It’s been a wild 24 hours for the cryptocurrency market after the Securities and Exchange Commission’s (SEC) X account was compromised to post a fake spot Bitcoin (BTC) exchange-traded fund (ETF) approval announcement, sparking chaos on exchanges.
Bitcoin’s price whipsawed as a result, spiking higher as traders sought to long the news, only to plunge more than $3,000 minutes later after the SEC made an emergency post saying the announcement was fake.
An SEC spokesperson told Kitco Crypto the false report was the result of unauthorized access by an unknown party. “That unauthorized access has been terminated,” the spokesperson said, adding, “The SEC will work with law enforcement and our partners across government to investigate the matter and determine appropriate next steps relating to both the unauthorized access and any related misconduct.”
According to the Safety team at X, the breach was the result of a compromised phone number that had access to the SEC’s X account.
“We can confirm that the account @SECGov was compromised and we have completed a preliminary investigation,” the Safety team said. “Based on our investigation, the compromise was not due to any breach of X’s systems, but rather due to an unidentified individual obtaining control over a phone number associated with the @SECGov account through a third party. We can also confirm that the account did not have two-factor authentication enabled at the time the account was compromised.”
Data provided by Coinglass shows that the whipsaw led to a slight increase in liquidations, with $34.41 million shorts and $42.95 million long positions wiped out. The losses were minimized, however, as many traders had already closed out their positions ahead of the anticipated real ETF decision from the SEC – expecting that it would cause a spike in volatility.
In response to the false announcement and its effect on the market, U.S. Senators J.D. Vance and Thom Tillis sent a same-day letter to SEC Chair Gary Gensler “to express concern and request clarity regarding” the incident.
“These developments raise serious concerns regarding the Commission’s internal cybersecurity procedures and are antithetical to the Commission’s tripart mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation,” the letter said. “The announcement and subsequent reversal led to extreme volatility in the price of Bitcoin. Investors were, and remain, incredibly confused by the Commission’s communications surrounding the long-awaited and consequential decision regarding Bitcoin ETFs.”
“The United States is home to the world’s deepest and most liquid capital markets and stability and soundness are imperative if investors are to maintain their trust in our markets,” they continued. “It is unacceptable that the agency entrusted with regulating the epicenter of the world’s capital markets would make such a colossal error.”
The letter requested that Gensler provide a briefing on the incident to the Senators “as soon as possible, but no later than January 23, 2024.”
They asked for a detailed explanation of the erroneous announcement; whether the Commission has made a decision on a spot BTC ETF; if the false announcement “changes or otherwise complicates the Commission’s timeline for issuing a final decision on approval” of Bitcoin ETPs; an explanation of how the SEC plans to investigate the matter; and how the regulator “plans to rectify any financial losses borne by investors as a result of the errant announcement.”
“The Commission recently finalized a rulemaking regarding cybersecurity disclosures that will require a business impacted by a cybersecurity breach to file forward looking disclosures detailing all impacts to their business within four business days of said breach,” the letter said. “If this ‘compromised’ social media post was indeed a result of a cybersecurity attack, would it be possible for the Commission to provide Congress with a report on the breach within four business days? If not, please explain why.”
Multiple other high-ranking government officials, including Senators Cynthia Lummis and Bill Hagerty, as well as Representative Ann Wagner, also called for a detailed explanation of the incident and what the SEC plans to do about the fallout.
“Fraudulent announcements, like the one that was made on the SEC’s social media, can manipulate markets,” Lummis tweeted. “We need transparency on what happened.”
Just like the SEC would demand accountability from a public company if they made such a colossal market-moving mistake, Congress needs answers on what just happened. This is unacceptable. https://t.co/tWtLqHtqpu
— Senator Bill Hagerty (@SenatorHagerty) January 9, 2024
As for the effect the announcement had on Bitcoin’s price, Matteo Greco, research analyst at Fineqia International, thinks the response from the market indicates that the eventual approval of a spot BTC ETF will be a “sell the news” event.
“At 21.11 UTC, when the SEC's tweet about the approval was posted, the BTC price was around $46,700. The price immediately spiked, reaching $47,400 in one minute and reaching its highest point of about $48,000 only four minutes later at 22.15. At that level, BTC quickly dropped back to $46,700 in just one minute, the same price recorded five minutes before, in correspondence to the SEC's announcement,” he said in a note shared with Kitco Crypto. “From there, the price continued to dip, reaching a minimum of about $44,750 at 21.25 UTC, exactly one minute before Gary Gensler's tweet. After the revelation of the fake news, BTC price stabilized in the range between $45,500 and $46,000.”
“The price action analysis confirms that yesterday's market movement was a reaction to what was believed to be real news, resulting in a classic ‘sell the news event,’” Greco said. “This pattern is typical in the market, where participants buy in the days leading up to a news event and then sell when the news becomes officially public. Despite the chaos, the SEC's deadline for approving or rejecting the BTC Spot ETFs filings remains scheduled for today, and analysts' expectations still lean towards a positive outcome. Trading could potentially commence as early as tomorrow, on Thursday, January 11.”
