In a analysis Shared via With distributions of Bitcoin (BTC) and Bitcoin Cash (BCH) to creditors expected to start in JulyIt marks the end of a decade-long legal ordeal stemming from one of the most catastrophic losses in cryptocurrency history.
Mt. Gox was once one of the largest cryptocurrency exchanges, processing over 70% of all Bitcoin transactions at its peak. Its downfall began with the revelation in 2014 that around 940,000 BTC (worth around $424 million at the time) was missing from its vaults, presumed stolen or misplaced. This lead to stock market bankruptcy and a protracted legal and administrative battle to recover lost assets. Over the years, 141,868 BTC have been recovered, which, due to the increase in the price of Bitcoin, is now valued at around $9 billion.
Why Mt. Gox’s Bitcoin Selling Pressure Might Be Vastly Overestimated
Thorn’s ideas are based on a thorough review of bankruptcy filings and conversations with the creditors involved. He noted that while the initial loss was substantial, the turnaround process generated a significant return for creditors in dollar terms – a factor of 140 higher based on current valuations.
In his analysis, Thorn pointed out that the “prepayment” option offered to creditors involves a 10% discount, but was selected by around 75% of them, likely due to the protracted nature of the procedure. This leaves around 95,000 BTC for early distribution. Of this sum, 20,000 BTC is allocated to claim funds and 10,000 BTC is earmarked for Bitcoinica’s bankruptcy resolution, reducing the number available to individual creditors to approximately 65,000 BTC/BCH.
Thorn predicts that the majority of individual creditors, many of whom are longtime Bitcoin enthusiasts and early adopters, will likely hold on to their shares rather than sell them. It points to their past behavior, including their resistance to “compelling and aggressive offers” from claims funds, as indicative of their likely intentions. Thorn highlighted the significant capital gains impact the sale would have on these creditors, which could deter immediate liquidation of their assets.
Even if a small percentage (10%) of the 65,000 BTC were to be sold, this would result in approximately 6,500 BTC potentially entering the market. This figure is considerably lower than in some markets speculators feared. Thorn anticipates that these transactions will be absorbed by the market without significant disruption, due to the high liquidity of Bitcoin on major exchanges like Kraken and Bitstamp, where these transactions are likely to take place.
Thorn also highlighted the particular challenges facing Bitcoin Cash, which was not originally owned by creditors but came into their possession via the BTC fork in 2017. With significantly lower liquidity and market depth than Bitcoin, BCH is about to face greater volatility. He pointed out that BCH only has $400,000 of liquidity in its order books, less than 1% of the current market price, which could exacerbate price movements as creditors begin to sell off their holdings.
Thorn’s comprehensive analysis suggests a moderate impact on the Mt. Gox distribution market, with lower-than-expected Bitcoin volume and a potentially higher proportion of Bitcoin Cash sold. He recommends that stakeholders closely monitor transaction movements, including through platforms like Arkham Intelligence, to track the impact in real time as these distributions begin.
At press time, BTC was trading at $61,405.
Featured image created with DALL·E, chart from TradingView.com
