Mt. Gox Repayments Begin, Bitcoin Cash May Stave off Worst-Case Selling Pressure
Mt. Gox has begun reimbursing its creditors after ten years, and Bitcoin has been hemorrhaging. Nevertheless, paranoia may be more responsible for this decline than any actual major sell-off.
Bitcoin’s valuation has continued to tank thanks to long-awaited Mt. Gox payouts; nevertheless, the usage of Bitcoin Cash alongside Bitcoin in these reimbursements may help prevent more dire price drops.
The Mt. Gox story has cast a very long shadow over the Bitcoin community. In the early days of Bitcoin’s history, this Japanese-based exchange rapidly gained prominence from its initial launch in 2010. When it reached a 70% share of all Bitcoin trade volume in 2014, it became clear that this one company had changed the entire space on a fundamental level. Although the earliest periods were full of strange and eclectic methods to acquire and transfer Bitcoin, even including the use of physical wallet dead-drops, Mt. Gox showed the space that the crypto exchange was here to stay. Except, as it turned out, for Mt. Gox itself.
By February of 2014, the exchange had shuttered all operations and began bankruptcy proceedings, liquidating their assets soon after. Investigations into the matter soon became clear: whether by mismanagement or deliberate fraud, some 750k bitcoins had vanished from Mt. Gox’s accounts. Bitcoin itself even underwent a substantial crash in the immediate aftermath of Mt. Gox’s collapse, but it didn’t change the fact that the total value of these assets grew titanically in a very brief period. And they’ve only been growing since. These coins were worth hundreds of millions a decade ago but have ballooned in value since then to the extent that even small seizures in the 2020s can again account for similar sums.
Amazingly, even though the exchange’s collapse took place over a decade ago, rumors have still bubbled from time to time that old users may finally see their assets returned. In late June 2024, the company’s Rehabilitation Trustee announced that repayments would begin at the start of July. Offering payouts in Bitcoin and Bitcoin Cash, as well as in fiat currency, the company's remnants were prepared to commit $9 billion to finally close this chapter of Bitcoin’s history. Of course, rumors immediately began circulating in the aftermath of this announcement, speculating on the possible impact on Bitcoin’s current price. To put it bluntly, Bitcoin has been floundering. The post-halving economy has led miners to exert formidable selling pressure on Bitcoin, with miners selling at a 14-year high to stay afloat. This has understandably had a downstream effect on all of Bitcoin, as the increased sales have left investors expecting price drops.
It wasn’t just the small-time investors that smelled blood in the water, though. In late June, the German government abruptly sold $325 million worth of bitcoin that it seized from various criminal operations, apparently attempting to make a profit on these assets while the profit remained high. This was bad enough for Bitcoin’s reputation, but it was compounded with a more major scare when the US government made preparations for similar sales. The American federal government has yet to actually carry out sales like this, but the concrete preparations have been enough to spook the market. The US Bitcoin stash is far larger than that of Germany or any other nation, such that the federal government is genuinely one of the world’s largest whales. If it tries to dump Bitcoin as a “toxic” asset, there’s no telling what would happen.
Suffice it to say, these selling pressures have had a very toxic impact on Bitcoin’s price in the past few weeks. Although the valuation stayed around $70k from May to the beginning of June, a stone’s throw away from the all-time high, Bitcoin’s trajectory since June began has been almost entirely downhill. With an immediate forecast like this, the community has been despairing over the Mt. Gox situation. If miners and Germans could cause this much selling pressure to drive Bitcoin down, who knows what the reimbursements could do? $9 billion in Bitcoin could even lead to an undeniable bear market, with deep and lasting consequences. In short, fear, uncertainty, and doubt have run amok.
Despite this paranoia, several analysts have stepped forward to offer alternate visions for the future. First of all, as Galaxy’s Head of Research Alex Thorn pointed out, there has been a decade between the exchange’s meltdown and these payouts, and these years have been rife with opportunities for creditors to take an early deal. Those who stand to receive a payout have resisted “compelling and aggressive offers from claims funds” for ten years, said Thorne, and the holdouts aren’t very likely to suddenly make a quick buck today. He went on to claim that “we think fewer coins will be distributed than people think, and that it will cause less bitcoin sell pressure than the market expects,” simply because these “diamond-handed” creditors would be very unlikely to try and maximize short-term gains in this manner. Besides, he added, capital gains taxes would be a major factor for anyone pursuing this route, as the investments have increased in value by 140x since Mt. Gox’s bankruptcy.
An additional point in Bitcoin’s favor may come from a very unlikely source: Bitcoin Cash. Bitcoin Cash (BCH) is currently classified as an altcoin, a now-independent cryptoasset project that was initially born from a hard fork in Bitcoin’s blockchain. The schism took place in 2017, and any Bitcoin owner at the time subsequently also became an owner of the equivalent number of BCH tokens. In other words, while Mt. Gox’s users were waiting for their first reimbursements, they were also theoretically entitled to BCH that had been created while their assets were in limbo. And in short, as Presto Lab’s Peter Chung characterized the situation, these new assets are the ones with the real selling pressure.
“Our analysis shows that the selling pressure for BCH will be four times larger than for BTC: 24% of the daily trading value for BCH vs. 6% of the daily trading value for BTC," Chung said in a social media post. He agreed with Thorn’s assessment that likely Bitcoin sellers had already taken an early settlement from one of the claims funds, so anyone entitled to Bitcoin reimbursement in 2024 was very unlikely to sell it. However, Mt. Gox is also carrying out these payments in Bitcoin Cash, which will likely be treated “like an airdrop” by these holders. “Oblivious to BCH's cause,” these creditors are likely to have doomsday-level selling pressure on this altcoin, while Bitcoin will weather the storm, in Chung’s reckoning.
Still, it won’t do to merely paint an overly-rosy outlook on the situation. It’s important that we face the facts, and the fact is that Bitcoin’s price cycle has always been heavily influenced by hype and perception. Even if Mt. Gox creditors don’t offload a single satoshi this month, the fear of these sales still holds tremendous power. Reimbursements have officially begun, and at first glance, it may resemble ritual slaughter. $221 million from the Bitcoin market evaporated, simply disappearing as the price dropped into the lower $50k range. And for the broader cryptocurrency sphere as a whole? CNBC estimated that the losses were as high as $170 billion.
And yet, these seemingly catastrophic numbers do hold some reassurance. What does any of this have to do with Ethereum? Why would this totally unrelated cryptoasset drop 5%, and why would these losses be replicated all over the wider space? The answer is simple, and it’s that we’re in a dark hype bubble. Traders worldwide have read the headlines on possible major offloads and are trying to get out quickly. Yet, despite this, Bitcoin’s actual fundamentals do remain intact. In short, the losses caused by Mt. Gox’s reimbursements aren’t directly caused by the payouts at all and are instead a sort of boogeyman. When the dust clears, and it may be soon, nothing of substance will have changed. These creditors waited ten years for Bitcoin to work out for them, and the gains from this have been astounding. Surely, investors everywhere should try to keep a similar faith.
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