Mt. Gox Bankruptcy Case and Its Impact Analysis

Mt. Gox was established in July 2010 and was the largest trading platform in the Bitcoin space, holding over 80% of the market share at its peak. In 2013, the exchange suffered a theft of 850,000 Bitcoins, leading to its bankruptcy. Subsequently, approximately 200,000 Bitcoins were recovered. Since 2014, investors and court-appointed trustees have been engaged in a lengthy compensation lawsuit regarding these 200,000 Bitcoins.

During the waiting process for the results, some institutions and individuals actively acquired the claims of Mt. Gox. For example, in 2019, an investment group acquired the claims for each Bitcoin at a price of $900, which was twice the value of Bitcoin at the time Mt. Gox went bankrupt. The trading price of the claims fluctuates with the market, providing the original creditors with an opportunity to recover part of their funds in advance.

In 2021, Mt. Gox passed the compensation plan. Since the stolen assets could not be fully recovered, the exchange could only compensate creditors with approximately 23.6% of the original claims. Creditors could choose to accept an upfront one-time compensation, but there would be a certain discount, reducing the compensation rate to 21%. If they choose to wait, the final compensation received may be more, or it may be less.

The compensation assets consist of two parts: one part is cash, derived from the sale of Bitcoin by the Japanese government during the 2017 peak; the other part is Bitcoin, which accounts for more than 90% of the total compensation. Creditors can choose a specific ratio between 5%-10% cash and 95%-90% Bitcoin.

Regarding the claim time, it is expected to take two to three months. Five exchanges will receive Bitcoin from Mt. Gox for repayment and distribute it to creditors. The processing times for each exchange vary, ranging from 14 days to 90 days. The deadline for a one-time advance compensation is October 31, 2024.

In May 2024, Bitcoin in the Mt. Gox cold wallet was moved for the first time, triggering market panic. On July 5, 47,000 Bitcoins were transferred, of which 1,545 were sent to a trading platform to begin compensation. On that day, the price of Bitcoin saw a significant drop, with a maximum decline of over 8%.

As of July 12, the Mt. Gox account address still holds 138,000 Bitcoins, which means that most of the selling pressure has not yet truly entered the market. The price drop on July 5 may have been only a partial reaction of the market to future selling pressure expectations.

Analysis indicates that Mt. Gox creditors may not sell all the Bitcoin they acquire. The returns for the original creditors have already been substantial, and even the debt acquirers could achieve returns exceeding 10 times. Furthermore, long-term Bitcoin investors may have acquired some of the claims during the litigation process.

Assuming that 75% of the creditors accept an early lump-sum repayment, the actual amount of Bitcoin used for repayment is approximately 94,117. Depending on different selling ratios and time, the number of Bitcoins entering the market each month may range from 28,235 to 65,882.

Comparing the impact of a recent government's sale of Bitcoin in a certain country, it can be observed that the market's expectation of a decline due to token sales often occurs prior to the actual sale. Within 23 days, the government sold approximately 43,700 Bitcoins, resulting in a maximum daily decline of 19%.

The demand for Bitcoin ETFs has shown a certain degree of buying strength during this period, but it is still not enough to completely offset the pressure from large-scale sell-offs.

In summary, if the compensation from Mt. Gox is completed within a month, the market may face pressure similar to that of a government sell-off in a certain country, potentially leading to further declines in Bitcoin prices. If the compensation process is extended to 2-3 months, although the daily influx of Bitcoin into the market is limited, the ongoing expectation of selling pressure may result in a period of price volatility.

It is worth noting that the actual amount of Bitcoin transferred to exchanges from Mt. Gox is still very low. When large-scale distribution begins, it may trigger greater market panic and price volatility. However, the impact on prices may not be as significant when individuals sell in a dispersed manner.