Mt. Gox Bankruptcy Case and Its Impact on the Crypto Assets Market

The Mt. Gox exchange was established in July 2010 and was once one of the largest trading platforms in the crypto assets field, with trading volume at one point accounting for over 80% of the market. In 2013, the exchange suffered an incident where 850,000 bitcoins were stolen, leading to bankruptcy. In the following years, about 200,000 stolen bitcoins were recovered. Since 2014, a prolonged compensation lawsuit has been initiated by investors and court-appointed trustees regarding these recovered tokens.

In the long process of waiting for compensation results, some institutions and individuals actively acquired the claims against Mt. Gox. For example, in 2019, an investment group acquired claims for each coin at a price of $900, which was twice the price of Bitcoin at the time of Mt. Gox's bankruptcy. The trading price of the claims fluctuates with market conditions, providing the original claimants with an opportunity to recover part of their principal.

In 2021, Mt. Gox passed the compensation plan. According to this plan, since most of the stolen assets cannot be recovered, the exchange can only compensate creditors approximately 23.6% of their original claims. Creditors can choose to accept a one-time early compensation, but there will be a discount, and the compensation rate will only be 21%; if they do not accept, they may have to wait longer, and the final compensation received may be more or less.

The compensation assets consist of two parts: one part is cash, derived from the Bitcoin sold by the Japanese government during the peak period in 2017; the other part is Bitcoin. Cash accounts for 5%-10%, while Bitcoin accounts for 90%-95%, with the specific ratio to be chosen by the creditors.

Regarding the claims timeline, it is expected to take two to three months. Five trading platforms will accept Bitcoin from Mt. Gox for repayment and distribute it to creditors' accounts. The timelines vary slightly between platforms, ranging from 14 days to 90 days. The deadline for a one-time early compensation is October 31, 2024.

In May 2024, the first movement of Bitcoin in the Mt. Gox cold wallet triggered market panic. On July 5th, 47,000 coins were transferred from the account, with 1,545 coins moving to a trading platform for compensation. On the same day, combined with other factors, the maximum daily drop in Bitcoin exceeded 8%.

As of July 12, 138,000 Bitcoins are still in the account addresses of Mt. Gox, which can be considered that the actual selling pressure has not fully entered the market. The drop on July 5 may only be a partial reaction of the market to the expected selling pressure from Mt. Gox.

Analysis indicates that Mt. Gox creditors may not sell all the Bitcoin they acquire. From a profit perspective, the original creditors or the debt acquirers may have considerable gains and might prefer to hold for the long term. Moreover, during the lengthy litigation process, the debt trading market has provided short-term investors ample exit opportunities, leaving behind those who are more likely to hold for the long term.

Assuming that 75% of the creditors accept an early one-time repayment, the actual amount of Bitcoin used for repayment is approximately 94,117 coins. Based on different selling ratios and timeframes, the daily amount of Bitcoin entering the market can be estimated.

Comparing the impact of a recent government's bitcoin sell-off in a certain country, it can be seen that the market's expectation of a decline in token sales often precedes the actual sale time. Within 23 days, the government sold approximately 43,700 bitcoins, causing a maximum intraday drop of 19%.

The Bitcoin ETF, as a relatively stable buying force, did not perform sufficiently to completely offset the selling pressure during this period. From June 19 to July 10, over 15 working days, the ETF saw a net inflow of $600 million, averaging $43 million per day, with most of the buying occurring after July 5.

In summary, if the compensation from Mt. Gox is completed within a month, the market will face pressure similar to that of a government in a certain country selling off assets, which may lead to further price declines. If the compensation takes longer, the smaller daily influx of Bitcoin into the market may not cause a significant drop at once, but the ongoing expectations of selling pressure could trigger a period of consolidation.

It is worth noting that the actual amount of Bitcoin transferred to trading platforms from Mt. Gox is currently limited. When it is distributed on a large scale to addresses on various trading platforms, it may trigger significant panic and potential price drops. However, when individuals sell in a decentralized manner, it may not cause a significant drop in price due to the difficulty in tracking and observing.