Erik Weijers, 8 months ago

Will 137.000 Mt. Gox Bitcoin dump the price?

For years it has been talked about: will the victims of the 2014 hack of Bitcoin exchange Mt. Gox finally get their Bitcoin back? The lawsuits have been dragging on and on. But now it seems that it will happen soon. What will it mean for the price of Bitcoin when all that BTC is released?

Around the time that Mt. Gox went down, this Japanese exchange was by far the largest Bitcoin exchange: 70% of trading took place there. Because of this lack of competition, many early users took the long-standing technical problems for granted. But on February 7, 2014, the curtain fell: withdrawals were stopped. A few weeks later, it became clear that Mt. Gox was bankrupt and had lost a total of 850,000 Bitcoin, 750,000 of which belonged to customers.

In August 2015, CEO Mark Karpelès was arrested. He is currently serving a thirty-month prison sentence for fraud and embezzlement.

Payback starting in August

Years of investigation and litigation followed. In late November 2021, the Tokyo District Court formalized an official rehabilitation plan. On July 6, 2022, victims received an email that the trustee was preparing to initiate refunds. This trustee has 137,000 Bitcoin on hand: at the current price of Bitcoin, that equals about $2.7 billion.

Price drop?

It is expected that the victims will receive their Bitcoin from August onwards - paid out in dollars or Bitcoin Cash (!?) if they wish. Will this cause Bitcoin to fall in value? There are a number of reasons to believe that it will not.

  • The victims will not all receive their Bitcoin payments at the same time.
  • Some of the victims who wanted to sell have already sold their stake to large funds.
  • After eight years of forced hodl'ing, the creditors have experienced that selling Bitcoin has not proven to be a good long-term strategy. Also, Bitcoin is now a less speculative asset than it was in 2014.
  • Selling a large position all at once is usually not smart. An incremental sale is often a better strategy.

Suppose, despite the above, a sizable portion of 137,000 Bitcoin is sold starting in August. That is unlikely to cause a price drop comparable to that of last May. Then the Luna Foundation Guard was forced to dump 80,000 Bitcoin into the market within a day. In June, crypto hedge fund 3AC went bankrupt, and on the order of 10 billion in crypto was liquidated in a short period of time. Those are (much) bigger market shocks than the one we are facing now. A ripple is more likely.

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