- Small Bitcoin users are moving their funds in droves toward exchanges as the Coldcard incident causes panic among cold wallet holders.
- The event sparks a surge in Bitcoin network activity, leading to sluggish transaction speeds and higher fees.
Experts warn that another wave of Coldcard hardware wallet hacks may be underway. At this rate, the losses have already exceeded $114 million. At the same time, reports and on-chain data indicate that hackers have begun laundering their loot through crypto mixers.
Recently, even the team behind Coldcard is telling users to migrate their funds. Additionally, it advised them to treat the matter with urgency.
The event is now causing widespread panic among small Bitcoin (BTC) holders who chose self-custody for a hands-on approach in managing or securing their assets. On-chain activity in Bitcoin has also been spiking since July 31 following the discovery of the hacking incident, amplifying network congestion.
Cold Wallet User Exodus to Exchanges
Blockchain data and analytics platform CryptoQuant noted that the movement of funds from small holders reached a scale not seen since the FTX collapse in November 2022. Most of them were driven by sending addresses rather than recipients.
According to on-chain data, sub-1 BTC transactions surged to 39.6K BTC in total by the end of July. It was almost equal to the 39.9K BTC holders moved at the onset of the FTX fiasco nearly four years ago.
Meanwhile, in dollar terms, less than $100K worth of BTC transactions surged to $3.2 billion. It was the most value moved by the asset since November 2024 as Bitcoin crossed the $90K per coin mark on the way to its previous record-high.
What’s more, long-term holders joined the fray. Their spending reached 406K BTC over the last 30 days leading up to August 3. It was significantly up from 269K BTC on July 30 and the highest since mid-January this year. The analytics firm suspects that the trend was due to most long-term holders typically stashing their Bitcoin assets in cold wallets.
Along the way, CryptoQuant tracked the movement of the funds toward crypto exchanges. It represents a shift toward preference for institutional-grade custodial platforms over self-custody wallets. Exchange deposits from users with less than 1 BTC rose to their highest level since early February.
Bitcoin Network Congestion
The influx of thousands of users led to congestion in the Bitcoin network. Simultaneous transfers caused its mempool transactions to jump from 33K to 96K, showing the highest spike since June 20. This means sluggish transaction speeds and elevated fees for users migrating their funds.
As a consolation, the event suggests widespread awareness and action among users upon learning of the ongoing attacks in Coldcard wallets. Furthermore, it contributes to higher incentives for miners, particularly those who are collecting higher transaction fees in exchange for processing high-priority transactions.
