Markets
Mt. Gox set to sell $9 billion worth of Bitcoin – what it means for BTC
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A bitcoin The exchange that collapsed 10 years ago after being hacked is set to return billions of dollars worth of tokens to its users — and that has investors worried.
In a few days, Mt. Gox, a bankrupt Tokyo-based bitcoin exchange, will begin reimbursing thousands of users in tokens worth nearly $9 billion. The platform went bankrupt in 2014 following a series of robberies which cost him approximately 650,000 has 950,000 bitcoin, or more than $58 billion, at current prices.
The payment follows a lengthy bankruptcy process that involved numerous delays and legal challenges.
On Monday, the court-appointed trustee overseeing the stock exchange’s bankruptcy proceedings said Distributions to the company’s roughly 20,000 creditors will begin in early July. The payments will be made in a mix of bitcoin and bitcoin cash, an early version of the original cryptocurrency.
While this is good news for hacking victims who have spent years waiting to be compensated, bitcoin price dropped to $59,000 last week in the crypto market second worst weekly decline of the year.
CNBC spoke to half a dozen analysts to find out what to expect when about 141,000 bitcoins – or about 0.7% of the total 19.7 million bitcoins in circulation – are returned to victims of Mt. Gox this week.
Pressure on Bitcoin could increase
Mt. Gox – short for “Magic: The Gathering Online Exchange” – was once the world’s largest bitcoin spot exchange, claiming to handle about 80% of all global dollar-for-bitcoin transactions.
When it closed in February 2014, bitcoin was worth around $600.
Today, the world’s largest cryptocurrency is trading at around $61,000 per coin. This means that users choosing to be repaid in kind – that is, in the cryptocurrency itself rather than the cash equivalent – saw the value of their coins increase by more than 10,000% in over the last decade.
John Glover, chief investment officer of cryptocurrency lending firm Ledn, told CNBC that the boon for Mt. Gox users would likely translate into huge bitcoin sales as investors look to lock in their gains .
“Many are clearly going to cash in and enjoy the fact that having their assets tied up in the Mt. Gox bankruptcy is the best investment they’ve ever made,” said Glover, who was previously chief executive of Barclays. “Some will clearly choose to take the money and run,” Glover added.
James Butterfill, head of research at CoinShares, told CNBC that the nearly $9 billion surplus of bitcoins expected to be released has “long been a concern for those who have a bullish view of bitcoin.”
““So the market is very sensitive to any news on this. With the announcement that the Trust will start selling in July, investors are understandably worried,” Butterfill said.
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This wouldn’t be the first time that bitcoin has moved in response to massive redemptions of funds locked up on centralized trading platforms.
Last month, cryptocurrency exchange Gemini returned more than $2 billion worth of bitcoin to users whose funds had been locked in its Earn lending program, marking a 230% recovery after bitcoin prices more than tripled since Gemini suspended Earn withdrawals on Nov. 16.
JPMorgan analysts linked this to negative price action, saying in a research note last week that it was “fair to assume that some of Gemini’s creditors, who are mostly retail clients, took less partial profits in recent weeks.
Likewise, JPMorgan analysts expect that Mt. Gox clients will also be inclined to sell some of their bitcoins to take advantage of the cryptocurrency’s seismic gains.
“Assuming most liquidations by Mt. Gox creditors occur in July, [this] “This creates a trajectory where cryptocurrency prices come under additional pressure in July, but begin to rebound from August onwards,” they wrote.
Separately, last month, the German government sold 5,000 — worth about $305.8 million at Thursday’s prices — of a stack of 50,000 bitcoins seized in the Movi2k movie piracy operation.
The funds were sent to various cryptocurrency exchanges including Coinbase, Kraken and Bitstamp, according to Arkham Intelligence, a blockchain intelligence company.
Analysts say these crypto liquidations have also put pressure on the price of Bitcoin.
Mt. Gox Customers Should Hold On To Their Bitcoin
Most analysts agree that bitcoin’s losses will likely be contained and short-lived.
“I think the concerns about the Mt. Gox selloff are likely to be short-term,” said Lennix Lai, chief commercial officer of cryptocurrency exchange OKX.
“Many Mt. Gox users and creditors are long-time bitcoin enthusiasts who are less likely to immediately sell all of their bitcoins,” he said, adding that previous sales by law enforcement, including the Silk Road affairdid not lead to a catastrophic and lasting drop in prices.
Butterfill suggested that there was enough liquidity in the market to cushion the shock of a possible mass selling action in the market.
“Bitcoin has maintained a daily trading volume of $8.74 billion on trusted exchanges this year, suggesting that there is sufficient liquidity to absorb these sales over the summer months,” Butterfill said. .
According to Jacob Joseph, research analyst at CCData, markets are more than capable of absorbing the selling pressure.
“In addition, a good portion of creditors are likely to take a 10% haircut on their holdings to receive early repayment, and not all holdings are intended to be liquidated on the open market, which reduces selling pressure overall,” he said.
Recent price movements suggest the temporary impact of Mt. Gox refunds may already be priced in, Joseph added.
Alex Thorn, head of research at Galaxy Digital, believes that fewer coins will be distributed than previously thought, meaning there will be less selling pressure than the market is expecting.
However, he also wrote in May that even if only 10% of distributed bitcoins were sold, “it would have an impact on the market.”
“Most individual creditors will deposit their coins directly into a trading account at an exchange, making selling extremely easy,” Thorn said.
Vijay Ayyar, head of consumer growth for Asia Pacific at cryptocurrency exchange Gemini, said the overall impact of the Mt. Gox disbursement should be “dissipated,” given the recipients of the funds are varied.
On one side, there are individual holders who will receive their bitcoins immediately. On the other side, there is the “significant amount” of bitcoins that will be paid into the claims funds, Ayyar said.
“These funds should then be distributed to their LPs [limited partners]therefore, the whole process could take some time, adding an element of time to the impact on price,” he told CNBC.
Macroeconomic headwinds behind bitcoin’s fall
It is worth noting that there are many other reasons behind bitcoin’s recent declines.
The cryptocurrency saw a dramatic rise earlier this year, exceeding $70,000 on the heels of the U.S. Securities and Exchange Commission’s approval of the first bitcoin cash ETF.
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Bitcoin price performance in US dollars since the beginning of the year.
But investors remained concerned over Bitcoin ETF outflows and significant market sell-offs. The broader macroeconomic environment is also worrying investors.
Earlier this month, the Federal Reserve suggested it planned to cut rates just once this year, down from multiple cuts previously announced.
Cryptocurrencies, by nature volatile, are particularly sensitive to changes in the interest rate environment.
CoinShares’ Butterfill said the Fed’s new rate forecasts were among “the likely culprits behind the recent price decline” in bitcoin.
This and other issues “are likely to weigh on prices during the summer months when volumes are lower,” Butterfill said. However, “the fundamental case for investment remains largely intact,” he added.