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ONE bitcoin The stock exchange that collapsed 10 years ago after the breach is set to return the token worth billions of dollars to users – and it has investors worried.
In a matter of days, the bankrupt bitcoin exchange Mt. Gox, based in Tokyo, will begin issuing tokens worth nearly $9 billion to thousands of users. The platform collapsed in 2014 after a series of robberies cost it the region 650,000 to 950,000 bitcoin, or more than $58 billion, at current prices.
The payment follows a protracted bankruptcy process involving multiple delays and legal challenges.
On Monday, the court-appointed receiver overseeing the stock market’s bankruptcy proceedings he said Distributions to the company’s approximately 20,000 creditors would begin in early July. Disbursements will be made in a mix of bitcoin and bitcoin cash, an early offshoot of the original cryptocurrency.
While this is good news for victims of the hack who spent years waiting for it to be completed, the price of bitcoin fell to $59,000 last week, in the crypto market second-worst weekly decline of the year.
CNBC spoke with half a dozen analysts to get their take on what to expect when about 141,000 bitcoins — or about 0.7% of the total 19.7 million bitcoins outstanding — are returned to the victims of Mt. Gox this week.
The pressure on bitcoin could increase
The Mt. Gox — short for “Magic: The Gathering Online Exchange” — was once the world’s largest spot bitcoin exchange, claiming to handle about 80% of all global dollar transactions for bitcoin.
When it closed in February 2014, bitcoin was worth approx $600.
Today, the world’s largest cryptocurrency is trading at around $61,000 per coin. This means that users who choose to be compensated in kind—that is, in the cryptocurrency itself, rather than its cash equivalent—have seen the value of their coins increase by more than 10,000% over the past decade.
John Glover, chief investment officer at cryptocurrency lending firm Ledn, told CNBC that the windfall for users of Mt. Gox will likely translate into a massive selloff in bitcoin as investors look to lock in profits.
“Many will clearly cash out and enjoy the fact that having their assets stuck in the Mt. Gox bankruptcy was the best investment they ever made,” said Glover, who was previously chief executive at Barclays. “Some will clearly choose to take the money and run,” Glover added.
James Butterfill, head of research at CoinShares, told CNBC that the glut of nearly $9 billion worth of bitcoins to be floated “has long been a concern for bitcoin bulls.”
“Consequently, the market is highly sensitive to any related news. With the announcement that the Trust will start selling in July, investors are understandably nervous,” said Butterfill.
It wouldn’t be the first time bitcoin has moved in reaction to large buyouts of funds locked up on centralized trading platforms.
Last month, crypto exchange Gemini returned more than $2 billion worth of bitcoins to users with funds trapped in the Earn lending program, rebounding 230% after bitcoin prices more than tripled since Gemini suspended Earn withdrawals on 16 November.
JPMorgan analysts attributed this to negative price action, saying in a research note last week that it is “fair to assume that some of the Gemini creditors, which are mostly retail customers, have taken at least some profits in recent weeks.” .
Similarly, JPMorgan analysts expect customers of Mt. Gox will be similarly inclined to sell some of their bitcoin to take advantage of the seismic gains for the cryptocurrency.
“Assuming that most liquidations from Mt. Gox’s creditors occur in July, [this] creates a trajectory where cryptocurrency prices come under further pressure in July but begin to recover from August onwards,” they wrote.
Separately last month, the German government sold 5,000 — worth about $305.8 million at Thursday prices — of a stash of 50,000 bitcoins seized in connection with the Movi2k movie piracy operation.
The funds were sent to various crypto exchanges, including Coinbase, Kraken and Bitstamp, according to blockchain intelligence company Arkham Intelligence.
Analysts say these cryptocurrency purges have also put pressure on bitcoin’s price.
Customers of Mt. Gox expected to hang on to their bitcoin
Most analysts agree that losses in bitcoin are likely to be limited and short-lived.
“I think the sell-off concerns associated with Mount Gox will likely be short-term,” said Lennix Lai, chief trading officer at crypto exchange OKX.
“Many of the early users of Mt. Gox as well as creditors are long-term bitcoin enthusiasts who are less likely to sell all their bitcoin at once,” he said, adding previous sales by law enforcement, including the Silk Road affair, did not lead to a sustained catastrophic drop in prices.
Butterfill suggested that there is enough liquidity in the market to cushion the blow of any potential bullish market action.
“Bitcoin has maintained a daily trading volume of $8.74 billion on trusted exchanges this year, suggesting that liquidity is sufficient to absorb this selloff in the summer months,” Butterfill said.
According to CCData analyst Jacob Joseph, the markets are more than capable of absorbing the selling pressure.
“Furthermore, a healthy portion of creditors are likely to take a 10% haircut on their holdings to receive repayment earlier and not all holdings are going to be liquidated in the open market, reducing overall selling pressure,” he said.
Recent price movements suggest that the temporary impact of Mt. Gox may already be priced out, Joseph added.
Galaxy Digital head of research Alex Thorn believes that fewer coins will be distributed than people think, meaning there will be less selling pressure than the market expects.
However, he also wrote in May that even if only 10% of distributed bitcoins are sold, “it will have an impact on the market.”
“Most of the individual creditors will deposit their coins directly into a trading account on an exchange, making it extremely easy to sell them,” Thorn said.
Vijay Ayyar, head of consumer development for Asia Pacific at crypto exchange Gemini, said that the overall impact of the disbursement of Mt. Gox is likely to “disappear” as the recipients of the funds vary.
On the one hand, there are individual holders who will get their bitcoin immediately. Then there’s the “significant amount” of bitcoin that will be disbursed in claims funds, Ayyar said.
“These funds should then be distributed to their LPs [limited partners]so the whole process could take a while adding a time element to the price impact,” he told CNBC.
Macro headwinds behind bitcoin’s fall
It is worth noting that there are many other reasons behind bitcoin’s recent decline.
The cryptocurrency had an amazing rally earlier this year, surpassing $70,000 after the US Securities and Exchange Commission approved the first spot bitcoin ETF.
Bitcoin price performance in US dollars, year over year.
However, investors remained uneasy amid outflows from bitcoin ETFs and significant liquidations in the market. The broader macroeconomic environment has also worried investors.
Earlier this month, the Federal Reserve suggested it plans to cut interest rates just once this year, down from the multiple cuts it previously indicated.
Cryptocurrencies, which are inherently volatile, are particularly sensitive to changes in the interest rate environment.
CoinShares’ Butterfill said the Fed’s new rate forecast was among the “likely culprits for bitcoin’s recent price decline.”
That, along with other issues, “is likely to weigh on prices in the lower-volume summer months,” Butterfill said. However, “the fundamental investment case remains largely intact,” he added.
