Mt. Gox: Final Hurdle in Front of the Bull?
Is the bull run finally approaching? Supported by potentially multiple Fed rate cuts this year and Trump’s increasing chances of winning the election, the bullish trend appears promising. The only obstacle hindering this bullish momentum right now appears to be the impending Mt. Gox repayment.
Mt. Gox was once the world’s largest cryptocurrency exchange, handling over 70% of global Bitcoin transactions until a severe hack in 2013 resulted in the theft of 740,000 Bitcoins from customers and 100,000 from the company itself. This catastrophic loss led to bankruptcy by February 2014, leaving its clients awaiting a lengthy rehabilitation plan.
After over a decade of waiting, on June 24, 2024, the Mt. Gox trustee finally announced repayments in both Bitcoin and Bitcoin Cash for creditors opting for the “Early Lump Sum Payment.” This option allows creditors to receive an “early” payout with a haircut of around 10% to 20%, rather than continue waiting for “full recovery.”
Following the announcement, Bitcoin’s price dropped from over $62,300 to under $62,100 and then experienced nearly a 6% decline within 24 hours. Concerns mounted that recipients of the repayment would rush to cash out, which will cause significant selling pressure on Bitcoin. Despite the lack of transparency and details regarding this rehabilitation plan for the market to estimate the impact, we can infer some indications.
Repayment Plan
According to Alex Thorn’s X thread, approximately 75% of trustees are expected to opt for the early payout, with around 20,000 BTC owed to claim funds and another 10,000 to Bitcoinica BK, leaving roughly 65,000 BTC for individual creditors. Concerning claim funds are long-term holders seeking Bitcoin at discounted prices rather than for immediate arbitrage. These 65,000 Bitcoins held by individual creditors are the potential selling pressure we need to consider.
Five designated exchanges are responsible for distributing repayments once they receive BTC and BCH from Mt. Gox, with an October 31, 2024 deadline set for completion. The exact payout timelines vary among the exchanges, with Kraken allotted 90 days, Bitstamp 60 days, and BitGo, SBI VC Trade, and Bitbank completing transactions within 20 and 14 days, respectively. Notably, on July 7, Mt. Gox transferred 1545 BTC to Bitbank, and on July 17, Kraken also confirmed receiving funds from Mt. Gox.
Comparison with German Government’s Sell-off
To better predict potential impacts, we can compare this scenario to the German government’s sell-off of Bitcoin from the Movie2k case. The government initiated tentative sales on June 19, with significant sales starting on July 8 and concluding on the 12th, totaling over 43,000 BTC sold in 23 days. Within this period, the largest drop occurred on July 5, coinciding with Mt. Gox’s initial BTC transfer to Bitbank, where BTC prices plummeted to $53,500. However, it quickly rebounded.
We can conclude that BTC prices dropped before substantial selling and then quickly stabilized during the German government sell-off. Therefore, if we consider approximately 60% of the 65,000 BTC held by individual investors will be sold immediately, equating to 40,000 BTC, the worst-case scenario may resemble the German government’s sell-off — a brief decline followed by recovery.
However, the sell pressure from Mt. Gox creditors may not be as pronounced as that from the German government due to the distribution period spanning up to three months, thus dispersing sell-offs. Moreover, despite recovering only 15% of the BTC lost in the hack, there has still been a 140x return over the past decade. These creditors, who are early adopters of Bitcoin and blockchain technology enthusiasts, are likely to keep holding onto their assets. Sell-offs are anticipated but expected to be less severe than market concerns.
Impact on Bitcoin Cash
Nevertheless, this repayment plan is expected to impact BCH more significantly than BTC. Given BCH’s fork occurred three years post-bankruptcy, the tokens in the repayment plan were not originally purchased by creditors. Consequently, most of BCH repayments are expected to be sold once received. Recent Mt. Gox wallet activity indicates over 143,000 BCH set for distribution, surpassing 20% of the token’s daily trading volume.
Under these circumstances, Presto Labs’ researcher Peter notes, “The best strategy to capitalize on this asymmetric supply risk in a market-neutral manner is to adopt long BTC exposure paired with short BCH exposure. This can be executed through various means, but perpetual futures (perps) markets offer the most efficient route.”
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