Mt. Gox Repayments: Assessing the Market Impact on Bitcoin (BTC) and Bitcoin Cash (BCH) by CoinShares

The
long-awaited
Mt.
Gox
repayments
are
poised
to
commence
in
July,
marking
a
significant
event
in
the
cryptocurrency
world.
According
to

CoinShares,
the
Tokyo-based
exchange,
which
collapsed
in
2014,
is
preparing
to
distribute
approximately
75,000
Bitcoin
(BTC)
to
its
creditors
over
the
course
of
the
month.

Background
on
Mt.
Gox

Initially
launched
in
2007
as
a
platform
for
trading
Magic:
The
Gathering
Online
cards,
Mt.
Gox
pivoted
to
a
Bitcoin
exchange
in
2010
under
the
leadership
of
founder
Jed
McCaleb.
By
2014,
Mt.
Gox
was
handling
over
70%
of
global
Bitcoin
transactions,
making
it
a
pivotal
entity
in
the
cryptocurrency
market.

However,
the
exchange
faced
numerous
security
breaches,
including
a
significant
hack
in
June
2011
that
resulted
in
the
theft
of
25,000
BTC.
Subsequent
hacks
and
operational
issues
culminated
in
the
loss
of
approximately
744,408
BTC,
leading
to
the
exchange’s
insolvency
and
eventual
shutdown
in
February
2014.

Current
State
of
Play

After
years
of
legal
proceedings,
the
Japanese
trustee
Nobuaki
Kobayashi
now
holds
around
142,000
BTC
and
an
equivalent
amount
of





Bitcoin
Cash
(BCH).
Creditors
have
been
given
the
option
to
receive
their
repayments
in
cash
or
in
kind
(BTC
and
BCH).
Many
have
opted
for
the
latter,
indicating
a
preference
to
retain
their
cryptocurrency
holdings.

Market
Impact
Analysis

The
impending
distribution
has
raised
concerns
about
its
potential
impact
on
the
Bitcoin
market.
However,
analysts
at
CoinShares
believe
that
Bitcoin’s
substantial
liquidity
will
mitigate
any
significant
price
disruptions.
The
staggered
distribution
across
multiple
exchanges
such
as
Bitstamp,
Kraken,
and
BitGo
is
expected
to
soften
the
impact
of
any
sales.

Data
suggests
that
approximately
75%
of
creditors
opted
for
an
early
lump
sum
repayment,
translating
to
around
95,000
BTC
to
be
distributed.
Of
this,
30,000
BTC
is
allocated
to
entities
like
Bitcoinica
and
MtGox
Investment
Funds
(MGIF),
which
have
indicated
they
do
not
plan
to
sell
their
holdings
immediately.

This
reduces
the
potential
market
impact
to
roughly
75,000
BTC.
Given
Bitcoin’s
average
daily
exchange
inflow
of
32,000
BTC,
the
market
is
expected
to
absorb
this
distribution
without
significant
volatility.
Historical
data
shows
that
the
market
has
previously
handled
larger
inflows,
such
as
the
150,000
BTC
spike
during
the
launch
of
Spot
Bitcoin
ETFs
in
January.

Bitcoin
Cash
(BCH)
Concerns

While
Bitcoin
is
anticipated
to
weather
the
repayments
with
minimal
disruption,
Bitcoin
Cash
(BCH)
may
face
more
significant
challenges.
With
a
market
cap
of
$8
billion
and
lower
liquidity,
BCH
is
more
susceptible
to
price
drops
due
to
creditor
sales.
Analysts
estimate
that
up
to
80%
of
the
distributed
BCH
could
be
sold,
exerting
substantial
downward
pressure
on
its
price.

Overall,
the
market
appears
more
spooked
by
the
idea
of
the
Mt.
Gox
overhang
than
the
actual
selling
that
will
occur.
The
gradual
and
distributed
nature
of
the
repayments,
combined
with
Bitcoin’s
liquidity,
suggests
that
the
market
impact
will
be
less
severe
than
initially
feared.

Image
source:
Shutterstock