Blockchain analytics firm Elliptic has raised concerns that the $1.4 billion stolen in the recent Bybit hack could be laundered through crypto mixers. This laundering tactic, commonly used by cybercriminals, aims to obscure the stolen funds’ trail and make it harder for authorities to track them.

The Bybit Hack: A Major Crypto Heist

On February 21, 2025, Bybit, one of the largest cryptocurrency exchanges, suffered a massive breach. Hackers exploited a vulnerability in the exchange’s Ethereum (ETH) cold wallet system during a routine transfer to a warm wallet. This enabled the attackers to siphon off funds without being detected.

Bybit’s CEO, Ben Zhou, explained that the attackers manipulated the user interface (UI) and used social engineering techniques to deceive the signers involved in the wallet transfer.

Lazarus Group’s Involvement: A North Korean Cybercrime Syndicate

Blockchain forensic firms, including ZachXBT and Arkham Intelligence, have attributed the attack to Lazarus Group, a notorious North Korean hacker collective known for its involvement in high-profile crypto heists. According to Elliptic, Lazarus typically follows a specific laundering process after a successful theft.

How Lazarus Launders Stolen Funds

Elliptic’s investigation shows that Lazarus begins the laundering process by converting stolen tokens into more widely accepted blockchain assets like Ether (ETH). While some tokens can be frozen by their issuers, assets like Ether and Bitcoin, which operate on decentralized networks, remain untraceable and are thus favored for money laundering.

Immediately after the Bybit breach, hackers quickly converted hundreds of millions of dollars in stolen assets—such as stETH and cmETH—into Ether via decentralized exchanges (DEXs). This step was likely aimed at avoiding potential freezes on centralized exchanges, which could have flagged the transactions.

The ‘Layering’ Stage: Stolen Funds Spread Across Multiple Wallets

Elliptic has also identified that the stolen funds have entered the next phase of laundering known as “layering.” Within two hours of the theft, the funds were spread across 50 different wallets, with each holding approximately 10,000 ETH. These wallets are now being systematically emptied.

As of February 23, 2025, around 10% of the stolen funds—roughly $140 million—had already been moved. The funds are now expected to pass through a variety of laundering channels, including DEXs, cross-chain bridges, and centralized exchanges.

The Role of eXch: A Haven for Illicit Transactions

One exchange that has emerged as a key player in facilitating the laundering of the stolen funds is eXch, a platform known for allowing anonymous crypto swaps. This makes it a popular choice for criminals looking to move illicit assets. Despite Bybit’s appeals, eXch has refused to block the suspicious transactions, according to Elliptic’s findings.

Bybit’s Response and Efforts to Regain User Trust

In response to the breach, Bybit has been working to restore confidence among its users. On February 26, CEO Ben Zhou announced that the exchange had fully replenished its Ethereum reserves. Additionally, Bybit is preparing to publish an audited proof-of-reserves (PoR) report, which will confirm that the platform’s client assets are fully backed on a 1:1 basis.

The Bybit hack serves as a stark reminder of the growing risks in the crypto space, highlighting the sophisticated tactics employed by hackers like the Lazarus Group and the challenges involved in tracking stolen funds. As the laundering process unfolds, the role of crypto mixers and anonymous exchanges remains a key concern for regulators and law enforcement agencies.

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Two former executives of FTX, the once-prominent cryptocurrency exchange, have seen significant reductions in their prison sentences following their convictions for roles in the infamous fraud scheme orchestrated by their former boss, Sam Bankman-Fried.

Ryan Salame: A Year Shaved Off Sentence

Ryan Salame, a top executive at the now-bankrupt FTX, pleaded guilty to criminal fraud charges in September 2023. Initially sentenced in May 2024 to 7 1/2 years in federal prison, Salame began serving his term in October.

According to the Federal Bureau of Prisons, his projected release date is now listed as March 1, 2031—over a year earlier than the original release date of April 2032. This update, first reported by Business Insider, reflects potential benefits from good behavior or participation in approved programs during his incarceration.

Caroline Ellison: Three Months Gained

Caroline Ellison, former CEO of FTX’s hedge fund arm, Alameda Research, and ex-girlfriend of Bankman-Fried, received a 2-year prison sentence after pleading guilty to seven federal charges of fraud and conspiracy. She played a pivotal role as a key witness in Bankman-Fried’s trial.

Ellison’s revised release date is now listed as July 20, 2025, three months earlier than initially scheduled.

Sam Bankman-Fried: Serving 25 Years

Bankman-Fried, the founder of FTX, received a 25-year prison sentence for masterminding the crypto fraud. The Federal Bureau of Prisons has not yet listed a release date for him.

