An Unexpected Consequence of Bitcoin Volatility

Wednesday, June 9th, 2021

Yesterday, I saw the following news summary:

DOJ recovers most of Colonial Pipeline ransom
The Justice Department announced Monday that it had recovered about $2.3 million of the $4.4 million in bitcoin

Now, my first thought when I read this was “That is not most!”. However, by the barest margin of the dictionary definition of “most”, it is.

$2.3 million is indeed a razor-thin majority of $4.4 million. Of course, that’s not really what we think of when we hear “most”. If I borrow $100 from you and then pay you back just $51, you would not tell people “Oh, it’s fine, Paul paid me back most of my money”. “Never loan Paul money”, that is what you’d say.

Upon reading more about this story, I realized that headline was actually correct, though the sub-head was quite misleading. By way of explanation, here’s a brief timeline:

May 7, 2021: The DarkSide ransomware gang attacked Colonial Pipeline, taking pipeline management systems down.

May 8, 2021: Colonial Pipeline paid DarkSide a ransom of 75 bitcoins to undo the attack. Amusingly, while DarkSide did provide Colonial with a tool to restore their network, it was so slow that Colonial ultimately restored operations using their own backups.

Around this time, that ransom was widely reported as nearly$5 million”. This shorthand made sense, as the average reader is not likely to be familiar with the current price of bitcoin.

June 7, 2021: The Department of Justice announced they’ve recovered “$2.3 million” in cryptocurrency paid to DarkSide. The how of that is interesting from a technical perspective, but most reports focused on that “$2.3 million”, a number which is very misleading.

In point of fact, of the 75 bitcoins Colonial paid, 63.7 were recovered. That’s about 85%, a much more satisfying definition of “most”. The problem comes when reporters again convert that into US currency, because Bitcoin’s value has tanked in the month since the ransom was paid.

[Chart via CoinDesk]

On May 7, 1 bitcoin cost around $58,000, and 75 bitcoins cost around $4.4 million. On June 7, the value had fallen to around $35,000, making 63.7 bitcoins worth about $2.3 million. As a result, though Colonial Pipeline got back most of the actual asset they gave away, they’re currently still out a whole lot of money. They likely paid somewhere between $4 and $5 million back in May, and have now recovered an asset currently worth a bit over $2 million.

Given this wild price drop, Colonial may wish to keep that Bitcoin for now, in the hopes that its value will shoot back up in the future. In other words? HODL.

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