Analysis of the Mt. Gox Bankruptcy Case and Its Impact on the Crypto Assets Market

The Mt. Gox exchange was established in July 2010 and was once the largest trading platform in the Crypto Assets field, accounting for over 80% of the market share at one point. However, in 2013, the exchange suffered an incident where 850,000 Bitcoins were stolen, leading to its bankruptcy. Since then, about 200,000 Bitcoins have been recovered. Starting in 2014, investors and court-appointed trustees have been engaged in protracted compensation lawsuits regarding these recovered Bitcoins.

During the long waiting process, debt trading has become a common phenomenon. Some institutions actively acquire debt from Mt. Gox, and individual debt trading is also very active. For example, in 2019, an investment group acquired debt for each bitcoin at a price of 900 USD, which was double the price of bitcoin when Mt. Gox went bankrupt.

In 2021, Mt. Gox finally passed the compensation plan. According to the plan, due to the inability to fully recover the stolen assets, the exchange can only compensate creditors with approximately 23.6% of their original claims. Creditors can choose to accept a one-time early compensation, but the compensation rate will be reduced to 21%; if they do not accept, they may need to wait longer, and the final compensation they receive may vary.

The compensation assets are mainly composed of two parts: one part is cash, derived from the Bitcoin sold by the Japanese government during the peak period in 2017; the other part is Bitcoin. The cash accounts for 5%-10%, while Bitcoin accounts for 90%-95%.

Regarding the claims timeline, it is expected to take two to three months. Five exchanges will be responsible for receiving the Bitcoin from Mt. Gox for repayment and distributing it to creditors' accounts. The processing times of the exchanges vary, ranging from 14 days to 90 days. It is worth noting that the deadline for one-time early compensation is October 31, 2024.

In May 2024, Bitcoin in the Mt. Gox cold wallet moved for the first time, causing panic in the market. On July 5th, 47,000 tokens were transferred from the Mt. Gox account address, including 1,545 Bitcoins that were sent to a trading platform for compensation. On that day, coupled with other factors, the price of Bitcoin saw a maximum daily drop of over 8%.

As of July 12, there are still 138,000 Bitcoins remaining in the Mt. Gox account address, which means that most of the potential selling pressure has not yet truly entered the market. The decline on July 5 may only be a partial reaction of the market to the anticipated selling pressure from Mt. Gox.

Analysis indicates that Mt. Gox creditors may sell part of their Bitcoin, but it is unlikely that they will sell all of it. From a profit perspective, original creditors could see returns of around 24 times, while even debt purchasers could achieve returns of over 10 times. Furthermore, long-term bullish investors in Bitcoin may not be in a hurry to sell everything.

Assuming that 75% of creditors accept an early one-time repayment, the actual amount of Bitcoin used for repayment is about 94,117 coins. Depending on the different selling ratios and timing, the daily amount of Bitcoin entering the market will vary.

To assess the impact of this supply on the market, we can refer to the recent situation of a certain country's government selling Bitcoin. The government sold approximately 43,700 coins in 23 days, worth about $2.4 billion. During this period, the price of Bitcoin experienced significant fluctuations, with a maximum intraday drop of 8.5%.

It is worth noting that the market's reaction to token sales often precedes the actual sale activity. When the government of the country began to gradually transfer out small amounts of Bitcoin, the market experienced a continuous decline. However, over time, the market's absorption capacity has also been gradually strengthening.

Bitcoin ETFs are a relatively stable buying force in the current market. During the government's sell-off in the country, the ETF overall showed a net inflow status, but its demand was not enough to completely offset the selling pressure.

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, potentially leading to a further decline in Bitcoin prices. If the compensation process lasts two to three months, although it may not cause a sharp drop, the market may experience a period of consolidation.

Currently, the amount of Bitcoin actually transferred to the exchange from Mt. Gox is still very small. When large-scale distribution begins, it may trigger significant market panic. However, since individual sales are dispersed and hard to track, they may not lead to a significant drop in prices. Investors should closely monitor the developments in this situation and prepare appropriate risk management.