Kraken Flash Crash (Suspected Theft)

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Kraken

On the Kraken platform, there was a very large sell order for 1,200 bitcoin to CAD placed on June 2nd. The majority of the sold bitcoin (1,155 of them) ended up in a single account.

As Kraken has existed since 2011, the most likely explanation is that an early adopter purchased 1,200 bitcoin and left them on the exchange. Their account likely was breached due to not setting up 2FA or any additional security measures. They then sold the funds via the stolen account, to another account they owned.

It is unknown whether Kraken acted to prevent the withdrawal of the bitcoins (and maybe return them), however it should be noted that Kraken does have withdrawal limits in place, and this event was likely to have been noticed by their team.

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

About Kraken

"Kraken is a United States-based cryptocurrency exchange and bank, founded in 2011. The exchange provides cryptocurrency-to-fiat-money trading, and provides price information to Bloomberg Terminal." "As of 2021, Kraken is available to residents of 48 US states and 176 countries, and lists 72 cryptocurrencies available for trade."

"Sign up today and buy 50+ cryptocurrencies in minutes. Get started with as little as $10."

"Earning the trust of our clients has always been our highest priority. We earn that trust through the best security in the business — most of our crypto is held safely in cold wallets so bad actors can't reach it. Our platform provides world class financial stability by maintaining full reserves, healthy banking relationships and the highest standards of legal compliance."

At "the time of [the incidenent], there [was] not more than 75 BTC worth of buy orders above $5,000. On any other reputable exchange or pair, buy orders above $5,000 would likely amount to hundreds, if not thousands of BTC. What this means is that a single order of 100 BTC, let’s say, can absolutely destroy the BTC/CAD pair."

"On June 2, Bitcoin flash-crashed on a major Bitcoin trading platform Kraken." "A screenshot published on Twitter by trader Nick Cote shows a red candle on Friday 31 May, with the price suddenly falling from about $11,000 Canadian dollars to $101, and then immediately returning to the previous quota." "The near vertical drop from $11,200 CAD to $100 CAD within moments initially appeared to have resulted from a technical glitch or a fat-fingered trading error by a whale." A "Bitcoin pair on Kraken, one of the more respected trading platforms in the space, experienced a flash crash, during which BTC lost most of its value and traders scrambled to pick up what remained of the ruined market." "[I]n the minutes that followed, the price stabilized, with the rapid drop not having a material effect on the wider Bitcoin market." "The price instantly pumped back up, leaving little more than a red wick trailing all the way down to the depths."

"This price’s graph of the Canadian dollar/bitcoin pair on Kraken, which is a pair with very small volumes. At the bottom of the screenshot, there is also clearly an incredible surge in volumes in conjunction with the flash crash, which suggests a planned operation."

"Speaking on the crash, exchange boss Jesse Powell tried to allay fears as to whether the drop was an inside job…"

“I think the community has already answered but what keeps us from trading against/front running our own clients is 1. It’s bad for business 2. It’s immoral. An orderly market is one that does not prevent you from making the trade you want to make. We welcome government liquidity.”

"According to a new analysis, however, this might not have been the fault of a faulty algorithm or market maker, but a hacker trying to siphon funds from Kraken." "Some speculate that it was a clever hacker that was using a separate account to place low bids that were market sold into, allowing the hacker to withdraw “clean” Bitcoin that isn’t tied to any hack from the exchange." "In this case, the available evidence suggests a hacker compromised a whale’s account, stole 1200 BTC worth $10.45 million on that date, and then dumped this huge amount of BTC into a highly illiquid BTC/CAD marke[t]." "Beetcoin writes that a hacker used the skimpy order book to his advantage. He suggests that said entity compromised a whale’s account with 1,200 BTC, created orders to purchase BTC against CAD at low prices, and then dumped the hack BTC on the open market to trigger his buy orders on his other account."

"Looks like someone sold 1,155 BTC for $101 each? That's an economic loss of $10m."

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Kraken Flash Crash (Suspected Theft)

Date	Event	Description
June 2nd, 2019	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $10,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

The primary prevention has to take place in the authentication of accounts, by the use of multi-factor authentication. Kraken does provide these protections and continues to encourage their use.

Other prevention strategies would include preventing transactions above a certain size or more than 20% outside of the present market price.

In cases like this, there is no advantage for the platform nor user to have poor security. Platforms in general already place a strong emphasis and offer the necessary protections for users, though many may not take advantage of them.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.