Author: Asher Zhang, Bitpush
The road to Mt.Gox compensation is particularly long, and it has recently sparked heated discussions again. So, what impact will this Mt.Gox compensation have on the crypto market? How much is the price of BTC likely to drop? Can the crypto market stage a five-year low, six-year low, and seven-year turnaround? Why is it the best time for Mt.Gox to pay now?
The road to compensation is long and arduous, but Mt. Gox creditors finally get their way
In 2014, Mt.Gox, the world's largest exchange that once accounted for 70% of Bitcoin trading volume, was exposed to hacker attacks. Three days later, Mt.Gox filed for bankruptcy. Subsequently, Mt.Gox began a long road of bankruptcy compensation, which entered the substantive stage in the last bull market.
According to BitPush, the bankrupt Bitcoin exchange MT.Gox (nicknamed Mentougou) originally planned to submit a liquidation compensation plan for the trading platform on March 31, 2020, but the plan was then postponed again to July 1, 2020. On October 20, 2021, the Mt.Gox compensation plan was finally approved by the vast majority of claiming creditors.
According to official information, the compensation methods provided by Mt.Gox include basic repayment and proportional repayment. After the 2021 compensation plan was confirmed, Mt.Gox did not start the compensation immediately. According to the announcement on the Mt.Gox official website, creditors must register and choose the repayment method before March 10, 2023 to obtain compensation, and the deadline for the first batch of compensation is September 30, 2023. The latest repayment plan provided by Mt.Gox to creditors includes basic repayment and proportional repayment. The basic repayment part allows each creditor to claim the first 200,000 yen to be paid in yen, and the proportional repayment provides creditors with two flexible options, namely "early one-time repayment" or "mid-term repayment and final repayment". Among them, the one-time repayment method can only allow creditors to receive partial compensation (about 21% of the funds they locked on the platform when the hacker attacked), 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. According to a creditor, the ratio is about 71% cryptocurrency and 29% cash. "Interim repayment and final repayment" has a larger repayment amount than the previous method, but only an interim payment will be received on September 30, and the final payment will be paid in the next few years.
Mt.Gox creditors were locked up passively, but this time they finally got out of this. According to Japanese bankruptcy laws, the value of Mt.Gox's BTC claims will be calculated based on the price when the company went bankrupt in April 2014 - the value of each BTC claim is fixed at 50,058.12 yen (about $314 at the current exchange rate). This is mainly used for basic repayment. For proportional repayment, each creditor will receive compensation according to the proportion of the claim. Currently, the price of Bitcoin is $62,059 (as of June 26), which is 197.6 times higher than the fixed value of the claim determined by the Japanese court.
The selling pressure is huge. How low is the BTC price likely to fall?
This is the first time that Mt.Gox has repaid in the form of BTC and BCH. The 141,686 BTC (and a similar amount of BCH) it holds account for 0.72% of the total supply of Bitcoin in circulation, worth about $8.54 billion. From the numbers, the selling pressure is huge, but how much impact will it have? Let's analyze it from the perspective of data comparison.
Andrew Kang, co-founder of Mechanism Capital, previously estimated the amount of BTC funds inflows in this round of institutional holdings in an article. Andrew Kang believes that overall, Bitcoin spot ETFs have now accumulated more than $50 billion in AUM (asset management scale). This is a very optimistic number. However, if the capital flow related to GBTC is stripped out, you will find that the net inflow of funds will be reduced to $14.5 billion after calculation. In fact, this number still needs to be further reduced because it still includes many "delta neutral" transactions, especially some "basis trades" (such as buying ETFs while selling futures) and "spot rotation" (sell spot and buy ETFs). According to CME data and analysis of ETF holders, about $4.5 billion of inflows are related to “basis trading”; in addition, some ETF experts have pointed out that large institutions such as BlockOne have conducted huge “spot rotation” operations, and the scale of such transactions is estimated to be about $5 billion. Excluding these “delta neutral” transactions, we can infer that the actual net inflow of Bitcoin spot ETFs is about $5 billion.
