Analysis of the MtGox Bankruptcy Case and Its Impact

MtGox was once the largest trading platform in the Bitcoin space, established in July 2010, with trading volume at one point accounting for over 80% of the market. In 2013, the platform experienced an incident where 850,000 Bitcoins were stolen, leading to its bankruptcy. Subsequently, about 200,000 Bitcoins were recovered, becoming the focal point of a compensation lawsuit that lasted for ten years.

Debt Trading and Compensation Plan

During the long waiting period, the trading of debts between institutions and individuals was very active. In 2021, MtGox passed a compensation plan, allowing creditors to recover about 23.6% of the remaining value of the exchange. Creditors can choose to receive a one-time compensation of (21% compensation rate ) in advance or wait for a longer time for a potentially higher compensation.

The compensation assets consist of two main parts: a small amount of cash (5%-10%) and a large amount of Bitcoin (90%-95%). The payout process is expected to take two to three months and will be conducted through five different trading platforms.

Latest Developments

In May 2024, Bitcoin in the MtGox cold wallet moved for the first time, raising market concerns. On July 5, about 47,000 Bitcoins were transferred, of which 1,545 entered a certain trading platform to begin compensation. On that day, the price of Bitcoin plummeted by over 8%.

As of July 12, the MtGox account still holds approximately 138,000 bitcoins, indicating that most of the selling pressure has not yet actually entered the market.

Selling Pressure Analysis

Although some creditors may sell the obtained Bitcoin, it is expected that not all will be sold. Reasons include:

1. The original creditor has made a significant profit, with the current price having increased 120 times since the bankruptcy.
2. Debt acquisition institutions may have a long-term positive outlook on Bitcoin and will not sell all their holdings.
3. During the lengthy litigation process, short-term investors have had ample opportunities to exit.

Assuming that 75% of the creditors accept early compensation, the actual Bitcoin used for repayment is approximately 94,117 coins. Based on different selling ratios and timeframes, the potential selling pressure that the market may face can be estimated.

Comparison of the Impact of the German Government's Bitcoin Sell-off

The German government sold approximately 43,700 bitcoins, worth about $2.4 billion, over a 23-day period starting from June 19. This resulted in a maximum drop in bitcoin prices of 19%. It is noteworthy that the market's expectations of a decline due to the token sale often precede the actual sale time.

Bitcoin ETF Demand Analysis

During the German government's sell-off, the demand for Bitcoin ETFs was insufficient to fully offset the selling pressure. From June 19 to July 10, over the span of 15 working days, the net inflow into ETFs was only $600 million, averaging $43 million per day, which is far below the scale of the German government's sell-off.

Conclusion

1. If the MtGox compensation is completed within a month, the market may face pressure similar to the German government's sell-off, and the price of Bitcoin may further decline.

2. If the compensation lasts for 2-3 months, the daily influx of Bitcoin into the market will be relatively low, which may result in a period of consolidation and make it difficult to see a significant upward trend in the short term.

3. The actual number of bitcoins transferred to the trading platform from MtGox is still limited. When mass distribution begins, it may trigger significant panic and a sharp decline. However, the impact on the price may not be as significant when individuals sell off in a dispersed manner.