Bitcoin Price Forecast: Coldcard Hack Could Push BTC Back to $60K

Bitcoin (BTC) dropped by nearly 3% yesterday after the crypto community was shaken by news of a bug found in a cold wallet that led to the theft of 600 tokens this week.

Coldcard, a Bitcoin-only hardware wallet created by Coinkite, was at the epicentre of this controversy, as hackers managed to drain 500 wallet addresses that were supposed to be unbreakable.

To achieve this, they exploited a flaw in the seed phrase generation process. It appears that the algorithm was not random enough, which allowed bad actors to identify active recovery phrases to steal the funds.

The Coinkite team made several troublesome admissions, including the following:

1. “A complex and subtle series of bugs prevented the hardware RNG from contributing randomness in certain versions of the firmware.”
2. “We have to assume that someone used AI to review previous versions of our firmware and stumbled upon this issue.”
3. “A few weeks ago, we used one of the best available AI models to review our code for security issues, and it did not find this bug or anything serious.”

Their admissions outline the ongoing risks that advanced AI models pose to even the most secure encryption protocols out there. It also reveals that cold wallets, as hardware wallets are typically known, are not as impossible to crack as the public may have thought.

Bitcoin ETFs Finish the Week with a Strong Net Outflow

Yesterday, Bitcoin ETFs experienced a $265 million daily outflow after the news broke. Almost all digital asset custodians use cold wallets to protect their holdings.

Are these assets as safe as the public thinks? These questions could contribute to plunging the price of Bitcoin and other crypto assets.

Although the Coldcard incident may have been an isolated case, wallet providers may conduct more in-depth reviews of their coding in the following days to further protect their software and hardware from becoming an easy target for criminals who now have the power of AI at their disposal to identify technical weaknesses.

The Coldcard news has also hit market sentiment, as data from Santiment suggests. The crypto analytics firm indicated yesterday that BTC net sentiment dropped to its lowest level since April 19, back when geopolitical tensions in the Middle East escalated to their highest point.

Shortly afterward, the price of BTC bounced back strongly to around $80,000 and retested the 200-day exponential moving average (EMA).

Bulls Need to Defend the $60K Threshold at All Costs

Heading to the daily chart, the stage looks set for a repeat of that situation, as long as the $60,000 support holds.

We have been tracking a bullish inverse head and shoulders pattern that has been forming as a result of the latest price action.

For this pattern to be confirmed, BTC would have to break past the $66K neckline. In that case, we expect a retest of the 200-day EMA, which currently sits at around $74,000.

That said, market sentiment has turned bearish after a double top at $66,000. Bulls have to defend the $60K threshold at all costs, or they could risk a much stronger drop to $50,000.

News of the Coldcard theft could spark a strong wave of negative momentum. If cold wallets are not as safe as everybody thought, panic could kick in as there’s no other place to safely store assets.