In the early morning of January 11, Beijing time, the U.S. Securities and Exchange Commission (SEC) approved the Bitcoin spot ETF for the first time in history, authorizing 11 ETFs to start trading on Thursday. After the news was announced, the price of Bitcoin soared by more than $2,000 and re-entered the $47,000 mark. Subsequently, under the pressure of profit-taking, Bitcoin fell back to around $43,000. After a period of consolidation, BTC started another round of sharp rise, breaking through $70,000.
This means that the US Wall Street institutions may have used about $5 billion to push the price of Bitcoin from $43,000 to around $70,000. At present, the BTC compensation value of Mt.Gox is as high as $8.5 billion. If about half of the BTC is sold to the market, the price of BTC will most likely fall to around $47,000.
There is a view in the market that the creditors of this batch of BTC are all old OGs, and the selling pressure may be relatively controllable. But in fact, in 2014, there were many speculators involved in Bitcoin trading, and this article believes that the 80/20 rule is universal. Many people do not stay long enough to change their speculative mentality. The author has also seen that many old people in the currency circle finally gained a dismal harvest, and it is common to come and go during the period. Therefore, when a huge fortune comes, the selling pressure may even exceed 50%, and it will be even more terrible if there is panic selling and serial liquidation. Overall, this article believes that it is very likely that BTC will be smashed to around 47,000, and the specific range may be between 42,000 and 48,000 US dollars. Why is it this range? The following will further interpret this range prediction in detail.
Can the crypto market stage a comeback in May, June and July?
Through a simple data comparison above, we believe that Bitcoin is likely to fall to $47,000. Next, we will explore this issue from a broader perspective.
In the article "Bitcoin jumps back and forth, four major drivers influence the market", the author discussed four factors that affect the Bitcoin market: Bitcoin ETF, Bitcoin miners, macro finance, and Bitcoin technology development. Overall, the current macro market expects the Federal Reserve to cut interest rates in September, and the market is expected to remain weak in July; from the perspective of Bitcoin ETF capital inflows, the author believes that Wall Street institutions have gradually entered the wash-out period from the stage of scrambling for funds, among which the landmark event is that BlackRock's Bitcoin holdings surpass Grayscale, which means that the motivation for institutions to continue to increase their holdings in the short term is significantly weakened; from the perspective of Bitcoin technology development, the OP_CAT proposal in the Bitcoin ecosystem is worthy of attention, but there will be no major breakthroughs in the short term; from the data point of view, there is a continuous sell-off by miners, which undoubtedly increases the pressure on BTC to attack. Overall, BTC lacks the motivation to drive its continued rise; at the same time, it faces huge selling pressure, and a long period of correction and consolidation is very likely.
From the technical chart, this article believes that there is strong support around US$57,600 (MA200). At the same time, the shutdown price of the Avalon A1366 mining machine is around US$57,000, which also provides the first support for Bitcoin.
But if, as we expect, Mt.Gox's creditors sell off, the MA200 defense line is likely to be broken. From the technical chart, the $43,000-47,000 range for Bitcoin is a stronger support range formed after the Bitcoin ETF is passed, and it is also the lowest cost range for many institutions to build positions. At the same time, $43,000-47,000 is the shutdown price for most of them. In theory, if BTC plummets to this point, BTC will receive strong support, and this situation will not last for a long time, which means that a "V"-shaped rebound is likely to occur, and then it may remain at the MA200 line for a long time. In a sense, after the "V"-shaped reversal, institutions will be able to wash the market more thoroughly, which may be a turnaround for bottom-fishing users.
Mt.Gox may also be in a good position to pay out now
In a sense, Mt.Gox's compensation is actually at a relatively good time. The core reason is that a large number of institutions such as Wall Street in the United States have entered the market, so that the Bitcoin paid by Mt.Gox will flow into the market before there are buyers. For creditors, the price of BTC is still at a relatively high historical range. Although the currency standard has suffered losses, the passive lock-up income is very considerable.
As for the current market, the cost of Bitcoin will increase after the halving, which in a sense determines the maximum downside of Bitcoin. In addition, the Federal Reserve has not yet cut interest rates, and the market remains optimistic. For Wall Street, it is a good opportunity to buy at a low price again, and it may also be happy to see this. Overall, it may be the best time for Mt.Gox to pay compensation.
