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In the coming days, the defunct Tokyo-based bitcoin exchange Mt. Gox will begin returning nearly $9 billion worth of bitcoins to its users, stirring anxiety among investors. The exchange, which collapsed ten years ago following a series of hacks, is set to start paying back thousands of users after a protracted bankruptcy process riddled with delays and legal challenges.
The Background
Mt. Gox, once the largest spot bitcoin exchange globally, handled around 80% of all global dollar trades for bitcoin before it shuttered in February 2014. At that time, bitcoin was valued at approximately $600 per coin. Fast forward to today, the cryptocurrency is trading around $62,000 per coin, marking a surge of over 10,000% in the last decade.
The Upcoming Payout
Starting in early July, the court-appointed trustee overseeing Mt. Gox’s bankruptcy proceedings will begin distributing bitcoins and bitcoin cash to approximately 20,000 creditors. This significant event follows the theft of between 650,000 to 950,000 bitcoins from the exchange in 2014, valued at upwards of $59 billion at current prices.
Market Reactions and Concerns
The anticipated release of roughly 141,000 bitcoins — around 0.7% of the total 19.7 million bitcoins in circulation — has triggered concerns about potential market impacts. John Glover, Chief Investment Officer of crypto lending firm Ledn, predicts substantial sales as investors seek to lock in their gains. “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,” Glover commented.
James Butterfill, Head of Research at CoinShares, echoed this sentiment, noting that the looming $9 billion bitcoin release has been a longstanding concern for bullish investors. “With the announcement that the Trust will begin selling in July, investors are understandably worried,” Butterfill stated.
Historical Precedents and Future Predictions
The market has previously reacted to significant redemptions of funds from centralized trading platforms. For instance, last month, crypto exchange Gemini returned over $2 billion worth of bitcoin to users, leading to notable price action. JPMorgan analysts anticipate a similar trajectory for Mt. Gox, predicting pressure on bitcoin prices in July, followed by a potential rebound in August.
Despite the potential for short-term declines, many analysts believe the losses will be contained. Lennix Lai, Chief Commercial Officer of crypto exchange OKX, suggested that Mt. Gox’s early users are long-term bitcoin enthusiasts who are less likely to sell all their holdings immediately. “Many of Mt. Gox’s early users as well as creditors are long-term bitcoin enthusiasts who are less likely to sell all of their bitcoin immediately,” he said.
Building Resilience and Looking Ahead
The event underscores the need for businesses to build redundancy into their systems. Javad Abed, an assistant professor of information systems at Johns Hopkins Carey Business School, emphasized that a single point of failure shouldn’t be able to halt business operations. “A single point of failure shouldn’t be able to stop a business, and that is what happened,” Abed said.
On a macro level, the bitcoin market faces broader headwinds, including recent interest rate forecasts by the Federal Reserve and outflows from bitcoin ETFs. CoinShares’ Butterfill noted that these factors, along with the upcoming Mt. Gox disbursement, are likely to influence bitcoin prices in the lower volume summer months.
Conclusion
As Mt. Gox begins its long-awaited payouts, the bitcoin market is poised for a period of heightened activity and potential volatility. While the immediate impact may cause some turbulence, the fundamental investment case for bitcoin remains strong, and market resilience will be tested in the weeks to come.