Bank Run on a Crypto Exchange: What Happens After a Hack and How It Shows in Spreads

Bank Run on a Crypto Exchange: What Happens After a Hack and How It Shows in Spreads

A bank run is when many clients try to withdraw their money at the same time. On a crypto exchange, it most often starts after a hack or rumors about problems with reserves.

A recent example is Binance: after the hack on October 29, the exchange paused withdrawals. Let's look at how a bank run works and why spreads are deceptive on such days.

What a bank run on a crypto exchange is

On a normal day, deposits and withdrawals roughly balance each other out. Hot wallets are enough for the exchange, and most of the coins sit safely in cold storage.

In a bank run, that balance breaks. Withdrawal requests come in faster than the exchange can top up hot wallets from cold ones.

What happens on an exchange after a hack

• news of the hack spreads within minutes, and clients send withdrawal requests en masse
• hot wallets drain quickly, and withdrawals are queued
• for some coins and networks, withdrawals start being processed with delays or manually
• the exchange pauses all withdrawals to find the vulnerability and check its systems
• trading inside the exchange and deposits may keep working in the meantime

Pausing withdrawals after a hack is a normal security measure, not a sign of bankruptcy. Until it is clear how the attackers got into the system, reopening withdrawals is risky for the clients themselves.

In Binance's case, the exchange immediately said it would cover all losses, set aside more than 6.3 billion dollars for this and expected to reopen withdrawals in about two days.

How prices behave on an exchange with closed withdrawals

When withdrawals are closed, the exchange becomes a closed market. Prices inside it are no longer evened out by transfers to and from other venues.

From what we see, such gaps can be much wider than normal cross-exchange spreads. That is exactly why they are so tempting.

Why a spread on a closed exchange is not arbitrage

Arbitrage relies on being able to close the trade: buy cheaper in one place, sell higher in another and transfer the asset. When withdrawals are closed, the second half of the trade does not work.

You buy or sell at a favorable price, but the result stays locked on the exchange. How long it will stay there and at what price you will get it out is unknown.

A hypothetical example

Hypothetically: on an exchange with closed withdrawals, bitcoin trades at a 1.8% premium to the market. Deposits work.

A trader deposits 1 BTC, sells it for stablecoins and on paper gets 1.8% extra. But the stablecoins cannot be withdrawn now.

• if withdrawals reopen in a couple of days, the premium will most likely have compressed by then, and the capital sat idle all that time
• if the trader held a hedge on another exchange, they paid funding and risked margin during those days
• if withdrawals stay closed for longer, the money is frozen indefinitely
• if the exchange has serious reserve problems, the entire amount is at risk, not 1.8%

In our view, the expected profit in such a trade is almost always smaller than the risk the trader takes on.

How arbitrage traders should act during a bank run

• do not build trades that require withdrawing an asset from the troubled exchange
• check deposit and withdrawal status for each coin and network, not just the exchange's overall status
• treat a spread against the troubled exchange as market information, not as an entry signal
• do not deposit new funds to the exchange while withdrawals are closed
• keep capital on several venues so that one pause does not stop all of your work
• follow the exchange's official announcements, not rumors

We believe that during a bank run the best trades are the ones that do not touch the troubled exchange at all. The market around it also becomes more volatile, and there are usually plenty of opportunities between the other venues.

How to tell the situation is normalizing

The first sign is that the exchange reopens withdrawals and gives timelines by network. The second is that the premium or discount to the market starts to compress.

The third sign is that withdrawal queues clear and requests go through within normal times again. Only after that can a spread against this exchange be considered workable again.

Our tools

During a bank run, prices on the troubled exchange and on other venues live separate lives, and that is easier to assess when every exchange is visible at once. Our arbitrage screener keeps dozens of venues in one window, refreshes quotes every second and shows each gap together with the volume actually behind it. The spread calculator helps you check what survives fees, network costs and slippage at your size. The bot is fully manual. It never connects to your exchange API keys.

To test the tools on a live market, ArbitrageScanner offers one day of free access to the whole ecosystem.

FAQ (Frequently Asked Questions)

1. What is a bank run on a crypto exchange?

It is a situation where many clients try to withdraw funds at the same time and the exchange cannot keep up with the requests. It usually starts after a hack or rumors of problems.

2. Why does an exchange pause withdrawals after a hack?

To find the vulnerability, check its systems and prevent the attackers from taking even more. It is a security measure, not a sign of bankruptcy.

3. Can you profit from a spread with an exchange that has closed withdrawals?

It is risky: the result of the trade stays locked on the exchange, the premium may compress by the time withdrawals reopen, and if problems are serious the entire amount is at risk.

4. Why does the price on an exchange with closed withdrawals differ from the market?

Prices inside the exchange are no longer evened out by transfers. Clients either buy assets they hope to withdraw first or sell in a panic.

5. When did Binance pause withdrawals in 2026?

Withdrawals were paused after the hack that became known on October 29. The exchange expected to resume them in about two days.

Conclusion

A bank run on an exchange means withdrawal queues, draining hot wallets and paused withdrawals. On such days, prices on the exchange can move to a premium or a discount to the market.

For an arbitrage trader, such a spread is more often a trap than an opportunity: the trade cannot be closed with a transfer. It is wiser to work between the other venues and wait until withdrawals reopen and prices even out.

IMPORTANT! We are software developers. We do not give recommendations or promises of earnings and we do not advise you to invest your money anywhere. Our software is fully manual, all your money stays under your own control. We show examples of how our clients have earned on arbitrage in the past, but we do not advise repeating those actions one to one. Your earnings depend solely on your own actions and on market factors.