🗻 Mt.Gox Crashes Market? 📈Coinbase Index Fund — Cryptos for the Rest of Us

Markets took another leg lower last week with Bitcoin struggling to regain $10,000.

We’ve been hard at work analysing the Japanese cryptos and should be ready to share some results soon — possibly as a report first. Stay tuned!

Mt.Gox Crashed the Market?

What’s the Story?

Last Wednesday the trustee handling the Mt. Gox bankruptcy announced that they had completed the sale of a substantial amount of Bitcoin and Bitcoin Cash between December 2017 and February 2018.

Mt. Gox is a cryptocurrency exchange went bankrupt in 2014 following a hack of over USD450 million. At the time the exchange was handling over 70% of the market volumes and is widely cited as the cause for the subsequent bear market in cryptocurrencies.

What Happened?

The amount sold is roughly USD405 million worth of cryptocurrency which covers the USD391 million owed to creditors. Looking at the wallets known to be owned by Mt. Gox we can see exactly when these sales were made.

It’s likely the orders were executed using batches of ‘market orders’ which sells the entire order in one go. The effect of such large orders is usually to crash the price as there are not enough buyers at the current prices to sustain the sell order. Institutional investors will usually break up such orders to trade over a longer time period and minimise such price impacts but it seems like the trustee did not do this.

It seems plausible that this compounded the market crash from the Bitcoin peak price of $20,000 as they continued to sell down to sub $9,000 levels.

Why Should I Care?

The trustee sold around 36,000 Bitcoin during this period. If this truly had such a big impact on the market then any further selling could result in even worse price crashes. The trustee still has 165,000 Bitcoin. For now, they say they have no plans to sell this amount as enough has been raised to satisfy creditors.

It seems unfair to single out Mt. Gox alone as it’s likely many other long-term holders, both large and small were cashing out of cryptocurrencies during this period. The Pineapple fund, among others also likely contributed to this sell-off. However, it does highlight the potential impact that large holders can have on the market.

Coinbase Launch Index Fund

What’s the Story?

Coinbase, one of the largest cryptocurrency exchanges announced that they were launching an Index Fund for investors. The fund will fall under Coinbase’s newly launched asset management division and will invest in a portfolio of cryptocurrencies available on Coinbase.

Why Index?

It’s been well proven in the stock market that the average investor underperforms the market when they try and pick stocks. The same principle should theoretically apply to cryptocurrencies — the average investor is unlikely to have the time, resources, or institutional discipline to pick and trade the best performing cryptocurrencies.

An index, if crafted well, is a good way to get access to market returns. Therefore, for the average investor, purchasing an index of assets is a better solution than trying to pick individual assets.

Why Should I Care?

Professionally managed products like this will be the gateway for new capital to enter the market. In particular, this provides a vehicle which institutional investors may feel more comfortable investing in.

For Coinbase it’s a no-brainer as it adds liquidity to their exchange, making the venue more attractive while they get to make money off the invested capital. The catches, in this case, are that

1) It’s only available to accredited investors and;

2) It only invests in the 4 cryptocurrencies that are available on Coinbase

Either way, this is a great first step to helping institutional adoption of cryptocurrencies and should pave the way for professionalising the market.

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