The Mt.Gox incident, which lasted for 10 years, is finally coming to an end.
In the early morning of May 28, Mt.Gox wallet, which had been declared bankrupt for 10 years and had been in cold wallet for 5 years, experienced abnormal movement. Ten transactions were made to an unknown address, transferring 141,685 bitcoins, which was as high as 9 billion US dollars at the market price. Market sources said that this was the advance preparation for the payment of Mt.Gox's debts. Affected by this, the price of BTC fell by 3%, falling below 68,000 US dollars.
After a protracted dispute, creditors are once again close to a satisfactory result, but the market seems to be facing invisible pressure.
01. Review of the Mt.Gox incident: it single-handedly brought down the bull market
If you know a little about the history of encryption, Mt.Gox is definitely famous. It can be said that it once caused one of the biggest Waterloos in the history of Bitcoin and was the terminator of the 13-year bull market.
Mt.Gox is headquartered in Tokyo, Japan. It was founded by Jed McCaleb in 2010 and acquired by French developer and Bitcoin enthusiast Mark Karpeles in 2011. It has become a trading platform focused on Bitcoin. At that time, Bitcoin was in its infancy and trading platforms were very scarce in the market. Mt.Gox, which was relatively formal and large-scale, was able to develop rapidly.
In 2013, the price of Bitcoin soared from US$13 to US$1,100. In this unprecedented bull market, Mt. Gox quickly became the world's number one Bitcoin trading platform. At its peak, it accounted for 70% of the Bitcoin trading market share.
Such a powerful exchange suddenly announced the suspension of all Bitcoin withdrawals on February 7, 2014. At that time, the platform gave the reason that it needed to sort out the currency process, so users did not pay much attention. But just 17 days later, the exchange not only suspended all transactions, but even the website could not be opened. Soon, the abnormal behavior caused panic in the market.
A leaked internal company document revealed the bloody truth that hackers attacked Mt. Gox and stole 744,408 bitcoins from Mt. Gox customers and another 100,000 bitcoins owned by the company, totaling 840,000 bitcoins, worth about $450 million at the time. This large-scale attack happened more than once. As early as 2011, Mt. Gox had been stolen by hackers, and before 2011, Mt. Gox had lost up to 80,000 bitcoins. However, due to the rapid rise in the price of bitcoin, the company was able to conceal its true intentions, and the theft that lasted for three years caused the company to fail.
On February 28, Mt. Gox filed for bankruptcy in Japan and two weeks later filed for bankruptcy protection in the United States. Under the influence of this incident, the crypto market was shaken, and the price of Bitcoin fell from $951 to $309, a direct drop of two-thirds. The Bitcoin market also encountered a crisis of trust again, and a large number of users embarked on a difficult road to rights protection.
In fact, until now, the market still does not know the cause and effect of the Mt. Gox hacking incident. There are theories of embezzlement, external intrusion, and collusion, but the core problem is that such a huge amount of Bitcoin has not been discovered yet. Karpeles, then CEO of Mt. Gox, was charged with fraud and embezzlement in early 2015. Before going to prison, he took the initiative to admit that he had found 200,000 missing Bitcoins and stored them in cold wallets, but when tracking the wallets later, it was found that the Bitcoins were evenly distributed to 100 people's wallets after a series of operations.
Until 2019, Mt. Gox recovered a total of 141,000 bitcoins. The court ruled that this huge sum of money should be delivered to a trust for safekeeping. The trust manager is Nobuaki Kobayashi, who will coordinate the distribution time of creditors. According to the 2019 Mt. Gox balance sheet, the debtor held about 142,000 BTC, 143,000 BCH and 69 billion yen (about 510 million US dollars at the time).
In 2019, Bitcoin had risen to nearly $10,000, and creditors were more sensitive to the distribution time and plan, and the compensation process was once extended. In 2022, Mt. Gox announced that its Bitcoin repayment procedure had been accepted by the court, and the specific distribution method was subsequently disclosed in 2023.
Fast forward to this year, in January, a creditor disclosed an email stating that all creditors had registered their payment addresses at the beginning of the year, and Mt. Gox will unlock 140,000 bitcoins in the next two months to pay creditors.
The long-lasting compensation has finally come to an end, which is a good thing, but the market panicked by the news.
02. 140,000 BTC selling pressure? Not true
140,000 bitcoins, at the current price, have reached 9 billion US dollars. Does the compensation mean a huge selling pressure? It is precisely because of this news that bitcoin fell rapidly, falling below 68,000 US dollars.
But from a realistic analysis, the possibility of a large-scale decline is minimal. First of all, 140,000 bitcoins may seem large, but in the current institutional-dominated bitcoin market, it is not completely unabsorbable. Take Grayscale as an example. Since the Bitcoin spot ETF was passed, it has been the largest short seller of Bitcoin. Before April, Grayscale GBTC sold an average of about 7,000 BTC per working day, and in January, when there was intensive selling, the daily selling volume even reached 10,000, and it lasted for 2 weeks. So far, Grayscale GBTC has sold a total of 332,000 BTC, with a historical net outflow of $17.746 billion. But the result is obvious, Bitcoin has continued to rise from $40,000 to $67,000.
