Does Mt. Gox Cause Crypto Market Panic With 137,000 Bitcoin Hold?

Key Points:

• Mt. Gox has finally entered the compensation phase, and its creditors are expected to receive their first repayment in March of this year.
• The latest repayment plan offered by Mt.Gox to creditors includes basic repayment and prorated repayment.
• It will take some time for Mt. Gox completes all data statistics and repayment methods of creditors of various forms and stages, meaning that the issuance of this portion of Bitcoin may not be very centralized and will not cause a concentrated market impact.

The theft of Mt. Gox has now entered the stage of compensation, and its creditors are expecting to get the first batch of repayments in March of this year, following multiple delays in liquidation and several litigations. After years of “passive lock-up,” the increasing price of Bitcoin has also caused Mt. Gox creditors to get a considerable amount of “window revenue” in the last nine years.

But are existing creditors more concerned about Mt.true Gox’s financial situation? How will it be compensated? When will I receive my repayment? Moreover, once the approximately 140,000 Bitcoins used to settle creditors are disclosed, would the market be shattered?

Let’s look back at the line in history

Karpeles, 28, was born in France, but after spending time in Israel, he landed in Japan. He married, uploaded cat videos, and became a parent there. In 2011, he purchased the Mt. Gox exchange from an American businessman called Jed McCaleb.

In 2007, McCaleb registered the Mtgox.com web domain with the intention of converting it into a trading platform for the enormously popular Magic: The Gathering game cards.

He never followed through on the concept, but McCaleb chose to repurpose the domain as a bitcoin exchange in late 2010. The concept was straightforward: he would give a single location for bitcoin buyers and sellers to communicate. Yet, after receiving wires worth tens of thousands of dollars, McCaleb sold the site to Karpeles, an ardent programmer, chef, and Bitcoin enthusiast who went by the handle of Magicaltux on online forums.

The name Mt. Gox was created as an acronym for “Magic: The Gathering Online Exchange.” The site was transferred to Mark Karpeles in 2011 in exchange for six months’ worth of revenue. Karpeles became the largest shareholder and CEO.

Mt. Gox was considered the world’s largest Bitcoin exchange at its peak. It handled 70% to 80% of the trading volume. Handling so many transactions gave Mt. Gox an outsized role in determining Bitcoin’s market activity. For example, in 2013, it suspended trading for several days to cool down the market.

Its prominence in the cryptocurrency scene made it a target for hackers, and Mt. Gox experienced security problems several times during the years it operated. In 2011, hackers used stolen credentials to transfer Bitcoins.

That same year, deficiencies in network protocols resulted in several thousand Bitcoins being lost.

In the months leading up to February 2014, customers expressed increasing frustration with problems withdrawing funds. Technical bugs prevented the company from having a firm grasp on transaction details, including uncertainty relating to whether Bitcoins had been transferred to customers’ digital wallets.

The exchange suffered a fatal blow in February 2014. In early February 2014, the exchange suspended withdrawals after claiming to have found suspicious activity in its digital wallets. The company discovered that it had “lost” hundreds of thousands of Bitcoins. Reports on the number of coins lost ranged from 650,000 to 850,000.

While it was later able to locate 200,000 Bitcoins, the missing cryptocurrency profoundly destabilized the market. The value of the Bitcoins was estimated to be in the hundreds of millions, which pushed Mt. Gox into insolvency. It filed for bankruptcy in the Tokyo District Court and was ordered to liquidate in April 2014.

The estate in which Mt. Gox’s assets were placed owned more than 200,000 Bitcoin and Bitcoin Cash. In October 2019, Mt. Gox trustee Nobuaki Kobayashi extended the deadline for submitting claims to March 31, 2020.

There had been speculation that Russian hackers were behind the heist; there was also hope that some of the stolen Bitcoins could be recovered.

Mt. Gox’s settlement mechanism

This nine-year-long Mt. Gox “Mentougou” larceny scandal is now coming to an “end,” from filing for bankruptcy to deciding the compensation plan and ultimately planning for payments.

According to Mt. Gox’s 2019 financial statement, its debtors own roughly 142,000 Bitcoins (BTC), 143,000 Bitcoin Cash (BCH), and 69 billion yen (approximately $510 million). According to creditors, Mt. Gox’s financial sheet hasn’t altered much since then. According to the most recent token unlocks statistics as of March 6, Mt. Gox has more than 137,000 Bitcoins worth a total of $3.08 billion.