Good Conduct and Time Credits: A Common Practice

While the Bureau of Prisons declined to comment on individual cases, it has previously clarified that inmates can earn Good Conduct Time (GCT) of up to 54 days per year served. Additionally, inmates may reduce their sentences further by participating in various prison programs.

The Rise and Fall of FTX

FTX once symbolized trust and innovation in the volatile cryptocurrency market. Known for its partnerships with celebrities and prominent branding—such as its name adorning a Miami arena and MLB umpires’ jerseys—it promised safety and reliability for digital asset trading.

However, the company crumbled in November 2022, following a mass withdrawal of funds fueled by rumors of FTX’s close ties to Alameda Research. This collapse marked one of the largest crypto scandals in history, leaving customers and investors reeling.

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This surge follows Donald Trump’s victory in the U.S. presidential election, which many analysts believe has sparked a renewed interest in cryptocurrency. There is optimism within the crypto industry that Trump’s administration will provide more regulatory clarity and be more supportive of digital currencies.

However, while the rally has sparked excitement, experts continue to warn of the risks involved in cryptocurrency investment, given its volatility. Here’s a breakdown of the situation.

What Is Cryptocurrency?

Cryptocurrency is digital money that operates through an online network without a central authority. This means it’s not backed by any government or banking institution, and transactions are recorded on a blockchain. Bitcoin is the largest and oldest cryptocurrency, but other digital assets like Ethereum, Tether, and Dogecoin have also gained popularity. Cryptocurrencies are often seen as a “digital alternative” to traditional currencies, but they can be highly volatile and influenced by larger market forces.

Why Are Bitcoin and Other Crypto Assets Rising Now?

The recent surge in crypto prices is largely attributed to the outcome of the election. While Trump was initially skeptical of cryptocurrencies, he has since embraced them. During his campaign, Trump pledged to make the U.S. “the crypto capital of the planet” and even accepted campaign donations in cryptocurrency. His administration is expected to be more supportive of crypto, which many see as a positive shift.

Crypto industry insiders are hopeful that Trump’s victory will lead to legislative and regulatory changes that benefit the industry. For instance, Trump has promised to remove SEC Chairman Gary Gensler, who has been leading the government’s crackdown on crypto, in favor of a more lenient regulatory approach.

“Crypto rallied as Election Day progressed into the night and it became clear that Trump would emerge victorious,” analysts from Citi noted, pointing to the market’s positive reaction to Trump being seen as “crypto-friendly.”

Additionally, the approval of spot bitcoin exchange-traded funds (ETFs) in January has significantly contributed to bitcoin’s price rise. These ETFs have been the primary driver of bitcoin returns, and large inflows into them have continued since the election.

What Are the Risks?

Despite the recent gains, the crypto market remains volatile. Bitcoin has a history of dramatic price swings, which can happen suddenly. For instance, during the early days of the COVID-19 pandemic, bitcoin’s price was just over $5,000 but surged to nearly $69,000 in 2021 before crashing amid inflation-fighting measures by the Federal Reserve. In 2022, the collapse of FTX, a major crypto exchange, further undermined confidence in the market.

In early 2023, bitcoin was trading below $17,000, but a resurgence in demand, particularly after the approval of spot ETFs, has fueled this year’s rally. However, experts caution that cryptocurrencies can be unpredictable, and investors should be prepared for volatility.

“Investors should only invest in crypto with money they can afford to lose,” advised Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Environmental Impact of Cryptocurrency Mining

Bitcoin mining, which is the process used to generate new bitcoins, has raised environmental concerns due to its high energy consumption. Mining operations often rely on energy sources like coal and natural gas, which have significant carbon footprints. A recent study by the United Nations University and Earth’s Future journal revealed that bitcoin mining in 2020-2021 produced emissions equivalent to burning 84 billion pounds of coal.

In the U.S., the rapid growth of crypto mining has prompted concerns from grid planners about rising electricity demand. Estimates suggest that crypto mining may account for between 0.6% and 2.3% of U.S. electricity consumption.

However, there has been a push for cleaner energy sources in recent years, with some crypto mining operations shifting toward renewable energy to address these environmental concerns.

Conclusion

While the post-election rally in crypto assets, particularly bitcoin, is fueling optimism, the volatile nature of the market and environmental concerns continue to pose risks. As cryptocurrency gains more attention and support, investors should approach with caution, mindful of the potential for significant swings in value and the broader impact of mining operations.

As with any investment, it’s essential to stay informed and prepared for the unpredictability of the market.

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A $160 million political spending spree by cryptocurrency firms and executives is poised to usher in a new, bipartisan army of industry-friendly lawmakers across the House and Senate.

Who are they?

