Liquid Network Exploited for $319M as Bitcoin ETF Inflows Hit 2026 Peak

Liquid Network Hit by $319 Million Security Breach

The Liquid Network, operated by Blockstream, has suffered a major security incident resulting in the extraction of approximately 4,000 Bitcoin valued at $319 million. Purported white hat hackers claimed responsibility, with an unverified message appearing on-chain stating “we are whitehats. contact us on chain.”

According to Liquid Network’s investigation, as reported by Blockstream, the funds were withdrawn through the SideSwap Peg-out Authorization Key (PAK), though the company emphasized this particular key was not compromised. Further analysis determined that the compromised L-BTC was created through a bug in the Elements software underlying the sidechain. In response, Blockstream immediately paused bridge nodes and instructed cryptocurrency exchanges to halt LBTC deposits and withdrawals as the team investigates the security gaps.

The incident is visible in on-chain data: the Liquid federation wallet balance plummeted from 4,200 BTC to just 207.275 BTC. Crypto analyst DBCrypto observed that the extracted coins remain unmixed and stationary on the Bitcoin blockchain—behavior consistent with a white hat extraction designed to expose vulnerabilities rather than a traditional theft. Nevertheless, DBCrypto highlighted that the incident raises serious architectural questions: either 11 of the 15 multisig functionaries signed off on the transaction, or the whitelist safeguard explicitly designed to prevent such withdrawals failed entirely. As DBCrypto noted, neither scenario reflects well on Liquid’s security posture.

Bitcoin ETF Inflows Hit 2026 Peak

While the Liquid breach undermines confidence in certain cryptocurrency infrastructure, traditional Bitcoin investment channels are surging. U.S. spot Bitcoin ETFs recorded their strongest three-week inflow period of 2026, according to data from SoSoValue. The funds attracted $986.9 million in inflows during the week ending Friday, bringing cumulative three-week inflows to $3.8 billion.

This institutional momentum reflects a broader shift in cryptocurrency adoption. Total net assets under management across spot Bitcoin ETFs reached $101.3 billion on Friday, while lifetime cumulative net inflows hit $55.6 billion. Bitcoin’s price hovered just above $80,000 during this inflow surge, though the asset has not yet closed decisively above the 50-week moving average that would confirm a sustained bull market.

Institutional Players Deepen Crypto Commitments

Beyond spot ETFs, established financial institutions are accelerating their blockchain exposure. A consortium of 21 major financial firms—including Bank of America, Goldman Sachs, Citi, Deutsche Bank, UBS, Santander, MUFG, and Fidelity Investments—have announced plans to develop and issue stablecoins. The group intends to launch a U.S. dollar-denominated stablecoin during the first half of 2027, with subsequent expansion to other G7 currencies, beginning with the euro.

This institutional pivot occurs as governmental support for crypto innovation expands. The G20 member nations jointly released a statement endorsing cryptocurrency as a mechanism for “broad-based economic growth,” committing member nations to developing regulatory frameworks that support “sound digital financial and digital assets innovation” while maintaining financial stability.

The divergence is striking: while infrastructure vulnerabilities like the Liquid breach demonstrate the ongoing technical risks in cryptocurrency systems, concurrent waves of institutional capital and policy support suggest that digital assets have achieved a level of mainstream legitimacy that may insulate broader crypto markets from isolated incidents.

Source: Liquid Network, via Cointelegraph. Not financial advice.