After a decade-long saga, the Mt.Gox incident is finally nearing its end. In the early hours of May 28th, the Mt.Gox wallet, which had been dormant for five years in its cold storage, saw some activity. It made ten transactions, transferring 141,685 bitcoins to an unknown address, valued at a staggering $9 billion at market price. Market rumors suggest that this is a preparatory move for the repayment of Mt.Gox creditors. As a result, the price of BTC dropped by 3%, falling below $68,000.
Having gone through a prolonged legal dispute, the creditors are once again approaching a satisfactory resolution. However, the market seems to be under invisible pressure.
1. A Look Back at the Mt.Gox Incident: The Nemesis of the Bull Market
For those familiar with the history of cryptocurrencies, Mt.Gox is a name that rings a bell. It is considered one of the biggest disasters in the history of Bitcoin and the end of the bull market in 2013.
Mt.Gox, headquartered in Tokyo, Japan, was established by Jed McCaleb in 2010. It was later acquired by Mark Karpeles, a French developer and Bitcoin enthusiast, in 2011. It became a leading Bitcoin exchange. At the time, Bitcoin was in its early stages, and there was a scarcity of reputable and large-scale trading platforms. Mt.Gox was able to thrive in such a market.
In 2013, the price of Bitcoin skyrocketed from $13 to $1,100, and during this unprecedented bull market, Mt.Gox quickly became the world’s largest Bitcoin exchange, occupying 70% of the market share.
However, on February 7, 2014, this powerful exchange suddenly announced the suspension of all Bitcoin withdrawals. At the time, the platform claimed that it needed to streamline its currency flow, which didn’t raise much concern among users. However, just 17 days later, the exchange not only halted all trading but also became inaccessible. These abnormal actions quickly caused panic in the market.
Leaked internal company documents revealed the harsh reality: Mt.Gox was hacked, resulting in the theft of 744,408 bitcoins belonging to Mt.Gox customers, as well as an additional 100,000 bitcoins owned by the company itself. The total amount of stolen bitcoins reached 840,000, worth approximately $450 million at the time. This large-scale attack was not the first; Mt.Gox had already been hacked multiple times since 2011, and even before 2011, it had lost up to 80,000 bitcoins. However, due to the rapid increase in the price of Bitcoin, the company was able to conceal the losses. Unfortunately, this three-year-long theft ultimately led to the downfall of the company.
On February 28th, 2014, Mt.Gox filed for bankruptcy in Japan, followed by a bankruptcy protection filing in the United States two weeks later. The incident had a significant impact on the crypto market, causing the price of Bitcoin to plummet from $951 to $309, a two-thirds drop. Bitcoin faced another crisis of trust, and many users embarked on a difficult journey to seek justice.
To this day, the market still does not know the full story behind the Mt.Gox hack. Various theories exist, including self-embezzlement, external intrusion, and collusion between insiders and outsiders. However, the core issue remains that such a significant amount of bitcoins has yet to be fully recovered. Mark Karpeles, the former CEO of Mt.Gox, was charged with fraud and embezzlement in early 2015. Before his imprisonment, he admitted to finding 200,000 missing bitcoins and storing them in a cold wallet. However, when tracking the wallet, it was discovered that the bitcoins had been distributed to 100 different wallets after undergoing a series of transactions.
In 2019, Mt.Gox managed to recover 141,000 bitcoins, which were ruled by the court to be delivered to a trust managed by Nobuaki Kobayashi, the trustee in charge of coordinating the distribution to creditors. According to Mt.Gox’s balance sheet in 2019, the debtor held approximately 142,000 BTC, 143,000 BCH, and 69 billion yen (approximately $510 million at the time).
By 2019, the price of Bitcoin had risen to nearly $10,000, and creditors became more sensitive to the timing and terms of the distribution. The compensation process was further delayed. In 2022, Mt.Gox announced that its Bitcoin repayment program had been accepted by the court, and the specific distribution method was disclosed in 2023.
This year, in January, some creditors revealed that they had registered their receiving addresses, and Mt.Gox would unlock 140,000 bitcoins in the next two months to pay off the creditors.
The long-awaited compensation is finally coming to a close, which should be a good thing. However, the market has reacted with panic to this news.
2. 140,000 Bitcoins Causing Selling Pressure? Not Exactly.
With the current price, 140,000 bitcoins amount to $9 billion. Does the compensation mean significant selling pressure? This news caused a rapid decline in the price of Bitcoin, dropping below $68,000.
