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A Bitcoin An exchange that collapsed after being hacked a decade ago is set to return billions of dollars worth of tokens to users — worrying investors.
In a few days, bankrupt Tokyo-based Bitcoin exchange Mt. Gox will begin paying back nearly $9 billion worth of tokens to thousands of users. The platform went bankrupt in 2014 after a series of robberies and suffered heavy losses 650,000 arrive 950,000 Bitcoin, at current prices, is worth over $58 billion.
The payment follows a protracted bankruptcy proceeding that involved multiple delays and legal challenges.
On Monday, a court-appointed trustee took charge of overseeing the exchange’s bankruptcy proceedings. explain Distributions to the company’s approximately 20,000 creditors are due to begin in early July. The payment method will be a hybrid of Bitcoin and Bitcoin Cash, an early fork of the original cryptocurrency.
While this is good news for hack victims who have been waiting for years to recover, the price of Bitcoin fell to $59,000 on the cryptocurrency market last week. Second worst weekly decline This year’s.
CNBC spoke to six analysts about their expectations for approximately 141,000 Bitcoins (about 0.7% of the total 19.7 million outstanding Bitcoins) to be returned to Mt. Gox victims this week.
Pressure on Bitcoin could intensify
Mt. Gox – short for “Magic: The Gathering Online Exchange” – was once the world’s largest Bitcoin spot exchange, claiming to handle approximately 80% of the world’s Bitcoin USD transactions.
At the close of February 2014, Bitcoin was worth approx. $600.
Today, the world’s largest cryptocurrency trades at about $61,000 per coin. This means that users who choose to be compensated in physical form (i.e. the cryptocurrency itself, rather than the cash equivalent) have seen the value of their tokens surge by more than 10,000% over the past decade.
John Glover, chief investment officer of crypto lending company Ledn, told CNBC that windfalls from Mt. Gox users could translate into huge sales of Bitcoin as investors seek to lock in gains.
“A lot of people will obviously cash out and enjoy the fact that their assets are stuck in the Mt. Gox bankruptcy and it’s the best investment they’ve ever made,” said Glover, a former managing director at Barclays. . “Some people obviously take the money and run,” Glover added.
James Butterfill, director of research at CoinShares, told CNBC that the glut of nearly $9 billion in upcoming Bitcoin issuance “has long been a concern for those who are bullish on Bitcoin.”
“Therefore, the market is highly sensitive to any relevant news. With the news that the trust will begin selling in July, investors are understandably concerned,” Butterfill said.
This is not the first time Bitcoin has experienced volatility due to large redemptions of funds locked on centralized trading platforms.
Last month, cryptocurrency exchange Gemini returned more than $2 billion worth of Bitcoin to users whose funds were trapped in the Earn lending program. Bitcoin prices have tripled since Gemini suspended Earn withdrawals on November 16. More than that, the price of Bitcoin has recovered by 230%.
JPMorgan analysts linked this to negative price action, saying in a research note last week that “it’s fair to assume that some Gemini creditors, primarily retail clients, have reaped at least some profits in recent weeks. “
Likewise, J.P. Morgan analysts expect Mt. Gox customers to be similarly inclined to sell some of their Bitcoins to profit from the cryptocurrency’s huge gains.
“Assuming the bulk of the liquidation by Mt. Gox’s creditors occurs in July, (this) would create a trajectory where cryptocurrency prices come under further pressure in July but begin to rebound from August,” they wrote.
Separately, last month, the German government sold 5,000 Bitcoins (worth approximately $305.8 million at Thursday’s prices) in connection with the film piracy operation Movi2k.
The funds were reportedly sent to various cryptocurrency exchanges, including Coinbase, Kraken and Bitstamp Blockchain Intelligence Company Arkham Intelligence.
Analysts say these cryptocurrency liquidations are also putting pressure on Bitcoin’s price.
Mt. Gox customers want to keep their Bitcoins
Most analysts agree that Bitcoin’s losses are likely to be contained and short-lived.
Lennix Lai, chief commercial officer of cryptocurrency exchange OKX, said: “I think the selling concerns related to Mt. Gox may be short-term.”
“Many of Mt. Gox’s early users and creditors are long-time Bitcoin enthusiasts, and they are unlikely to sell all their Bitcoins immediately,” he said, adding that law enforcement has sold Bitcoin before. Including the Silk Road case did not lead to a sustained catastrophic decline in prices.
Butterfield said there is enough liquidity in the market to cushion the blow of any possible mass market sell-off.
“Bitcoin has maintained $8.74 billion in daily trading volume on trusted exchanges this year, indicating there was enough liquidity to absorb these sales over the summer,” Butterfill said.
CCData research analyst Jacob Joseph said the market is fully capable of absorbing selling pressure.
“Additionally, healthy creditors may take a 10% haircut on their holdings to be repaid early, and not all holdings will be liquidated in the open market, easing overall selling pressure,” he said. “
Joseph added that recent price action suggests the temporary impact of Mt. Gox’s repayments may already be priced in.
Alex Thorn, head of research at Galaxy Digital, believes that fewer tokens will be issued than people think, meaning the selling pressure will be less than market expectations.
However, he also wrote in May that even if only 10% of Bitcoins were sold, “it would have an impact on the market.”
“Most individual creditors will deposit their tokens directly into the exchange’s trading account, which makes it very easy to sell the tokens,” Thorne said.
Vijay Ayyar, Asia Pacific head of consumer growth at cryptocurrency exchange Gemini, said the overall impact of Mt.
On the one hand, individual holders will receive their Bitcoins immediately. Aiyar said there would then be a “significant amount” of Bitcoin allocated to the claims fund.
“These funds need to allocate these funds to their LPs (limited partners), so the whole process may take a while, which will have an impact on the price,” he told CNBC.
Macro resistance behind Bitcoin’s decline
It’s worth noting that there are many other reasons behind Bitcoin’s recent decline.
Cryptocurrencies had a stunning rally earlier this year, Bitcoin prices climbed above $70,000 after the U.S. Securities and Exchange Commission approved the first spot Bitcoin ETF.
Bitcoin’s USD price performance so far this year.
But investors remain anxious amid outflows from Bitcoin ETFs and massive market liquidations. The broader macro environment also worries investors.
Earlier this month, the Fed said it planned to cut interest rates just once this year, down from the multiple cuts it had previously indicated.
Cryptocurrencies are inherently volatile and particularly sensitive to changes in the interest rate environment.
CoinShares’ Butterfill said the Fed’s new interest rate forecast is one of Bitcoin’s “possible culprits for the recent price decline.”
Butterfield said this and other issues “could put pressure on prices during the lower sales months of the summer.” However, “the underlying investment picture remains intact,” he added.
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