Who is to blame for the market crash? 10 questions and 10 answers to dispel the rumors surrounding the Mt. Gox incident

Original | Odaily Planet Daily

Author | Azuma

On the afternoon of June 24th, Beijing time, a news report about "Mt.Gox will initiate BTC and BCH repayments" quickly triggered the market. Due to concerns about potential selling pressure, the already weak cryptocurrency market was further frustrated. BTC once fell below the $60,000 mark, and ETH also once approached $3,200.

However, there is still great confusion and even rumors in the market about the Mt.Gox repayment incident itself, so that most readers do not understand the full picture of the incident, and are unable to actively assess the potential impact of the incident on the market. In order to dispel these doubts, Odaily Planet Daily will combine market data and interviews with creditors (dForce founder Mindao) to clarify this information in the form of questions and answers.

• Q1: Is this the first time Mt.Gox has made a debt repayment?

A1: No, as early as December 21, 2023, several Japanese-speaking users posted on social media that they had received compensation in Japanese yen through PayPal, including Yuzo Kana, the founder of Japan's leading exchange bitFlyer.

Combined with the email notice from Nobuaki Kobayashi, the bankruptcy liquidator of Mt. Gox at the time, it can be known that this part of the compensation funds came from the 7 billion yen redeemed by Nobuaki Kobayashi from the bankruptcy trust on November 17, 2023.

• Q2: Why is this repayment so special?

A2: Because this is the first time that Mt.Gox has made repayments in the form of BTC and BCH, it means that the 141,686 BTC (and a roughly equal amount of BCH) held by Mt.Gox will begin to flow into the market.

These BTC account for 0.72% of the total circulating supply of Bitcoin, worth approximately $8.54 billion.

• Q3: When will repayment be made – when will the selling pressure come?

A3: According to the latest email notification from Nobuaki Kobayashi, repayment will begin in July 2024.

• Q4: The most critical question is, what are the repayment details?

A4: Creditor Mindao stated that Mt.Gox will calculate the proportion of claims of each creditor (only those creditors who have chosen to receive repayment in "kind" form, because some creditors have chosen to accept repayment in fiat currency) according to the BTC price at the time of bankruptcy, and then distribute the BTC held to different creditors according to the proportion.

Considering that Mt.Gox lost a total of about 650,000 BTC that year, and currently still holds 140,000 BTC, this means that the recovery rate of BTC currency standard is about 21.5%. Simply put, if you held 100 BTC in Mt.Gox that year, you can only recover about 21.5 BTC now. The currency standard has undoubtedly plummeted, but considering that BTC has increased by hundreds of times in recent years, the fiat currency standard is a huge profit (equivalent to passive lock-up).

Odaily Note: Regarding the specific losses in the Mt.Gox hacking incident, the exchange initially stated that 850,000 BTC were lost (750,000 belonged to customers and 100,000 belonged to the platform), but later Mt.Gox stated that 202,185 bitcoins that were thought to have been stolen were found on the system, so the loss should be 650,000 BTC.

• Q5: Why must the debt ratio be calculated based on the BTC price of that year?

A5: Essentially, it is because of "insolvency". The amount of BTC currently held by Mt.Gox cannot cover its currency-based liabilities, and it is impossible to repay in kind 1:1. This determines that Mt.Gox must find a price to calculate the proportion of debt and then distribute the current holdings. The specific price depends on the ruling made by the Japanese court when considering the bankruptcy case.

Mindao also added that at the time, users of the Mt.Gox exchange held not only BTC, but also fiat currency assets, so Mt.Gox had to choose a certain currency as the basis for calculations - in fact, Mt.Gox used the Japanese yen price as the benchmark.

• Q6: What was the BTC price at that time? What was the basis for this?

A6: The Tokyo District Court has previously made a liquidation ruling on the Mt.Gox bankruptcy case. 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 claim value of each BTC is fixed at 50058.12 yen (approximately US$314 at the current exchange rate).

However, this price will only be used to calculate the creditor's claim ratio, and does not mean that the creditor can only receive 50058.12 yen for each BTC held by the creditor. In fact, according to the repayment form of the claim ratio, the final amount that the creditor can receive per BTC is much greater than this figure.

Mindao added that before Mt.Gox went bankrupt in early 2014, BTC on the Mt.Gox site fell to as low as $150, while the market price was around $300 at the time, which means that users who bought BTC at the bottom of the Mt.Gox site that year could receive the largest compensation "benefits."

• Q7: How do creditors receive repayment?

A7: The creditor has registered the payment address at the beginning of this year, and will receive the payment through exchanges such as Kraken, Bitstamp, and Bitgo.

• Q8: What is the holding address of Mt.Gox? How to detect liquidity?

A8: After the last collection on May 28, the BTC held by Mt.Gox is currently stored in three addresses, each of which holds 47,230 BTC. The specific addresses are as follows:

1AsHPP7WcGnDLzxW2bUa2FcbJP3eZVEqpx；

16eAGJEjqsUqngMfcysQECvp7TMU37P9gX；

1HeHLv7ZRFxWUVjuWkWT2D5XFbXXvHoV68；

It is recommended to use the Mt.Gox wallet interface provided by Arkham for monitoring.

• Q9: Who are the groups that received repayments? Has the debt structure changed over the years?

A9: There have been changes. The Mt. Gox hacking incident happened many years ago, and the related claims have been circulating in the market for a long time. A large number of original creditors have traded their claims to institutions specializing in bankruptcy claims in order to realize them as soon as possible.

Alex, head of research at Galaxy, predicts that approximately 20,000 BTC claims have been acquired by the bankruptcy fund, and an additional 10,000 claims belong to the exchange Bitcoinica BK.

• Q10: How to assess potential selling pressure?

A10: It depends on the creditor’s sales expectations after receiving repayment.

Mindao predicted that this incident happened ten years ago, and the creditors were all the earliest participants in the cryptocurrency circle (diamond hands), and many debts changed hands during the period, so the psychological impact may be greater than the actual impact.

Alex made a similar prediction. The vast majority of institutions that have actively acquired Mt.Gox over the years are high-net-worth Bitcoin holders who prefer to accumulate positions at a discount rather than arbitrage through fast transactions.

Alex added that considering the poorer liquidity of the BCH market and the fact that creditors’ confidence in BCH is obviously lower than that in BTC, BCH is expected to perform relatively poorly after the repayment of Mt.Gox.