The world’s largest cryptocurrency exchange says it has frozen some funds stolen from Christchurch digital assets exchange Cryptopia.

New Zealand police were called into Cryptopia late on Monday night to investigate the theft of several million dollars-worth of cryptocurrencies and have done a scene examination and a forensic digital investigation.

It’s not clear exactly what happened, but the cryptocurrency exchange went into maintenance on Monday night, followed by an automated alert that showed a digital “wallet” receiving more than NZ$3 million from Cryptopia.

Since then it’s been possible to see some transactions involving that wallet, including money going to the giant international cryptocurrency exchange Binance.

Binance CEO Changpeng Zhao said on Twitter yesterday that the hackers appeared to have sent his company some of the stolen funds from Cryptopia, and Binance had frozen them.

“I don’t understand why the hackers keep sending to Binance,” Zhao, known as CZ, said. “Social media will be pretty fast to report it and we will freeze it. It’s a high-risk manoeuvre for them.”

Bell Gully senior associate Campbell Pentney is a tax specialist with expertise in cryptocurrencies. He says he was not personally affected by the theft, but like many around the world has been watching the digital wallet money is thought to be in.

“You can follow transactions involving that wallet because the transaction chains for some of the types of affected currencies are public,” Pentney says.

“It’s not perfect; you can’t generally link a wallet to a name. But you can see where some of it is going…and you can comment on the address of that wallet.”

Social media feeds show people who have lost money in the Cryptopia theft begging for their money back and wanting to know which currencies are affected, said Pentney.

He says Cryptopia wasn’t large enough for the hack to have a substantial effect on the broader market for cryptocurrencies, but the exchange provided support for a number of niche cryptocurrencies, which could struggle to trade, particularly if Cryptopia held a large portion of those assets.

Other implications of the hack would depend on whether the funds were permanently lost or whether Cryptopia bounced back and was in a position to refund customers, Pentney says.

However, even reimbursement could be tricky, as cryptocurrency prices may have fluctuated since the time of the hack.  

“In some ways this is a more complicated situation than previous high-profile exchange hacks, as there are indications dozens of different cryptocurrencies may be involved. This makes the tracking and reimbursement process more difficult.”

New Zealanders who lost money permanently through the theft might be able to apply for tax relief, Pentney says.

Meanwhile, the Cryptopia hack could jeopardise plans the company had to relaunch a New Zealand dollar-backed ‘tether’ currency this year. The Christchurch company said in November it had backing from an unnamed bank to bring back the New Zealand Dollar Token, or NZDT, the country’s first cryptocurrency tethered to the NZ dollar.

The NZDT was launched under the radar in May 2017, after several speakers at the annual blockchain conference raised problems they were having without one.

However it was pulled last year after Cryptopia’s bank, ASB, raised concerns about regulatory issues and difficulties identifying customers and their activities.

Pentney said the hack could raise “reputational or liability concerns” for a potential banking partner.

Police said on Wednesday the Cryptopia theft is “a complex situation”. They couldn’t say how long the investigation will take.

“We are aware of speculation in the online community about what might have occurred. It is too early for us to draw any conclusions and police will keep an open mind on all possibilities while we gather the information we need.  

“A priority for police is to identify and, if possible, recover missing funds for Cryptopia customers. However, there are likely to be many challenges to achieving this.”

Nikki Mandow was Newsroom's business editor and the 2021 Voyager Media Awards Business Journalist of the Year @NikkiMandow.

Leave a comment