Mt. Gox Repayments Threaten Crypto Market Stability: $9.2 Billion in Bitcoin at Stake

After a decade of waiting, creditors of collapsed Mt. Gox look one step closer to getting their lost $9.2 billion in investments back. That’s great for them, but not so much for crypto investors.

”This will weigh on the market once repatriation picks up in earnest or the market starts to pay more attention to it,” Brian Redick, senior strategist at crypto trading firm GSR, told DL News.

Brian Dixon, CEO of Off The Chain Capital, a crypto hedge fund that has purchased Mt. Gox claims, told DL News that he had recently heard encouraging updates, a signal progress is underway.

The defunct crypto exchange has almost 142,000 Bitcoin to give to creditors, a balance sheet from 2019 shows. Technically, that means almost $9.2 billion worth of Bitcoin could be sold anytime before October 31, Mt. Gox’s final deadline for repayments.

For comparison, the celebrated Bitcoin halving, which occurred on April 20, will reduce the amount of new Bitcoin hitting the market by roughly $5.3 billion over that same period of time.

In other words, not only could the payout cancel out the supply dynamics of the halving, it could provide an additional $4 billion in selling pressure.

However, Bitcoin maxis may save the market from crashing, crypto cognoscente say.

Impact on Bitcoin

Details of the payout to Mt. Gox’s creditors remain vague, making it hard to predict what impact it will have on Bitcoin’s price.

For starters, the repayment timing is uncertain.

Repayments have been divided into three categories — base repayment, early lump-sum repayment, and intermediate repayment. All of these have the same deadline, October 31, but they may not all be paid out at the same time.

“A mass Bitcoin redemption event is unlikely,” Coinbase head of research David Duong told DL News. “But concerns around these repayments could still constrain liquidity as market players may avoid deploying new capital amid the uncertainty.”

“The market impact will likely depend on how the funds are returned,” Redick said. One of the firm’s largest creditors, the Mt Gox Investment Fund, will receive its payout in a ratio of 70% Bitcoin and 30% cash, Bloomberg reported in 2023.

But not everyone is concerned.

Brad Howell, managing director of crypto hedge fund Keyrock UK, told DL News that the market could easily absorb the selling pressure.

“Whilst $9 billion worth of Bitcoin might sound like a large number we should put this into perspective,” Howell said, pointing out that Bitcoin averaged $30 billion in daily trading volume in March.

And the market processed $72 billion in trading volume when Bitcoin dropped 8% on March 19, Howell said.

“This should give you an idea of the volume required to move a market of this size,” he said.

Methodical redemptions

Howell said negativity about the impact of Mt. Gox on the market may just be sentiment.

“It is fair to assume that anyone who had assets in Mt. Gox is an early adopter and more likely to lean towards the Bitcoin maxi end of the spectrum,” Howell said, referring to diehard Bitcoin enthusiasts. “Don’t expect huge volumes to be dumped on day one.”

Dixon said Off The Chain Capital would be “very methodical” about selling the Bitcoin it receives. The firm has $360 million in assets, and its Mt. Gox position makes up almost 20% of the fund.

“We’re going to start looking at other opportunities where we can get other crypto assets at a discount, because that’ll help us outperform Bitcoin,” Dixon said. “But that doesn’t mean we’re going to try to sell all at once.”

After reaching an all-time high of $73,500 in March, Bitcoin has slumped 14% over concerns about the Federal Reserve’s monetary policy and tension in the Middle East.

Launched in 2010 in Japan, Mt. Gox was one of the earliest crypto exchanges. At its peak, it handled over 70% of all Bitcoin trades worldwide.

The exchange abruptly suspended withdrawals and entered bankruptcy in 2014 following a series of hacks.

Tom Carreras is a markets correspondent at DL News. Got a tip about Mt. Gox and Bitcoin? Reach out at tcarreras@dlnews.com.