23 Sep Mt. Gox Payouts Nearing, But Is the Market Ready for It?
Following recent news that creditors after the infamous collapse of the bitcoin (BTC) exchange Mt. Gox can finally look forward to some payouts, questions reemerged about whether the market can absorb potential selling from such a large distribution of coins.
According to a translated version of a letter from the Japanese lawyer and trustee for the now-bankrupt exchange, Nobuaki Kobayashi, “approximately 99%” of creditors voted in favor of a proposal on how the distributions should occur. The proposal has now also been confirmed by the court, but no specific timeframe has yet been given on when the funds held by the trustee can be released.
According to documents filed with the court, the Japanese trustee holds a trove of BTC 141,686 (USD 8.8bn, at the time of writing). This comes in addition to a significant amount of bitcoin cash (BCH) and fiat currency also held by the trustee, waiting to be distributed to creditors.
For comparison, the amount of BTC held by the trustee is even more than MicroStrategy’s entire bitcoin holdings, which after the company’s last disclosed purchase stood at 114,042 BTC.
As anyone can imagine, new supply of such a massive amount of BTC to the market is no minor event (at the time of writing, the 24-hour BTC trading volume on exchanges stands at around USD 35.7bn). The potential for a distribution of coins at this magnitude to move markets is there, which explains the keen interest among bitcoin traders in the Mt. Gox case.
And although no specific date has yet been announced for when the distributions will be made, observers say that the date – once it becomes known – will be an important one for all bitcoin investors to watch.
Among the observers who have warned about it publicly was Avi Felman, a portfolio manager at crypto investment firm BlockTower Capital, who told Bloomberg recently that the release of the funds is something “every market participant needs to keep their eye on.”
There “will likely be significant volatility around the event, and if bitcoin is overheated, it could mark a local top as holders finally are able to take profits on their positions,” Felman said.
However, not everyone was as concerned about profit-taking as Felman. In fact, bitcoin industry insiders Cryptonews.com spoke with said that Mt. Gox’s creditors – mainly early bitcoin users who were customers at the exchange – aren’t likely to sell at all.
“[I] don‘t expect a majority of these coins to be sold, as many of the beneficiaries were into bitcoin very early on already – at least since 2014 – and therefore can be considered long-term believers and hodlers,” said Julian Liniger, Co-founder & CEO of the Switzerland-based BTC broker Relai.
In terms of the sheer size of the distribution, however, Liniger did warn that a market reaction could happen if it was all released at the same time.
“A six-figure bitcoin amount can certainly have a significant impact on the market if distributed at once. Although I would expect this to happen in smaller chunks over weeks to mitigate the risk of big market movements,” the CEO said.
Ben Caselin, Head of Research & Strategy at crypto exchange AAX, also said that investors do not need to be overly worried about the upcoming distribution of coins.
“The amount of bitcoin released to the market is significant, but this should not be of too much concern. Since 2014, the industry has evolved in terms of custody solutions, fiat on and off ramps, as well as investment practices,” Caselin said, noting that “it’s very positive” to see the Mt. Gox case finally coming to a close.
“While we can expect some profit-taking or rebalancing, any capitulation that brings bitcoin below its fair value is likely to be met with accumulation,” AAX’s research head said, adding:
“If the price goes low enough, we could even see adoption accelerate as it would bring more people into bitcoin that may have previously felt that they missed out on the opportunity.”
Although it remains unclear exactly how many coins from Mt. Gox will eventually end up for sale on the market, the typical course of action for large bitcoin holders looking to offload some coins is to go via over-the-counter (OTC) markets rather than open exchange markets.
As opposed to exchange trades, which by definition are visible in the exchange’s order books and thus have the potential to impact prices, OTC deals happen privately between two or more parties, without affecting the broader market.
And as has often been seen, there is no shortage of buyers looking to snap up coins that come for sale outside of exchanges. The huge interest in such deals was again well illustrated in October, when the German state of North Rhine-Westphalia auctioned off bitcoins seized as part of a criminal investigation.
And although the amount of bitcoin was small compared to the amount being released by the Mt. Gox trustee, officials at the state’s justice ministry were reportedly surprised by the amount of interest in the auction. Not only did it attract an unusually large number of registrations, but it also brought in bids well above the market price of bitcoin, screenshots posted to Twitter showed.
The interest in the bitcoin auction was also pointed out by Zhu Su, CEO of Three Arrows Capital, who drew up the parallel to the distribution of coins from Mt. Gox, saying that they too would likely sell for a premium if they “came to market as a single block.”
Asked by another user why the deals are so attractive, the well-known crypto investor replied: “No market impact.”
So, there we have it. Maybe the Mt. Gox coins is not something bitcoin holders need to worry about after all, as any new BTC coming to the market also represents an opportunity for large new buyers to enter the space.
Only time will tell what will actually happen, but the market will certainly keep an eye on news of when the Mt. Gox trustee’s BTC 141,686 might finally be released.