However, a realistic analysis suggests that a massive sell-off is highly unlikely. Firstly, although 140,000 bitcoins may seem like a substantial amount, the current Bitcoin market, which is mainly dominated by institutions, can absorb it. Taking Grayscale as an example, after the approval of the Bitcoin spot ETF, it became the largest bearish force selling bitcoins. Before April, Grayscale’s GBTC sold an average of 7,000 bitcoins per working day. In January, during an intense sell-off, the daily sales even reached 10,000 bitcoins and lasted for two weeks. So far, Grayscale’s GBTC has sold a total of 332,000 bitcoins, with a net outflow of $17.746 billion. However, the result is evident: Bitcoin has risen steadily from $40,000 to $67,000.
Moreover, even if there is compensation and selling, it won’t happen all at once. According to the announcement on the Mt.Gox website in 2023, the compensation plan for creditors includes basic compensation and proportional compensation. The basic compensation allows each creditor to claim up to 200,000 yen, which will be paid in Japanese yen. The proportional compensation provides two flexible options for creditors: “early lump-sum payment” or “intermediate and final payments.” The lump-sum payment only allows partial compensation, and the part exceeding 200,000 yen can be chosen to be paid in a mix of BTC, BCH, and yen or in fiat currency. Choosing intermediate and final payments will result in a higher amount of compensation but will take several years. The payment options also include cash and cryptocurrencies.
Overall, Mt.Gox has taken into account the dangers of concentrated selling and has chosen a decentralized compensation method. They have also provided options for payment in cryptocurrencies. The former CEO of Mt.Gox has made it clear that Bitcoin will not be sold immediately.
Furthermore, even if there is concentrated compensation, the selling pressure will be much less than the total amount. Due to the prolonged nature of the Mt.Gox case, many creditors had already sold their claims to funds. Therefore, institutional investors dominate the creditor base. According to last year’s data, only 226 claimants own more than 50% of the claims. In the current bullish market, both institutions and retail investors are unlikely to sell their BTC easily.
But does this mean there will be no impact at all? Not necessarily. In the current illiquid market, panic can quickly lead to price drops. The deadline for compensation is set for October 31, 2024, and until then, there will still be ongoing selling pressure, leading to a decline in market sentiment. However, in the long run, it will not cause a significant drop as one might imagine.
3. Politics: The Key Topic in the Cryptocurrency World
Compared to the Mt.Gox incident that happens almost every year, politics may be the long-term topic that is of greater concern to the crypto community.
Recently, both Biden and Trump have made moves regarding cryptocurrency. Trump claimed that he wants to ensure cryptocurrency is created in the United States and that he would release Julian Assange and the founder of Silk Road. There are also reports that Biden’s re-election campaign team plans to attract support from cryptocurrency voters by promoting innovation.
In the tight competition between parties, cryptocurrency voters may indeed hold a more important position than ever before. According to a recent survey by Grayscale of 1,768 eligible voters, the attention towards Bitcoin has significantly increased (41% vs. 34% in November 2023) due to geopolitical tensions, inflation, and risks associated with the US dollar. One-third of the respondents (32%) stated that they have become more interested in understanding or investing in cryptocurrencies since the beginning of this year. The survey results show that support for cryptocurrencies is not significantly biased towards any particular political party.
In this tug-of-war, cryptocurrencies have become the ultimate winners. Cathie Wood, the CEO of Ark Invest, explicitly stated in an interview that the approval of an Ethereum ETF was due to cryptocurrencies becoming an election issue. The Deputy Secretary of the US Treasury also made rare comments about mixing services, stating that it is not about banning them but about increasing transparency and finding a balance between privacy and national security.
Currently, all market institutions are keeping an eye on the progress of the FIT21 bill. If passed, it would mean a further relaxation of US cryptocurrency regulations. As long as no issuer or affiliated party controls 20% or more of a cryptocurrency, it will be recognized as a commodity and relieved of securities restrictions imposed by the SEC. This would usher in a new era in the cryptocurrency field. Lynn Martin, the President of the New York Stock Exchange, also stated at the Consensus conference that if regulations become clearer, the NYSE would consider opening cryptocurrency trading. If this happens, the barrier to entry for purchasing cryptocurrencies will be further lowered.
Of course, SEC Chairman Gary Gensler, who has always been tough, is dissatisfied with this. He has publicly stated that the bill has significant issues. However, the reality is that “the small arm cannot twist the big thigh.” Although the appointment of independent agency officials is fixed and not solely determined by the president, based on the current situation, it is foreseeable that regardless of which party comes to power, the relaxation of US regulatory measures is already a predictable fact.
Currently, cryptocurrency lobbying organizations are still working hard. Ripple recently donated $25 million to the cryptocurrency super PAC Fairshake, bringing the total donations to nearly $100 million before the November election.
Whether $100 million can influence the situation remains to be seen. However, it is interesting to note that institutions, who were once dismissive and held a condescending attitude towards retail investors’ enthusiasm, have ultimately become dependent on these so-called retail investors to determine the future of cryptocurrencies. Isn’t this another form of decentralized victory?
