forbes.com
Bitcoin is trading below $60,000 for the first time since early May as the MtGox exchange announced that it will begin distributing approximately $9 billion worth of the cryptocurrency and $50 million of bitcoin cash to its long-suffering creditors.
The defunct Tokyo-based platform, once the largest spot bitcoin exchange in the world, shut down in 2014 after a series of hacks. Of the 950,000 bitcoins lost, approximately 140,000 were recovered after MtGox declared bankruptcy, leaving thousands of creditors around the world stranded. Nine years later, authorities identified the hackers, with two Russian nationals charged by the U.S. Department of Justice for conspiring to launder around 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 the cryptocurrency exchanges with which it agreed to implement repayments, which include Kraken, Bitstamp and BitGo, next month. The exchange grew out of an online card-trading service, and MtGox stands for Magic: The Gathering Online Exchange.
The crypto market’s reaction was swift, with more than $200 million long positions forcibly liquidated within the last 12 hours, according to Georgi Koreli, cofounder and CEO of privacy protocol Hinkal. “We expect that the payouts would be a stress for the market, nevertheless, it might be a tremendous opportunity for the ones awaiting to ‘buy the dip’,” said Koreli in a comment to Forbes.
Alex Thorn, head of research at Galaxy Digital, a crypto-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 are set to 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. Those include cofounders of bitcoin technology company Blockstream Adam Back and Greg Maxwell and early bitcoin booster Roger Ver.
A significant reason for creditors not to sell all their tokens at once is the risk of massive capital gains tax. Many creditors bought their bitcoin at $451 (the price when MtGox filed for bankruptcy) at most, 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 won’t flood the market. “From speaking with several LPs in these funds, we do not believe there will be significant selling from this cohort. Similarly, Bitcoinica (a bitcoin exchange that also was hacked and whose trustee put their recovered coins into Mt. Gox for safekeeping…) will not be able to sell upon payout because the funds will then go into their own bankruptcy process in New Zealand,” he wrote.
Matt Hougan, chief investment officer of crypto asset manager Bitwise, agrees: “The best studies of MtGox claims suggest that most early investors have already sold their claims in the secondary claims market. For instance, NYDIG has some quality research suggesting that the real amount that is likely to come on the market is closer to $3 billion than $10 billion. Still, $3 billion is a lot of bitcoin. I suspect what you're seeing now is the market pre-positioning for these distributions. That makes this a ‘sell the rumor, buy the news’ event.”
Bitcoin cash, however, is expected to fare worse. It was created in 2017 as the result of a blockchain split when some developers became dissatisfied with Bitcoin’s scalability, according to CoinGecko. “The creditor cohort is significantly comprised of ‘OG’ bitcoiners who never purchased bitcoin cash and are unlikely to have an affinity for the 2017 bitcoin fork,” wrote Thorn, noting that bitcoin has 60 times more liquidity than bitcoin cash on Kraken and Bitstamp, where individual creditors will receive coins.
All known MtGox trustee wallet addresses can be tracked via Arkham Intelligence.
Bitcoin was recently trading at $59,026, according to CoinGecko, down 8.3% in the past 24 hours.