Investors are concerned as a bitcoin exchange that crashed ten years ago due to hacking is preparing to give consumers back tokens valued at billions of dollars.
The insolvent bitcoin exchange Mt. Gox, located in Tokyo, will start returning tokens valued at nearly $9 billion to thousands of its users in a few days. After a string of thefts that cost it between 650,000 and 950,000 bitcoins, or more than $59 billion at today’s exchange rates, the network shut down in 2014.
The payment comes after a drawn-out bankruptcy case that included numerous delays and legal disputes.
The court-appointed trustee in charge of the exchange’s bankruptcy proceedings announced on Monday that the company’s approximately 20,000 creditors will start receiving payments in early July. Payments will be made in a combination of bitcoin and bitcoin cash, the first cryptocurrency spinoff.
Although this is welcome news for the hack victims who have been waiting years to be fully compensated, last week saw the second-worst weekly decrease in the cryptocurrency market as the price of bitcoin dropped to $59,000.
Short for “Magic: The Gathering Online Exchange,” Mt. Gox was previously the biggest spot bitcoin exchange in the world, reportedly handling almost 80% of all dollar deals for bitcoin worldwide.
It closed in February 2014, and bitcoin was only worth about $600.
The price of the biggest cryptocurrency in the world as of Monday is roughly $62,000 per unit. This indicates that users who choose to receive their reimbursement in kind, or in their cryptocurrency instead of cash, have enjoyed a more than 10,000% increase in value over the previous ten years.
Chief investment officer of the cryptocurrency loan company Ledn, John Glover, told CNBC that investors looking to lock in gains would probably transform the bonanza for Mt. Gox users into massive bitcoin sales.
Glover, a former managing director at Barclays, stated, “Many will clearly cash out and enjoy the fact that having their assets stuck in the Mt. Gox bankruptcy was the best investment they ever made.” Glover continued, “It is obvious that some will decide to take the money and run.”
The overhang of the about $9 billion in bitcoin that is scheduled for release has “long been a concern for those with bullish views on bitcoin,” according to James Butterfill, head of research at CoinShares, who spoke with CNBC.
Bitcoin has historically moved in response to significant redemptions of money held in decentralized trading platforms.
Bitcoin prices have more than quadrupled after Gemini stopped allowing withdrawals from its Earn lending program on November 16. However, this month, the cryptocurrency exchange Gemini restored more than $2 billion in value of bitcoin to consumers whose funds had become stuck in the scheme. This represents a 230% recovery.
In a research note published last week, JPMorgan analysts made the connection between this and the recent decline in prices, stating that it is “fair to assume that some of Gemini creditors, which are mostly retail customers, have taken at least partial profits.”
The majority of specialists concur that bitcoin losses are probably contained and temporary.
“I believe that concerns about the sell-off of Mt. Gox will probably be temporary,” stated Lennix Lai, the chief commercial officer of OKX, a cryptocurrency exchange.
“A significant portion of Mt. Gox’s initial customers and lenders are seasoned bitcoin enthusiasts who are unlikely to liquidate their entire holdings at once,” he stated. He also mentioned that past law enforcement sell-offs, like as the Silk Road case, did not cause a precipitous decline in price.
According to Butterfill, there is sufficient market liquidity to lessen the impact of any potential mass market sell-off.
According to Joseph, recent price movements indicate that the short-term effects of the Mt. Gox repayments may already be factored in.
According to Alex Thorn, head of research at Galaxy Digital, there won’t be as much sell pressure as the market anticipates because fewer coins will be released than people anticipate.
But in May, he also stated that “it will have a market impact” even if only 10% of the dispersed bitcoin is sold.
However, despite significant market liquidations and withdrawals from bitcoin ETFs, investors have remained uneasy. Investors are also concerned about the macro environment as a whole.
The Federal Reserve announced earlier this month that it would only be lowering interest rates once this year, as opposed to the several times it had previously hinted at.
Due to their intrinsic volatility, cryptocurrencies are especially vulnerable to shifts in the environment of interest rates.