Comparison of Grayscale GBTC and BlackRock IBI Bitcoin holdings, source: IBIT
More importantly, even compensation and selling will not happen overnight. According to the announcement on Mt.Gox's official website in 2023, the repayment plan provided by Mt.Gox to creditors includes basic repayment and proportional repayment. The basic repayment part allows the first 200,000 yen claimed by each creditor to be paid in yen, and the proportional repayment provides creditors with two flexible options, namely "early lump-sum repayment" or "mid-term repayment and final repayment". Among them, the one-time repayment can only obtain partial compensation, and the part exceeding 200,000 yen allows creditors to choose a mixture of BTC, BCH and yen or pay the full amount in legal currency. Choosing mid-term repayment and final repayment will get more compensation, but it can take several years. In terms of payment methods, it also provides cash and cryptocurrency options.
Overall, Mt.Gox also took into account the dangers of a concentrated market crash, adopted a decentralized compensation approach, and proposed a coin-to-coin payment option. The former CEO of Mt.Gox also came out to clearly refute the rumors, saying that he would not sell Bitcoin immediately.
In addition, even if the compensation is concentrated, the amount of selling pressure is much less than the actual total amount. Due to the long-term nature of Mentougou, many creditors have packaged and sold their claims to funds. Therefore, the bond holders are mainly institutions. According to last year's data, only 226 claimants have more than 50% of the claims of Mt.Gox. Under the current bullish market price, neither institutions nor retail investors will easily sell their BTC.
But is there no impact at all? Not necessarily. In the current market with depleted liquidity, panic can quickly cause prices to fall. The current payment deadline is set at October 31, 2024. Before the payment date, there will still be selling pressure and a decline in market sentiment, but in the long run, it will not cause the imagined sharp decline.
03. Compared with Mentougou, politics is the key issue
Compared to Mentougou, where the "wolf comes once a year", perhaps politics is the long-term topic that encryption is more concerned about.
Recently, Biden and Trump have made frequent moves targeting crypto votes. First, Trump declared that he would ensure that cryptocurrencies were created in the United States and that Assange and the founder of Silk Road would be released. Later, there was news that President Biden's re-election campaign team planned to attract the support of cryptocurrency voters by promoting innovation.
In narrow partisan competitions, crypto voters may indeed be more important than ever. According to Grayscale’s latest survey of 1,768 adults planning to run in the general election, voter attention to Bitcoin has increased significantly due to geopolitical tensions, inflation, and dollar risks (41% vs. 34% in November 2023 ). Nearly one-third of voters (32%) said they would prefer to learn about cryptocurrency investing or actually invest in cryptocurrencies since the beginning of the year. The survey results show that support for cryptocurrency does not clearly favor one political party.
In this push-and-pull game, cryptocurrency has become the winner behind the scenes. Cathie Wood made it clear in an interview that the Ethereum ETF application was approved because cryptocurrency has become an election issue. The U.S. Treasury Deputy Secretary also made a rare statement on coin mixers, saying that it is not necessary to ban coin mixers, but to increase transparency and find a balance between privacy and national security.
At present, all market institutions are paying attention to the approval progress of the FIT21 Act. If it is passed, it will mean that the United States will further relax its regulatory attitude towards cryptocurrencies. As long as no issuer or related party controls 20% or more of the cryptocurrency, it will be considered a commodity, thereby lifting the SEC's securities restrictions, which will also open a new era in the crypto field. Lynn Martin, president of the New York Stock Exchange, also said at the Consensus Conference that if the supervision is clearer, the New York Stock Exchange will consider opening up cryptocurrency trading. If this move is realized, the threshold for purchasing cryptocurrencies will be lowered day by day.
Of course, the usually tough SEC Chairman Gary Gensler was very dissatisfied with this, and he said in public more than once that the bill had huge problems. However, "small arms cannot twist big arms" has also happened in reality. Although according to existing information, since the appointees of independent agencies have fixed terms and are not decided by a single president, the SEC Chairman is likely to serve his full term until February 2025. However, from the current situation, no matter which party comes to power, the relaxation of US regulation has become a foreseeable fact.
Currently, the crypto lobby is still working hard. Ripple donated another $25 million to the cryptocurrency super PAC Fairshake yesterday, bringing the total donations to the PAC before this November's election to nearly $100 million.
It is still unclear whether $100 million can influence the current situation, but what is quite interesting is that institutions were once quite disdainful of the enthusiastic retail investors and even maintained a condescending attitude, but in the end, it was the so-called retail investors who came together to form a key step in determining the direction of encryption. Isn’t this another form of decentralization victory?
