Mt. Gox $9B Payout Sparks Market Fears

The MtGox trustee has once again disrupted the cryptocurrency market with its latest announcement on June 24. This news comes as the trustee disclosed plans to commence repayment of Bitcoin (BTC) and Bitcoin Cash (BCH) in July, a process that will involve the distribution of crypto assets valued at an astonishing $9 billionFollowing this declaration, a sharp downturn ensued in the crypto markets, sending Bitcoin's price tumbling below the $60,000 mark for the first time since May.

The facilitator of this repayment process confirmed that preparations are complete to initiate the repayments in accordance with the recovery planPayments will be made to various cryptocurrency exchanges, including Kraken, Bitstamp, and BitGo, having met all the necessary compliance checks and confirmations for secure repaymentsThere are over 127,000 creditors, a notably small number of which are users from Japan, estimated to be less than 1%. The total repayment consists of approximately 142,000 BTC worth about $8.58 billion and 143,000 BCH valued at around $53.3 million.

In a noteworthy development, Mt

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Gox's wallet activity has been recorded for the first time in five years, in preparation for the deadline of October 31, when the repayments must be fulfilledThe assets were split and distributed into three new addresses, each holding 47,230 BTC.

However, creditors will not receive all their assets in a lump sumReports indicate that the repayment plan structured by MtGox includes both a basic repayment and proportional payment systemThe basic payment allows creditors to claim up to 200,000 yen (approximately $1,800) to be repaid in yen, while the proportional payment offers flexible options between “early lump-sum repayment” or “mid-term and end-term repayments.” Specifically, early lump-sum payments will only enable creditors to recover part of their claims, with amounts exceeding 200,000 yen allowing creditors to choose between a mix of BTC, BCH, and yen or receive full payment in fiat currency

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Deadlines for the basic repayment, early lump-sum, and mid-term repayment have been collectively set for October 31, 2024, though creditors eager for higher proportions of repayment may have to await an additional five to nine years.

As the year progresses, several creditors have already reported receiving their first compensation packages in yen, marking a pivotal moment as the upcoming payment plan will be the first time MtGox distributes repayments in the formats of BTC and BCH.

It is crucial to recognize that repayments will be made in the order in which the exchanges have completed the necessary information exchange and confirmationsThis means that repayment timelines may vary between creditorsPrevious communications specified that BitGo might take up to 20 days to initiate payments, while Kraken and Bitstamp could require as long as 90 days.

For an already liquidity-strained crypto market, the imminent repayment plan is set to act as a significant shockwave

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Eric Balchunas, a senior ETF analyst at Bloomberg, commented that should all the MtGox Bitcoin flood the market, it would cancel out the inflows from over half of the Bitcoin ETFs rolled out to date.

The overwhelming selling pressure led to a surge of panic, and Bitcoin's price briefly dipped below the $60,000 threshold, marking a new low since MayData from CoinGlass indicated that liquidations across the market within 24 hours reached a staggering $357 million, with Bitcoin alone accounting for $175 millionNevertheless, insights from multiple institutions and major creditors suggest that the sell-off impact from MtGox may not prove as severe as the market anticipates.

For instance, Alex Thorn, the research head at Galaxy Digital, expressed on the X platform that he expects the volume of tokens distributed by MtGox to be lower than market projectionsHistorically, MtGox had lost about 940,000 BTC but successfully recovered around 141,868 BTC, which, at present, is worth approximately $9 billion

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Despite the recovery rate being a mere 15%, for creditors, this reflects a monumental increase in their dollar value since the recoveryCreditors desiring to receive “early” payments will need to accept an approximate loss of 10%. An estimated 95,000 BTC will be earmarked for early compensation, out of which about 20,000 BTC belong to the claims fund, 10,000 BTC are associated with the Bitcoinica bankruptcy case, and the remaining 65,000 BTC are attributed to individual creditors—a number significantly lower than previous media estimates of 141,868 BTC.

An examination of the claims data compiled by MtGox’s bankruptcy trustee, Nobuaki Kobayashi, highlighted that 226 claimants collectively held over 50% of the total claims, indicating these investors will be eligible to receive 84,650 BTC.

Many observers believe the potential sell-off pressure caused by Mt

Gox has been overstatedAlistair Milne, the Chief Investment Officer at Altana Digital Currency Fund, noted that creditors in immediate financial need have had a decade to liquidate their claims, and those still holding their claims are likely not in a rush to offload their BitcoinReports from Bloomberg indicate that large creditors and long-term market participants do not view the Bitcoin price as facing sustained downward pressureInstead, there is a preference among many to either retain the tokens or gradually sell them, betting that prices will continue their upward trajectory.

Adam Back, the CEO of Blockstream Corp., mentioned that selling Bitcoin during a market bullish phase would be ill-timed, asserting intentions to hold onto the Bitcoin allocated as debt recoverySimilarly, Brian Dixon, CEO of Off the Chain Capital, remarked that selling his Bitcoin holdings would only come with the discovery of better investment opportunities, highlighting the maturity of the Bitcoin market

Creditors are faced with personal assessments regarding the necessity of immediate cash versus utilizing Bitcoin as a long-term store of value, especially given that Bitcoin has been the best-performing asset over the last 15 yearsTherefore, he foresees that Bitcoin’s price will not suffer long-term damages, although short-term fluctuations may still manifest.

Alex Thorn shared that the sell-off pressure on Bitcoin looks minimalMany of the individual creditors lean towards being long-term holders of Bitcoin and are generally knowledgeable early adoptersTheir consistent resistance against attractive offers from claims funds suggests a strong preference for reclaiming Bitcoin instead of opting for fiat currency paymentsConsidering the capital gains implications, even a 15% physical recovery since bankruptcy has granted claim holders substantial gains on the Bitcoins retrievedYet, a modest 10% sale of the 65,000 Bitcoins could still flood the market with 6,500 Bitcoins, largely via market transactions

Creditors poised to receive these Bitcoins will likely deposit them into accounts on Kraken, Bitstamp, or BitGo, and many might straightaway allocate them to trading accountsDiscussions with some claims funds reveal that these entities consist primarily of high-net-worth individuals seeking to acquire discounted Bitcoin rather than arbitrage-trading fundsAlthough some limited partners (LPs) might decide to liquidate portions of their holdings, overall, these funds are not predominantly comprised of arbitrage-focused traders.

Conversely, BCH may encounter price pressure and underperform relative to BTC in the upcoming distribution, largely due to a lack of initial BCH purchases by creditors and comparatively lower liquidity levels, particularly on exchanges like Kraken and Bitstamp where the creditors will receive this tokenAs a consequence, once these tokens reach distribution, BCH is likely to suffer worse than BTC in performance, given that creditors are more predisposed to liquidate in a market lacking liquidity