CZ: Binance Has ‘Decided NOT to Pursue the Re-Org Approach’ to Recovering Stolen BTC

On Wednesday (May 8, 06:29 UTC), just hours after digital asset exchange Binance had announced that it had been hacked and suffered a loss of around 7000 bitcoins, its CEO, Changpeng Zhao (aka "CZ") said that, after consultation with several prominent members of the crypto community, Binance had decided not to attempt a rollback on the Bitcoin network in order to recover the stolen bitcoins.

The attack on Binance was detected at 17:15:24  UTC on May 7 when a single Bitcoin transaction (representing BTC withdrawals from multiple user accounts) moved approximately 7,074 BTC out of the exchange.

Amazingly, just hours after Binance had announced it had been hacked, CZ went ahead with a Periscope Ask Me Anything (AMA) session that had been scheduled for 03:00 UTC on Wednesday (May 8). During this AMA session, CZ said:

"We've been working with other exchanges to block deposits from those hacked addresses."

Much more surprisngly, he also said:

"[On] the other topic of 'do we want to issue a rollback on the Bitcoin network'... Because right now, the 7,000 BTC is far higher than if we distribute that to miners. It would be far higher that what they got paid for the last few blocks. To be honest, we can actually do this probably within the next few days. But there are concerns if we do a rollback on Bitcoin network at that scale. It may have some negative consequences in terms of destroying credibility for Bitcoin. So, again, the team is still deciding that, and we're running through the numbers and checking everything."

This comment, understandably, shocked and angered the crypto community on Twitter. Here were just a few of the responses:

One of the first people to suggest the idea of a rollback on the Bitcoin network was Jeremy Rubin, who had tweeted about this less than an hour after Binance's security breach announcement:

Well, to the huge relief of the crypto community, at 05:20 UTC on Wedneday (May 8), CZ tweeted that Binance had decided not to go ahead with the rollback idea, and talked about its pros and cons:

 

It is imporant to note that what CZ means by the most recent tweet shown above is that although it might be technically possible to do a rollback, practically, "it's not possible" since it would do immense harm to the credibility of Bitcoin, which has immutability as one of its key value propositions.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

Featured Image Credit: Photo via Pixabay.com