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The warehouse is owned by Mohawk Energy, a company cofounded by Kentucky state senator Brandon Smith in 2005, originally to resculpt landscapes disfigured by coal mining. After lying dormant for a period, Mohawk was reincarnated in 2022 when Smith struck a deal with HBTPower, a company then owned by Chinese crypto exchange Huobi, which wanted to use the warehouse for a bitcoin mining operation.
Under the deal, Mohawk promised to fit up its warehouse with the necessary power infrastructure, operate the equipment, and funnel any bitcoin produced to HBT. In return, HBT would pay Mohawk a monthly hosting fee, a cut of its mining revenue, and the associated energy bills.

Smith says he hoped the arrangement would generate tax revenue and create jobs for former coal miners, who could be trained as repair technicians. The coal industry departed Jenkins long ago, the reserves depleted, leaving people in search of work. More than a third now live below the poverty line, per the latest census data. “I liked the idea of going from one type of mining to a new type,” says Smith. “I thought, now in Eastern Kentucky we are going to have our time—we’re going to catch up and play a part in the tech future.”

But after a promising start, the relationship between Mohawk and HBT soured and then fell apart. “Nothing has ever been turned on. It’s a fascinating, almost Willy Wonka–type atmosphere when you walk through,” says Smith. “It has turned into a disaster.”

In November 2023, HBT brought a lawsuit in federal court, alleging that Mohawk had breached its contract on several fronts, including by failing to install the appropriate power infrastructure and secure certain power subsidies, and attempting to sell off the mining equipment. “Ultimately, the source of the current dispute is Mohawk’s basic failure to comply with its obligations, not only in a timely way, but at all in many regards,” says Harout Samra, a specialist in international dispute resolution at law firm DLA Piper and representative for HBT.

Mohawk sued HBT in return, contesting the various alleged breaches and claiming that HBT is delinquent on more than $700,000 in rent, labor, and fit-up costs. The company is also seeking damages relating to the loss of income over the term of the contract and the inability to bring a new tenant into the facility while the equipment remains on-site. “Huobi simply made a bargain it believes now is a bad one, and wants to get out of it without paying the funds it owes,” the filing states.

The legal conflict, which remains unresolved, is just one in a series of fights between Chinese companies and the owners of industrial facilities in the rural US over failed bitcoin mining partnerships. What looked to facility owners in Kentucky like an irresistible opportunity to tap into a new line of business in an otherwise fallow period has turned into a nightmare. They claim to have been saddled with unpaid hosting fees and energy bills worth hundreds of thousands of dollars, with few options for recovering the money. The Chinese parties have been left equally displeased. “HBTPower obviously regrets that this opportunity has ultimately played out the way it has,” says Samra.

The bitcoin mining game—a race between computers to win the right to process a bundle of transactions and claim a crypto reward—is dominated by large corporations that own and operate industrial-scale facilities. But in 2021 and 2022, smaller-scale operations began to proliferate in the US countryside wherever there was available power, including in Kentucky. “A lot of mom-and-pop shops opened up,” says Phil Harvey, CEO at Sabre56, a firm that consults on crypto mining projects and operates its own facilities. “Appalachia has always been a good source of power.”

These small facilities were plugging a gap in the market. A ban on crypto mining in China had left businesses casting about for a new home for their many millions of dollars’ worth of mining equipment. “A lot of wealthy Chinese businesses were affected,” says Harvey. “Every minute these machines are down, they are losing revenue.” Meanwhile, as the price of bitcoin ballooned—and the profitability of mining along with it—mining firms and investor groups began to hoard large quantities of bitcoin mining equipment of their own, says Harvey, without considering where they might deploy it.

In an overheated market, holders of mining equipment jumped into hosting arrangements at short notice with owners of small facilities, some of whom had no prior experience and insufficient expertise, who agreed to install the equipment and run the mining operations on their behalf.

But the haste with which these hosting relationships came together, in the name of striking while bitcoin was hot, says Harvey, set many of the partnerships up for failure. There was limited due diligence conducted by parties on both sides, delays in kitting out facilities and deploying equipment, and disputes over payment terms, he says, among other points of friction. “It’s a snowball effect where everyone just ends up getting pissed off with each other,” says Harvey.

Though the American market proved more expensive and bureaucratic than some Chinese businesses expected, says Harvey, problems were also caused by the hubris of facility owners, some of whom found themselves in over their heads. “It’s no joke running a [bitcoin mining] operation of any kind of scale,” he says. “Just because the Chinese are tough to do business with, doesn’t mean they are the ones in the wrong. I would say that blame is equally shared.”

The law firm acting for Mohawk in its dispute with HBT, Anna Whites Law Office, has represented multiple owners of small facilities in Kentucky in similar legal conflicts with Chinese partners. The cases differ from the Mohawk situation, says attorney Anna Whites, founder of the firm, but share a common thread: “We saw a pattern that [companies with ties to China] would ship in machines with uncertain provenance, mine very heavily for three months, then run without paying the bill,” she claims.

