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MtGox’s $9 billion payment is creditors’ gain, but Bitcoin’s pain
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Bitcoin is trading below $60,000 for the first time since early May, when the MtGox exchange announced it will begin distributing around $9 billion in cryptocurrency and $50 million in bitcoin to its long-suffering creditors.
The defunct Tokyo-based platform, once the world’s largest spot bitcoin exchange, was shut down in 2014 after a series of cyberattacks. Of the 950,000 bitcoins lost, around 140,000 were recovered after MtGox filed for bankruptcy, leaving thousands of creditors around the world stranded. Nine years later, authorities identified the hackers, including two Russian citizens charged by the U.S. Department of Justice for conspiring to launder approximately 647,000 bitcoins from the exchange.
Over the years, MtGox has faced numerous delays in repaying creditors, but today trustee Nobuaki Kobayashi announced the exchange will begin distributing bitcoin and bitcoin cash (which customers automatically received in 2017 when the token was created), to cryptocurrency exchanges with which it has agreed to implement refunds, including Kraken, Bitstamp and BitGo, this month next. The exchange originated from an online card trading service and MtGox stands for Magic: The Gathering Online Exchange.
The cryptocurrency market’s reaction has been swift, with more than $200 million in long positions forcibly liquidated in the past 12 hours, according to Georgi Koreli, co-founder and CEO of privacy protocol Hinkal. “We expect the payments to be a stressor for the market, however, it could be a huge opportunity for those who are waiting to ‘buy the dip,’” Koreli said in a comment to Forbes.
Alex Thorn, head of research at Galaxy Digital, a cryptocurrency-focused investment firm founded by billionaire Mike Novogratz, believes the market is overestimating the potential impact. Of the 140,000 bitcoins held by the bankruptcy estate, only about 65,000 will be delivered to 20,000 individual creditors, many of whom are tech-savvy early followers and well-known bitcoiners, Thorn noted in a research note to clients seen by Forbes last month . These include bitcoin technology company Blockstream co-founders Adam Back and Greg Maxwell and early bitcoin promoter Roger Ver.
A significant reason why lenders don’t sell all their tokens at once is the risk of a massive capital gains tax. Many creditors bought their bitcoin at a high of $451 (the price when MtGox filed for bankruptcy), and with bitcoin now trading just below $60,000, the tax implications are considerable.
The remaining tokens will be sent to large claims funds and a separate bankruptcy. Contrary to market expectations, Thorn suggested that these funds will not flood the market. “Speaking to several LPs in these funds, we don’t believe there will be any significant selling from this group. Similarly, Bitcoinica (a bitcoin exchange that was also hacked and whose trustee placed the recovered coins in Mt. Gox for safekeeping…) will not be able to sell after payment because the funds will then go into a bankruptcy process in New Zealand,” he wrote.
Matt Hougan, chief investment officer at crypto asset manager Bitwise, agrees: “The best studies of MtGox’s claims suggest that most early investors have already sold their claims into the secondary credit market. For example, NYDIG has conducted some quality research that suggests the actual amount likely to come to market is closer to $3 billion than $10 billion. However, $3 billion is a lot of bitcoin. I suspect what you’re seeing now is market prepositioning for these distributions. That makes this a “sell the rumor, buy the news” event.
However, the situation is expected to get worse with bitcoin cash. According to CoinGecko, it was created in 2017 as a result of a blockchain split when some developers were dissatisfied with Bitcoin’s scalability. “The creditor cohort is significantly made up of ‘OG’ bitcoiners who have never purchased bitcoin cash and are unlikely to have an affinity for the 2017 bitcoin fork,” Thorn wrote, noting that bitcoin has 60 times more liquidity of bitcoin cash on Kraken and Bitstamp, where individual creditors will receive coins.
All known addresses of MtGox trust wallets can be tracked via Arkham Intelligence.
According to CoinGecko, Bitcoin recently traded at $59,026, down 8.3% in the past 24 hours.