Crypto's Breaking Point: Digital and Physical Threats Collide

In the first half of 2025, the crypto crime landscape saw a dramatic rise in both the scale and speed of attacks, with $3 billion in digital assets reported stolen across 119 verified hacking events. This surge in illicit activity has significantly compressed the response window for exchanges, custodians, and their banking partners, as stolen funds are often laundered within minutes of theft. In fact, funds from 23% of crypto hacks were fully laundered before being made public, and only 4.2% of stolen assets were recovered. The rapid pace of these crimes highlights the growing complexity of multi-chain laundering techniques and the urgent need for improved operational resilience.

The concentration of crypto-related risks is increasingly evident in the sector's dependency on a limited number of custodial services. For example, 69% of the stolen funds in H1 2025 originated from a single incident: the $1.5 billion DPRK-led hack of ByBit. This underscores the vulnerability of the ecosystem, where a small number of centralized and decentralized exchanges are used for fiat on/off ramps, treasury management, and cross-chain transactions. Additionally, poorly audited smart contracts continue to pose a threat, as they can result in unauthorized fund transfers or asset freezes. To mitigate these risks, firms are advised to diversify their custody solutions and adhere to regulatory frameworks such as the European Union’s Markets in Crypto-Assets Regulation (MiCAR).

Beyond digital threats, physical crime in the crypto sector has also surged in 2025, with ransomware attacks and kidnaps and ransoms (K&R) on high-profile individuals becoming more common. Ransomware actors extorted approximately $460 million in cryptocurrency during the first half of the year, despite a 35% decline in such payments in 2024. This shift is attributed to better cybersecurity protocols and targeted law enforcement actions. Meanwhile, the rise in physical attacks targeting wallet holders reflects a broader trend of criminals adapting to the heightened security of online platforms. As such, the risk landscape is evolving beyond traditional cybercrime, requiring firms to consider personal security measures and access controls for crypto assets.

The financial infrastructure supporting illicit crypto operations has also grown more sophisticated. In 2024, addresses involved in illicit activity received a total of $40.9 billion in inflows, with stolen private keys accounting for 43.8% of the illicit funds. Nation-state actors and organized criminal networks have played an increasingly prominent role in facilitating these operations. Additionally, scamming tactics such as “pig butchering,” where trust is built before defrauding victims, have continued to proliferate. These developments highlight the need for regular security audits and robust governance practices to maintain insurance eligibility and regulatory compliance.

As the threat landscape becomes more complex, risk managers must update their frameworks to address both digital and physical risks. This includes ensuring policy coverage is aligned with actual exposure and that policy wording is clearly defined. The integration of multi-layered protection strategies is now essential to future-proof operational resilience. Industry experts emphasize that partnering with risk advisors who understand both digital and physical crime risks, alongside a comprehensive insurance program, is critical in navigating this evolving environment. The crypto sector’s growth potential must be matched by a parallel commitment to preparedness and proactive risk management.