Hotcoin Research | Mt. Gox Launches BTC Repayment: How Much Selling Pressure? Analysis of the Event's Course and Market Impact

The Rise and Fall of Mt. Gox

Mt. Gox (Magic: The Gathering Online eXchange) was founded by Jed McCaleb in 2007 as a platform for trading Magic: The Gathering cards. In 2009, McCaleb recognized the potential of Bitcoin and transformed the platform into a Bitcoin exchange. In 2011, McCaleb sold Mt. Gox to Mark Karpeles, at which point Mt. Gox had become the largest Bitcoin exchange in the world, handling over 80% of global Bitcoin transactions from 2011 to 2013.

After becoming a Bitcoin exchange, Mt. Gox experienced rapid growth, but security and management issues began to surface. Early security vulnerabilities and technical problems were frequent, including user password leaks and system flaws, leading to multiple hacking incidents and financial losses. These issues laid the groundwork for larger-scale hacking attacks that followed.

First Major Hacking Incident in 2011

In June 2011, Mt. Gox suffered its first major hacking incident, resulting in the theft of 2,000 Bitcoins. The security vulnerabilities at the time included user password leaks and system flaws, allowing hackers to conduct illegal transactions by manipulating accounts. Although the platform made repairs and compensations afterward, this incident revealed the tip of the iceberg regarding the platform's security issues.

Massive Bitcoin Theft in 2014

In February 2014, Mt. Gox announced the suspension of all withdrawals, citing a transaction malleability issue in the Bitcoin protocol that allowed Bitcoins to be double-spent. Subsequently, the platform completely halted trading on February 24 and filed for bankruptcy protection in the Tokyo District Court on February 28, reporting that approximately 850,000 Bitcoins were missing, valued at around $450 million. This event marked the complete collapse of Mt. Gox.

In March 2014, Mt. Gox announced that it had recovered about 200,000 Bitcoins, which had previously been stored in an old digital wallet. This reduced the total number of lost Bitcoins from 850,000 to 650,000.

Bankruptcy Filing and Legal Proceedings

After Mt. Gox's collapse, affected users and investors filed numerous lawsuits seeking compensation for their losses. In August 2015, Mark Karpeles was arrested in Japan on charges of data manipulation and embezzlement. In 2019, the Tokyo District Court found Karpeles guilty of data manipulation but not guilty of embezzlement, sentencing him to two and a half years in prison, suspended for four years. Japanese police and the Financial Services Agency conducted detailed investigations into the Mt. Gox incident to determine the specific causes and responsible parties for the missing Bitcoins. These investigations revealed serious negligence on the part of the platform's management in handling user funds and security issues.

Attempts to Restart and Compensation

After the collapse of Mt. Gox, some investors and industry participants attempted to rebuild or restart the Mt. Gox trading platform, but most of these attempts failed due to legal and compensation issues. Some reconstruction plans were shelved due to the inability to secure necessary funding and legal approvals.

In 2018, a Japanese court approved a civil rehabilitation process, allowing Mt. Gox's creditors to receive partial compensation in the form of Bitcoin and cash. However, due to the complexity of the bankruptcy process and legal proceedings, the compensation process was very slow. By the early 2020s, although some creditors had received compensation, the overall progress remained delayed.

In December 2023, several users from the Japanese-speaking region reported on social media that they had received compensation in yen via PayPal, including Yuya Gana, the founder of Japan's leading exchange bitFlyer. This portion of the compensation came from 7 billion yen redeemed from the bankruptcy trust by Nobuaki Kobayashi on November 17, 2023.

Latest Developments: Mt. Gox Starts BTC Repayment, Causing Market Panic

On May 28, Mt. Gox transferred over 107,000 BTC from cold wallets, valued at approximately $7.2 billion, sparking speculation about Mt. Gox's subsequent actions. The price of BTC fell from a high of $70,000 and began to experience continuous fluctuations and corrections.

On June 24, 2024, after ten and a half years of bankruptcy application, Mt. Gox's bankruptcy trustee Nobuaki Kobayashi announced that the Mt. Gox trustee would begin BTC and BCH repayment starting in early July. This marked the first time Mt. Gox would repay in BTC and BCH, meaning that the 140,000 BTC (and a roughly equivalent amount of BCH) held by Mt. Gox would begin to flow into the market. This repayment plan signified the long-awaited compensation for creditors after nearly ten years. Approximately 142,000 BTC and 143,000 BCH are expected to be repaid, with a total value exceeding $8 billion.

On July 5, 2024, Mt. Gox bankruptcy liquidator Nobuaki Kobayashi announced that, according to the bankruptcy reorganization plan, Mt. Gox had made payments to some creditors in the form of BTC and BCH through designated cryptocurrency exchanges. Mt. Gox would immediately make payments to other creditors once the following conditions were met: (i) confirmation of the validity of registered accounts and other matters; (ii) acceptance of the agency collection agreement by the designated cryptocurrency exchanges; (iii) completion of discussions between the bankruptcy liquidator and the designated cryptocurrency exchanges regarding compensation matters; (iv) confirmation that the compensation could be conducted safely.

