Worried About Crypto Hacks? Buy Bitcoin Proxies in Stock Market Instead, Say Wall Street Firms

Wall Street analysts are advising their clients to view the recent unprecedented hack of Binance as a potential buying opportunity rather than a cause for concern. They are encouraging investors to consider purchasing stocks related to the cryptocurrency sector while prices remain low.

In research notes released on Friday, analysts from Cantor Fitzgerald, TD Cowen, and Compass Point commented on the implications of the theft, which totaled approximately $6.3 billion, marking it as the largest hack in the history of cryptocurrency. They expressed confidence that this incident would not hinder the overall recovery of the market.

This reassurance followed a tumultuous day for the market, during which Bitcoin's value dipped towards $77,000. Ramsey El-Assal from Cantor Fitzgerald highlighted the rapid response from the industry to mitigate the impact of the hack. He noted that issuers of stablecoins managed to freeze around $3 billion of the stolen assets, with Tether freezing over $1.5 billion, Circle approximately $800 million, and Ripple about $200 million.

El-Assal anticipates a rebound for shares of cryptocurrency exchanges such as Coinbase, Robinhood, and Strategy once the initial panic subsides. He stated, "We would be buyers on weakness," and emphasized that while this situation is challenging, "this is not 2022," implying that the current circumstances differ significantly from earlier market downturns.

Lance Vitanza from TD Cowen echoed these sentiments, suggesting that the security breaches exposed vulnerabilities within Binance itself rather than flaws in the foundational technology of Bitcoin. He characterized the subsequent selloff as an opportunity to increase investments in Bitcoin and publicly traded companies that are involved in the cryptocurrency market.

Ed Engel and Michael Donovan from Compass Point remarked that Binance has sufficient liquidity to address the losses incurred from the hack. They also noted potential repercussions for the stablecoin market, as compensating affected customers might exert pressure on stablecoin supplies. Additionally, they pointed out that competitors like Coinbase and Hyperliquid could benefit from the situation. They are closely monitoring the $75,000 to $77,000 range for Bitcoin as a critical threshold.

The rationale for purchasing stocks instead of cryptocurrencies lies in the fact that regulated, exchange-listed companies such as Coinbase, Robinhood, and Strategy provide exposure to the crypto market without the custody risks highlighted by the recent hack. Historically, these stocks have shown resilience and tend to recover once market sentiment stabilizes.

However, not all experts share this optimistic outlook. Cristiano Ventricelli, vice president of digital assets at Moody's Ratings, cautioned that the incident emphasizes the significant cybersecurity risks associated with hot wallets and illustrates the concentration of risk in large, centralized entities. He warned that the broader implications of the hack will depend on factors such as the total losses incurred, the affected parties, the recovery of assets, and whether this incident will lead to a broader loss of confidence in the market.

In response to the hack, Binance has allocated $6.34 billion to cover the losses and assured users that their assets remain secure. Meanwhile, the Secret Service and FBI have initiated investigations, with firms like TRM and Chainalysis linking the incident to a group associated with North Korea known as TraderTraitor.