Analysis of the MtGox Bankruptcy Case and Its Impact on the Bitcoin Market

MtGox was once one of the earliest and largest exchanges in the Bitcoin space, with its trading volume accounting for over 80% of the market at one point. However, in 2013, the exchange was hit by an incident in which 850,000 Bitcoins were stolen, leading to its bankruptcy. In the following years, about 200,000 Bitcoins were recovered. Since 2014, investors and court-appointed trustees have been engaged in a long compensation lawsuit over these 200,000 Bitcoins.

Debt Trading Situation

During the long process of waiting for compensation results, there have been institutions and individuals trading MtGox claims. For example, in 2019, investment institutions acquired claims for each Bitcoin at a price of $900, which was double the price of Bitcoin at the time of MtGox's bankruptcy. The trading price of claims fluctuates with market conditions, providing an opportunity for original claimants who are concerned about not receiving compensation to partially recover their principal.

Compensation Plan

In 2021, MtGox passed a compensation plan, allowing creditors to receive partial compensation from the remaining value of the exchange. Since not all of the stolen assets could be recovered, MtGox could only compensate creditors about 23.6% of their original claims. Creditors could choose to accept an early one-time compensation, but it would be at a discount, reducing the compensation rate to 21%; if they did not accept, they might have to wait longer, and the final compensation received could be more or less.

The compensation assets consist of two main parts: one part is cash, derived from the sale of Bitcoin by the Japanese government during the peak period in 2017; the other part is Bitcoin, accounting for over 90% of the total compensation. Creditors can choose a specific ratio between 5%-10% cash and 95%-90% Bitcoin.

Regarding the compensation time, it is expected to take two to three months. Five trading platforms will accept Bitcoin from MtGox for repayment and distribute it to the creditors' accounts. The processing times for each platform vary, ranging from 14 days to 90 days. It is worth noting that the deadline for a one-time early compensation is October 31, 2024, and will not be changed unless approved by the court.

Current Progress

In May 2024, Bitcoin in the MtGox cold wallet moved for the first time since 2018, triggering market panic. On July 5, 47,000 tokens moved from the MtGox account address, of which 1,545 were transferred to a trading platform to begin payouts. On the same day, affected by this news along with other factors, Bitcoin experienced a maximum single-day drop of over 8%.

As of July 12, there are still 138,000 Bitcoins in the MtGox account address, which means that most of the potential selling pressure has not yet actually entered the market. The decline on July 5 may have been just a partial reaction from the market to the expected selling pressure from MtGox.

Selling Pressure Analysis

Although MtGox creditors may sell part of their Bitcoin, it is expected that they will not sell all of it. From a profit perspective, the original creditors' return is about 24 times, and even the debt purchasers have returns of over 10 times. In addition, institutions that are bullish on Bitcoin in the long term may not sell all of their holdings.

Assuming that 75% of the creditors accept an early one-time repayment, the actual Bitcoin used for repayment is approximately 94,117. Based on different selling ratios (30%, 50%, 70%) and time periods (1-3 months), the quantity of Bitcoin sold under different circumstances can be estimated.

Market Impact Comparison

Recently, a certain country's government sold about 43,700 Bitcoins within 23 days, worth approximately $2.4 billion. This led to a maximum intraday decline of 19% in Bitcoin prices. It is worth noting that the market's expectation of a drop in token sales usually occurs earlier than the actual sale time.

During the same period, the demand for Bitcoin ETFs was also an important factor. In 15 working days, the net inflow of ETFs was about 600 million USD, with an average of 43 million USD per day. However, this level of demand was not enough to fully offset the impact of government sell-offs, leading to a decrease in market prices.

Conclusion

If the compensation from MtGox is completed within a month, its market impact could be similar to the recent sell-off by a certain government's actions. Considering the current demand level for ETFs, this could lead to further declines in Bitcoin prices.

If the compensation process extends to 2-3 months, the daily influx of Bitcoin into the market will decrease, which may not lead to a sharp decline, but the market may experience a period of fluctuation to digest the sell-off. This means that a major upward trend is unlikely to occur in the short term.

It should be noted that currently only 1545 Bitcoins from MtGox have actually been transferred to trading platforms, and most potential selling pressure has not yet entered the market. When Bitcoins held by MtGox are distributed on a large scale to various trading platforms, it may trigger significant market panic and a decline. However, when individual investors sell off in a dispersed manner, the impact may not be as significant.