Subsequently, the Mt. Gox wallet transferred a total of 47,229 BTC. Among them, 2,701.8 BTC were transferred out of the Mt. Gox wallet: 1,544.7 BTC were sent to Bitbank via Mt. Gox address 1PKGG; 1,157.1 BTC were sent to an unknown counterparty bc1qkjc, possibly a designated repayment trading platform; Mt. Gox address 16ArP continued to hold 44,527 BTC; including the BTC transferred to 16ArP, the Mt. Gox wallet still holds a total of 138,985 BTC (approximately $8 billion). As a result, the price of BTC fell below $54,000.

The timing of creditors receiving BTC or BCH will vary depending on the designated exchanges: Kraken may take up to 90 days; Bitstamp may take 60 days; BitGo may take 20 days; and SBI VC Trade and Bitbank will complete payments within 14 days.

Mt. Gox will calculate each creditor's claim ratio based on the price of BTC in yen at the time of bankruptcy (currently approximately $314), which is limited to the group of creditors who chose to receive repayments in "physical" form, as some creditors opted for fiat currency repayments. The BTC held will then be distributed to different creditors according to their claim ratios. Since Mt. Gox lost approximately 650,000 BTC and currently holds 140,000 BTC, this means the recovery rate in BTC terms is about 21.5%. If an account held 100 BTC at the time, it can now only recover about 21.5 BTC, considering that BTC has increased nearly a hundredfold, creditors still stand to gain significantly.

Market Selling Pressure Assessment

Short-term Market Reaction

After Mt. Gox announced the start of BTC and BCH repayments, the price of Bitcoin experienced fluctuations and panic selling. In the short-term market reaction, investor sentiment was highly volatile, and some holders may have chosen to sell to avoid potential market risks. However, the actual impact of this panic selling may have been overestimated. From May 28 to July 5, Bitcoin fell from a high of $70,000 to a low of just below $54,000, with a cumulative decline of 22%.

Medium to Long-term Market Absorption Capacity

In the medium to long term, the market's ability to gradually absorb selling pressure will mitigate the negative effects of short-term selling. The amount sold on exchanges is far less than the total holdings. Galaxy's research director Alex predicts that approximately 20,000 BTC claims have been acquired by the bankruptcy fund, and an additional 10,000 claims belong to the exchange Bitcoinica BK. According to Mt. Gox's data report from 2023, many original creditors have sold their claims due to the lengthy compensation period. These claims are primarily held by institutional entities, with 226 creditors holding over 50% of Mt. Gox's claims. These institutions often have stronger financial capabilities and market response abilities, preferring to accumulate positions at discounted prices rather than quickly selling for arbitrage.

BCH Volatility Will Increase

In contrast, BCH has poorer market liquidity, and creditors' faith in BCH is evidently lower than in BTC. It is expected that BCH's market performance will also be relatively poor after Mt. Gox's repayments. Creditors may choose to quickly sell BCH to acquire more liquid BTC or other assets, further exacerbating BCH market volatility.

External Factors and Comprehensive Impact

German Government Announces BTC Sale

Various external factors, including the German government's BTC sale, also impact the market. The German government recently announced plans to sell some of its held Bitcoins to generate fiscal revenue. This news further intensified market panic.

Federal Reserve Policy and U.S. Elections

The Federal Reserve's monetary policy and the uncertainty surrounding U.S. elections are also significant factors affecting the market. The Fed's interest rate hike policy may lead to tighter market liquidity, decreasing investors' preference for high-risk assets. The uncertainty of the U.S. elections adds instability to the market, as investors tend to reduce risk exposure in the face of uncertainty.

Future Market Trend Assessment

Market Recovery and Adjustment

After experiencing short-term volatility, the market is expected to enter a recovery and adjustment phase. The stability of institutional holdings and the market's ability to absorb selling pressure will stabilize market prices in the medium to long term. As the primary cryptocurrency asset, Bitcoin's market fundamentals and investor confidence will gradually recover, with prices expected to stabilize amidst fluctuations.

In the long run, the repayment plan resulting from the Mt. Gox incident will help resolve historical issues and enhance market transparency and confidence. The restoration of investor confidence is crucial for the long-term healthy development of the market. As the market matures and the regulatory environment improves, investors will focus more on long-term value investments rather than short-term speculation.

Future Market Outlook

Although the market volatility and selling pressure triggered by Mt. Gox's BTC repayment plan have caused some short-term shocks, the market possesses sufficient absorption capacity and adjustment mechanisms to cope with these pressures in the medium to long term. As investor confidence gradually recovers and the market matures, the future cryptocurrency market is expected to enter a more stable and healthy development phase.

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