In an analysis shared via X, Alex Thorn, the head of research at Galaxy Digital, has projected that the Bitcoin market may face less sell pressure than anticipated from the resolution of the Mt. Gox bankruptcy case. With distributions of Bitcoin (BTC) and Bitcoin Cash (BCH) to creditors slated to commence in July, this marks the end of a decade-long legal ordeal stemming from one of the most catastrophic losses in the history of cryptocurrency.
Mt. Gox was once one of the largest cryptocurrency exchanges, handling over 70% of all Bitcoin transactions at its peak. Its downfall began with the revelation in 2014 that approximately 940,000 BTC (worth about $424 million at the time) were missing from its vaults, presumed stolen or misplaced. This led to the exchange’s bankruptcy and a prolonged legal and administrative battle to recover the lost assets. Over the years, 141,868 BTC were recovered, which, due to Bitcoin’s price increase, are now valued at approximately $9 billion.
Why Mt. Gox’s Bitcoin Selling Pressure Could Be Way Overestimated
Thorn’s insights are grounded in an extensive review of bankruptcy filings and conversations with the creditors involved. He noted that while the original loss was substantial, the recovery process has yielded a significant return for creditors in dollar terms—a 140-fold increase based on current valuations.
In his analysis, Thorn outlined that the “early payout” option available to creditors involves a 10% reduction but has been selected by approximately 75% of them, likely due to the prolonged nature of the proceedings. This leaves around 95,000 BTC for early distribution. From this, 20,000 BTC are allocated to claims funds, and 10,000 BTC are set aside for the resolution of the Bitcoinica bankruptcy, reducing the number available to individual creditors to approximately 65,000 BTC/BCH.
Thorn predicts that the majority of individual creditors, many of whom are long-time Bitcoin enthusiasts and early adopters, are likely to retain their shares rather than sell. He points to their past behavior, notably their resistance to “compelling & aggressive offers” from claims funds, as indicative of their likely intentions. Thorn emphasized the considerable capital gains impact that selling would have on these creditors, which could deter the immediate liquidation of their assets.
Even if a small percentage (10%) of the 65,000 BTC were to be sold, it would translate to around 6,500 BTC potentially entering the market. This figure is considerably lower than some market speculators have feared. Thorn anticipates that these transactions will be absorbed by the market without significant disruption, due to the robust liquidity of Bitcoin on major exchanges like Kraken and Bitstamp where these transactions are likely to occur.
Thorn also highlighted the particular challenges facing Bitcoin Cash, which was not originally owned by the creditors but came into their possession through the BTC fork in 2017. With significantly lower liquidity and market depth compared to Bitcoin, BCH is poised to face greater volatility. He pointed out that BCH has only $400,000 liquidity on order books within 1% of the current market price, which could exacerbate price movements as creditors begin to sell their holdings.
Thorn’s comprehensive analysis suggests a moderate market impact from the Mt. Gox distributions, with a lower-than-expected volume of Bitcoin hitting the market and a potentially greater proportion of Bitcoin Cash being sold. He recommends that stakeholders monitor transaction movements closely, particularly through platforms like Arkham Intelligence, to track the real-time impact as these distributions begin.
At press time, BTC traded at $61,405.
Featured image created with DALL·E, chart from TradingView.com