If creditors wish to get compensation, they must register and pick a repayment option before March 10, 2023, according to a notice on the Mt. Gox official website. The first tranche of compensation is due on September 30, 2023. If registration and registration are not completed by the deadline, these creditors will lose the right to partial Bitcoin recovery claims, bank transfer payments, or remittances through money transfer service providers.

Moreover, they must provide the necessary documentation to the offices of MTGOX Co., Ltd. and may only take payment in cash in Japanese Yen.

Mt. Gox’s most recent repayment plan for creditors includes both basic and proportional payback. The basic payback section permits the first 200,000 yen claimed by each creditor to be paid in Japanese currency, and the proportionate repayment gives creditors two flexible alternatives, either “early one-time repayment” or “intermediate repayment and ultimate repayment.”

Among these, the one-time reparation payment option only allows creditors to get partial compensation (approximately 21% of the cash locked on the platform at the time of the hacker attack), and the portion more than 200,000 yen lets creditors pick between BTC, BCH, and Japanese yen. According to one creditor, the ratio is around 71% Bitcoin and 29% cash.

For example, Bitcoinica and MGIF, Mt. Gox’smajor creditors, adopted a one-time payment arrangement and chose to get their bankruptcy recovery mostly in the form of Bitcoin rather than legal cash, which dramatically dampened market interest in Mt. Gox’s enormous Bitcoin sell-off. To pay for legitimate currency compensation payments, the two primary creditors must claim approximately one-fifth of the entire claim amount.

The “interim and final repayment” technique will pay more than the previous method, but you will only receive an interim payment on September 30 and the total payment will be made over the next few years.

Moreover, if certain creditors seek a bigger share of payback, they can continue to await the conclusion of the litigation, which means they will have to wait longer for payment. In a memorandum issued in 2022, MGIF said that this procedure may take five to nine years.

It is worth noting that because creditors must register and designate an exchange to receive funds on their behalf, and each exchange has a different timetable for processing payments, the time it takes for them to receive compensation varies, for example, BitGo Payment will be made within 20 days, Kraken Payment procedure may take 90 days, and so on.

The crypto market will not be centralized destroyed

Mt.Gox, the world’s largest exchange that formerly accounted for 70% of Bitcoin trading volume, was hacked in 2014, resulting in the theft of 100,000 Bitcoins and 750,000 Bitcoins from customers (200,000 Bitcoins were recovered later) Bitcoin and sold around 60,000 pieces one after the other) user assets “disappeared” overnight, and Mt. Gox declared bankruptcy three days later. Remembering the “Mentougou incident” still makes many investors nervous.

Bitcoin’s price was under $800 at the time, but it has since risen in a straight line, hitting a height of almost $50,000. Even today’s price of $17,000 is more than 21.8 times more than in 2014.

With such a high rate of return, it is difficult to predict how many creditors will opt to sell and withdraw cash, and the current quantity of Bitcoins accessible on Mt. Gox accounts for 21.6% of Bitcoin’s current daily trading activity (632,000). Is it having an effect on the market?

According to UBS strategist Ivan Kachkovski, the forthcoming Mt. Gox bankruptcy payments may not lead consumers to be concerned about the price of Bitcoin. Mt. Gox offers creditors a range of repayment methods and scheduling options, and the majority of creditors are still cryptocurrency enthusiasts, therefore Bitcoin is unlikely to be dumped.

Nevertheless, Mt. Gox’s acceptance of an early one-time payment option for fiat repayments would force exchanges to sell Bitcoin values.”

The recent Silvergate Bank troubles, as well as the forthcoming Ethereum network upgrade (ETH-USD) in Shanghai, have generated significant headwinds for the crypto market. Silvergate stock (SI) has fallen 95% in the last year and is under investigation by US regulators owing to client failures such as FTX and linked hedge fund Alameda Research. However, the Shanghai update will allow customers who have staked their Ether to withdraw it and perhaps resell it on the market. Such incidents might boost Bitcoin supply, causing prices to fall even more.

Although the creditors and the number of Bitcoins that will be compensated for the first time are unknown, it is expected that Mt. Gox will need some time to complete all of the data statistics, and the creditors’ repayment methods vary and are multi-stage, with some even paying back for more compensation. It will take many years, which means that the issuance of this portion of Bitcoin may not be extremely concentrated, nor will the market impact be very concentrated.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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