Imagine waking up to find the cryptocurrency you bought has done a 60x multiple. This is the reality for many MtGox creditors, set to receive their lost Bitcoin starting next month. But what does this mean for the market? Will the influx of 140,000 BTC crash the blockchain sector? Let's dive in. What Happened at Mt Gox?In early 2014, Mt Gox (the world's largest Bitcoin exchange at the time), was hit by a catastrophic hack. An estimated 740,000 BTC were stolen, worth approximately $45 billion at today's prices. This breach led to the exchange's collapse, leaving thousands of investors in limbo. Fast forward to 2024, and a court approved rehabilitation plan is finally ready to reimburse the affected users.
July 2024 DistributionThe repayment plan includes the distribution of 141,000 BTC and 143,000 BCH (Bitcoin Cash), amounting to around $9B at todays valuation. Prior to the hack, Bitcoin was trading around $1000, today it trades at over $60,000. This is expected to start in July 2024.
Creditors will recover only about 15% of their lost Bitcoin, effectively translating to a locked in price of around $6,000 per Bitcoin. This diminishes the perceived windfall but there are still significant 10x unrealized gains. The parties involved have known a payout has been coming for some time and I expect there are a few real life purchases being put on hold until these funds come in. Read another way this translates to expected selling pressure.
Effect on MarketsWill all $9B Bitcoin be dumped on the market - No. Will a certain percentage of creditors liquidate a percentage of their soon to be realized gains? Certainly. How much is hard to speculate, but pulling a number out of thin air I’d suggest maybe 15%~ish will be liquidated in the first year. This would be 21k BTC or $1.3B USD. You are welcome to come up with your own estimate. Let's put this into perspective by comparing it to MicroStrategy's Bitcoin purchases 226k BTC. The Mount Gox selling pressure is about 1/10th of a Michael Saylor. Furthermore, the repayments will be made in instalments through centralised exchanges to minimise market impact. Even with expected selling pressure, the structured distribution is designed to prevent a sudden market crash. Is it going to effect the markets? The Mt Gox repayments, while substantial, are not expected to flood the market and send Bitcoin to zero. The structured distribution plan and the relative scale suggest it’s going to be a market factor but it’ll be one of many things affecting the crypto markets over summer and beyond.
Do you know how many altcoins Mt Gox is distributing? Zero. Well there is Bitcoin Cash but I don’t think that counts 🫤 The greater impact could be on ETH/BTC, with the ETH ETF’s also expected to go live around this time. The problem is if Bitcoin sells off either in anticipation or because of the MtGox distribution it will take the rest of the market with it. If this doesn’t happen then it could create a new market dynamic where ETH/BTC starts climbing and hopefully culminating in a risk on environment where alts start to run. Governance tokens and NFT’s are as unloved as I remember with CryptoPunks currently trading at 26 ETH floor. Everything is cyclical and these assets will have their time in the spot light once again at some point. Social links are below and if you enjoyed this newsletter I would appreciate it if you could share this content
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