In a few days, bankrupt Tokyo-based bitcoin exchange Mt. Gox will begin paying back thousands of users.
A bitcoin exchange that collapsed 10 years ago after being hacked is set to return billions of dollars’ worth of the token to users, causing investor concerns.
In a few days, bankrupt Tokyo-based bitcoin exchange Mt. Gox will begin repaying nearly $9 billion worth of tokens to thousands of users. The platform collapsed in 2014 following multiple heists that cost it between 650,000 and 950,000 bitcoin, worth around $58 billion today.
After a lengthy bankruptcy process with numerous delays and legal challenges, the court-appointed trustee overseeing the proceedings announced that distributions to the firm’s 20,000 creditors will start in early July. The payments will be a mix of bitcoin and bitcoin cash.
Although this is positive news for the hack victims, the price of bitcoin fell to $59,000 last week during the crypto market’s second-worst weekly decline of the year.
Analysts predict pressure on bitcoin could increase as roughly 141,000 bitcoin, or 0.7% of the total 19.7 million bitcoins outstanding, are returned to Mt. Gox victims.
Mt. Gox, which stands for “Magic: The Gathering Online Exchange,” was once the largest spot bitcoin exchange, handling around 80% of all global dollar trades for bitcoin. When it shut down in February 2014, bitcoin was worth around $600.
Today, bitcoin trades at about $61,000 per coin. Users opting for reimbursement in bitcoin have seen their holdings increase over 10,000% in value over the last decade. John Glover, chief investment officer of crypto lending firm Ledn, told CNBC this windfall could lead to significant bitcoin sales as investors cash in their gains.
James Butterfill, head of research at CoinShares, said the impending release of nearly $9 billion worth of bitcoin has long been a concern for bullish bitcoin investors. “The market is highly sensitive to any related news,” he said.
Historically, large bitcoin redemptions have moved the market. Last month, crypto exchange Gemini returned over $2 billion worth of bitcoin to users, resulting in negative price action. JPMorgan analysts predict similar behavior from Mt. Gox creditors, expecting many to sell their bitcoin and pressure the market in July, with potential recovery starting in August.
Some analysts believe the impact will be short-lived, citing previous sell-offs, such as the Silk Road case, which did not result in sustained price drops. Butterfill and other analysts also suggest there’s enough market liquidity to cushion the blow of mass sell-offs.
Jacob Joseph of CCData noted that a portion of creditors might take a 10% haircut on their holdings to receive early repayment, reducing overall selling pressure. Recent price movements suggest the market may have already priced in the temporary impact of the Mt. Gox repayments.
Vijay Ayyar of Gemini and other analysts agree that the overall effect of the Mt. Gox disbursement will be mitigated by the varied nature of the recipients and the distribution process.
In addition to the Mt. Gox situation, other macroeconomic factors have influenced bitcoin’s recent decline. The cryptocurrency saw a sharp rally earlier this year, reaching over $70,000 after the U.S. Securities and Exchange Commission approved the first spot bitcoin ETF. However, investor anxiety over outflows from bitcoin ETFs and large market liquidations, coupled with the Federal Reserve’s updated interest rate forecast, have contributed to the recent drop.
CoinShares’ Butterfill noted that the Fed’s new rate forecast is one of the likely culprits for the recent bitcoin price decline. Despite these challenges, he remains optimistic about bitcoin’s fundamental investment potential.