Some of the cases settled out of court; Whites is unable to supply the details for reasons of client confidentiality. But others continue to drag on.

Biofuel Mining, a company formerly co-owned by Smith, is involved in legal tangles with two companies that Whites believes to be run out of China: Touzi Tech and VCV Power Gamma. Although both are incorporated in Delaware, per SEC filings, they conduct business in Mandarin and cannot be reached at their listed US addresses, Whites claims. “It’s pretty standard for the foreign entities from any country to get a short-term office so that they have less scrutiny from US investors and government agencies,” she says.

In both cases, Biofuel claims, the firms shipped equipment from China to its hosting facility in Eastern Kentucky, then walked away with the bitcoin produced, leaving behind hundreds of thousands of dollars in unpaid energy bills and hosting fees.

Biofuel reached a settlement with Touzi in early 2022 for $60,000, but despite having handed back the mining equipment, it claims not to have received the sum it is owed under the agreement.

In the still-unresolved spat with VCV, Biofuel received permission from the Martin County Circuit Court in Kentucky to sell off the mining equipment, claims Whites, to recoup a portion of the funds it is owed (she has not confirmed the amount), but she alleges that no damages have yet been awarded. VCV has stopped responding to communications, she claims.

Biofuel has since dissolved, put out of business by the failed hosting ventures. “I literally lost my house—I lost everything. It financially ruined me,” says Wes Hamilton, former Biofuel Mining CEO. “I’m just so frustrated about the whole thing.”

WIRED contacted VCV and Touzi for comment, but did not receive any response.

There are few financial recovery options for companies like Mohawk and Biofuel. The situation is made more difficult, as in the Mohawk case, if they are dealing with so-called special purpose entities. Because they are set up by their parent companies for a single specific business venture, these entities need not be concerned about their long-term ability to operate in the US.

“It certainly can be more difficult to recover damages from a non-US counterparty,” says Kim Havlin, a partner in the global commercial litigation practice at law firm White & Case. “There is certainly a risk that an entity that doesn’t need to be in the US may just ignore the case.”

Even if the Kentucky facility owners win out in court, it could be difficult to collect any damages awarded. “A judgment is essentially a piece of paper. Any judgment needs to be turned into assets or cash in order to be valuable,” says Havlin. If the opposing party refuses to pay up and has no US assets to collect against, sometimes that isn’t possible.

Almost a year after the dispute began, the Mohawk case is stuck in legal limbo. In a setback for Mohawk, the presiding judge recently denied its motion to dismiss HBT’s complaint, on the basis that it had failed to sufficiently back up its argument. The judge also pushed Mohawk’s countersuit into arbitration, a forum for resolving disputes privately instead of in open court. Non-US parties tend to prefer arbitration as a way to “remove a home forum from both sides,” explains Havlin. “You can pick an arbitral seat in neither country as a means of creating a neutral playing field.” A parallel federal court hearing is set for December to consider whether an injunction should be imposed on Mohawk, preventing it from selling off the remaining HBT equipment in its possession.

Smith has given up on the idea of recovering the full amount he claims to be owed. “We’re at the point that it’s almost silly to even be arguing about breaking even,” he says.

In an interview with PBS that aired in September 2023, touting the Mohawk Energy facility, Smith said he hoped to prove that not every business that blew into Jenkins would abandon the area. “I’ve stood at their ribbon cuttings, then watched them leave. I’d like to do something to let people know that not everybody is like that,” he said.

After the relationship with HBT collapsed last year, Smith faces the prospect of Mohawk becoming yet another false start. With the facility inactive, the company has been forced to dismiss the former coal miners brought on as technicians. (It is unclear how many people it employed.)

The Mohawk facility was perhaps never set to revitalize Jenkins in the way Smith hoped, anyway. “I would say that a rural community benefits very little from a bitcoin mining facility. In terms of job creation, it’s minimal in a lot of cases,” says Harvey, the consultant. “It’s certainly not the savior to a dwindling community.”

Nonetheless, Smith remains hopeful of salvaging the crypto mining project, with a new partner. “I’m hoping that this gets settled in the way that it should and that somebody comes forward and lets us go through with the vision that we wanted for this region,” he says. “I hope every day that maybe some big company will see that there’s a place ready to go in this part of the country.”

Otherwise, Mohawk’s dalliance with bitcoin mining will become a cautionary tale. “It was very hurtful to see these families lose their income. We were one of the biggest payrolls in Jenkins,” says Smith. “It adds insult to injury that I’m sitting here arguing in court.”
Source
https://www.wired.com/story/in-the-kentucky-mountains-a-bitcoin-mining-dream-becomes-the-stuff-of-nightmares/

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