

• USDE: $217.47 million USDDE net outflow ($578.37 million → $360.9 million USDDE)

These figures illustrate Bybit’s liquidity drain and heighten concerns about the security of centralized exchanges.

Peak outflow

By February 24, 2025, Bybit's main asset reserves (including Bitcoin and stablecoins) fell from $10.8 billion at the time of the hack to $6.5 billion, with a cumulative outflow of $4.3 billion. Although the initial wave of panic withdrawals was severe, the outflow rate has since eased, indicating that it is gradually stabilizing.

Meanwhile, Ethereum reserves (both native and staked ETH) rebounded to $1.19 billion as Bybit replenished its holdings. ETH price action remained weak, falling to $2,490, while the subsequent outflow of about $117 million after the buyback indicated that investor confidence remained fragile.

Ethereum Reserve Recovery

As of February 26, 2025, Bybit received a total of $1.58 billion in Ethereum inflows, of which $802 million (50.7%) came from just 8 large transactions.

These inflows indicate an intent to replenish reserves, perhaps through intra-exchange transfers, strategic acquisitions, or external deposits from institutional liquidity providers.

As Bybit works to replenish its Ethereum reserves, the exchange has also seen significant Bitcoin outflows, with total Bitcoin outflows reaching $2.47 billion since the hack, of which 47.2% ($1.16 billion) has been lost in five large transactions.

Tether (USDT) saw a similar outflow. During the same period, outflows reached $2.25 billion, of which 38.1% ($854 million) came from eight large transactions.

By analyzing Bybit’s Ethereum replenishment efforts and massive Bitcoin and Tether outflows, we gain insight into how the exchange (and larger entities) responded to one of the largest hacks in cryptocurrency history.

Market turmoil after hacker attack

As the impact of the Bybit hack began to take hold, the market responded with increased volatility and a sharp decline. As liquidity across the market declined and spot demand cooled, selling pressure intensified, triggering a broader correction.

Increasing weakness across the market caused Bitcoin’s monthly price momentum to plummet by -13.6%, while Ethereum and Solana saw even bigger declines at -22.9% and -40%, respectively. The Meme Coin Index also plummeted by -36.9%, highlighting the strong risk-off sentiment.

The decline reversed several months of positive price gains and brought momentum back to levels last seen in April 2024. The magnitude of the decline highlights the general fragility of market sentiment following the all-time highs set in December 2024.

Bitcoin re-enters low liquidity zone

The Cost Basis Distribution (CBD) heat map illustrates how Bitcoin’s December 2024 ATH created a gap in realized supply between $70,000 and $88,000. During strong trends, price increases tend to outpace capital inflows, leading to a lower concentration of realized supply in these ranges.

As the market rallied to new highs, long-term holders began to allocate supply, weakening price momentum. The Bybit hack further exacerbated this downward trend, pushing Bitcoin back into the low liquidity gap shown in the chart below. With prices now retesting this area, the market is looking for demand as further declines could trigger increased volatility and additional selling pressure.

Short-term holders under pressure

With Bitcoin plummeting to $87,000 and currently 20% below its $109,000 high, investors are experiencing severe psychological pressure in the near term as the price is approximately 5% below its cost basis (STH-MVRV = 0.95).

Adjusting for STH-MVRV, we observe that profitability for new investors has fallen by -15.8% from their quarterly median, which is below the one standard deviation threshold (-11%). This indicates significant unrealized losses, a situation that historically leads to sell-off events or forced selling during market downtrends.

Short-term holders begin to realize losses

To further analyze the reaction of new investors, we adopt STH-SOPR (Spending-Output Profit Ratio) to measure whether short-term holders sell at a profit or a loss.

• STH-SOPR has fallen -0.04, below its quarterly median and significantly below the one standard deviation threshold (-0.01).

• This suggests a significant increase in loss realization as many recent buyers are exiting their positions at a loss.

Historically, a deep contraction in the SOPR has led to at least temporary market stability as the weaker side exits. However, under current macroeconomic conditions, the risk of further price declines could still be amplified if no strong demand catalyst emerges.

Summarize

A broad market correction following the Bybit hack caused Bitcoin’s monthly performance to fall to -13.6%, while Ethereum, Solana, and Meme Coins saw even larger declines, resetting market momentum to April 2024 levels.

As Bitcoin retraces back into its realized supply “range,” short-term holders face increasing unrealized losses. As a result, STH-MVRV and STH-SOPR have fallen below their statistical lows, indicating significant losses for new investors as profit margins decline.

Further downside risks remain if demand fails to recover, so the coming weeks will be critical in determining whether Bitcoin stabilizes or the sell-off intensifies.