Mt. Gox Bankruptcy Case and Its Impact on the Bitcoin Market

Mt. Gox exchange was established in July 2010 and was the largest trading platform in the Bitcoin space, dominating the industry. However, in 2013, the exchange suffered a major security incident that resulted in the theft of 850,000 Bitcoins. This event ultimately led to Mt. Gox declaring bankruptcy in 2014. In the following years, about 200,000 Bitcoins were recovered. Since 2014, investors and court-appointed trustees have engaged in a lengthy compensation lawsuit regarding these remaining assets.

During the long wait for the compensation results, active debt trading emerged in the market. Some institutions and individual investors began acquiring claims against Mt. Gox. For example, in 2019, an investment group purchased claims for each Bitcoin at a price of $900, which was twice the market price of Bitcoin at the time Mt. Gox went bankrupt. This debt trading provided an opportunity for the original creditors, who were concerned about not receiving full compensation, to exit early.

In 2021, Mt. Gox finalized the compensation plan. According to this plan, creditors can receive approximately 23.6% of their original claims in asset compensation. The compensation consists mainly of two parts: a small portion of cash (5%-10%) and the majority in Bitcoin (90%-95%). The cash portion comes from the sale of some Bitcoins by the Japanese government during the peak price period in 2017.

Regarding the specific implementation of compensation, it is expected to take two to three months. Five different trading platforms will be responsible for receiving Bitcoin from Mt. Gox for repayment and distributing it to creditors. The distribution times vary across platforms, ranging from 14 days to 90 days. It is worth noting that for creditors who choose to receive a one-time compensation in advance, the deadline is set for October 31, 2024.

In May 2024, Bitcoin in the cold wallet of Mt. Gox experienced its first movement since 2018, raising concerns in the market. On July 5, 47,000 Bitcoins were transferred from Mt. Gox accounts, of which 1,545 were moved to a trading platform, marking the beginning of the compensation process. This news, combined with other market factors, led to a significant drop in Bitcoin prices of over 8% on that day.

As of July 12, there are still about 138,000 Bitcoins in the Mt. Gox account that have not been transferred, which means that most of the potential selling pressure has not yet truly entered the market. The price drop on July 5 may have been more of a response from the market to expectations of future selling pressure.

Analysis indicates that Mt. Gox creditors may not sell all the Bitcoin they acquire. From an investment return perspective, the potential gains for the original creditors are quite considerable, and even later investors who acquired the claims may achieve substantial returns. Moreover, after a prolonged litigation process, many short-term investors may have exited through claims trading, leaving behind those investors who are more optimistic about Bitcoin in the long term.

According to different hypothetical situations, the actual number of Bitcoins entering the market is expected to be between 28,000 and 66,000, depending on the choices of creditors and the proportion of sell-off. If these Bitcoins are gradually released over a period of 1 to 3 months, it may result in an additional supply of 300 to 2,200 Bitcoins per day.

To assess the potential impact of this supply on the market, we can refer to the recent situation of the German government selling Bitcoin. Starting from June 19, the German government has successively sold approximately 43,700 Bitcoins through trading platforms, with a total value of about $2.4 billion. During this process, the price of Bitcoin experienced a maximum pullback of 19%.

The market's reaction to potential selling pressure often precedes actual sell-off actions. When the German government began to gradually and continuously offload Bitcoin, the market showed a sustained decline. However, over time, the market's absorption capacity has also been gradually strengthening.

Bitcoin ETFs provided a certain level of support as a relatively stable buyer during the German government's sell-off. However, the net inflow of the ETFs (approximately $600 million) was far from enough to fully offset the German government's selling pressure (around $2.4 billion).

Based on the above analysis, if the compensation from Mt. Gox is completed within a month, the market may face pressure similar to that of the German government's sell-off, which could lead to further declines in Bitcoin prices. If the compensation process is extended to 2-3 months, the daily influx of Bitcoin into the market may not be significant, but the ongoing expectation of selling pressure could lead to a period of consolidation.

It is worth noting that the actual amount of Bitcoin transferred to the trading platform from Mt. Gox is still limited. When large-scale distribution begins, it may trigger significant market volatility. However, once distributed to individual accounts, the impact on price may not be very significant due to the more dispersed and difficult-to-track nature of the selling behavior.

Overall, the progress of the Mt. Gox compensation case will continue to be one of the important factors influencing the short-term Bitcoin market, and investors should closely monitor relevant developments.