Mt. Gox to Repay Users, Potential Bitcoin Sell-Off Looms: Short-Term Impact?

Mt. Gox to Repay Users, Potential Bitcoin Sell-Off Looms: Short-Term Impact?Mt

Mt. Gox to Repay Users, Potential Bitcoin Sell-Off Looms: Short-Term Impact?

Mt. Gox, once the world's largest cryptocurrency exchange that filed for bankruptcy in 2014 after suffering a hack, is back in the spotlight as it prepares to begin repaying users for their lost cryptocurrencies. Analysts believe that users receiving compensation could trigger a sell-off, putting pressure on Bitcoin prices.

Last week, the court-appointed trustee overseeing the Mt. Gox bankruptcy proceedings announced that preparations are complete, and payments will begin being distributed to approximately 20,000 creditors in Bitcoin and Bitcoin Cash starting in early July. This means that Mt. Gox users who lost their cryptocurrencies due to the hack will start receiving their refunds in the coming days.

Estimates suggest that the total value of these cryptocurrencies is approximately $9 billion, including around 141,000 Bitcoins, representing about 0.7% of the current total circulating supply of 19.7 million coins. When Mt. Gox went bankrupt in February 2014, Bitcoin's market capitalization was around $600, and its price has surged over 100 times in the decade since. As of Monday, during US trading hours, Bitcoin was trading above $63,000.

Some analysts believe that Bitcoin could face increased downward pressure once these cryptocurrencies are returned to users. John Glover, Chief Investment Officer of Ledn, a cryptocurrency lending company and former Managing Director at Barclays, believes that the "windfall" received by Mt. Gox users could lead to significant Bitcoin selling as investors seek to lock in profits. "Many people will clearly cash out, because they will realize that their crypto assets being locked up due to the Mt. Gox bankruptcy was the best investment they ever made. Some people will clearly decide to run away with the money."

James Butterfill, Head of Research at CoinShares, notes that the return of nearly $9 billion in Bitcoin has been a source of concern for Bitcoin bulls. "Therefore, the market is highly sensitive to any relevant news. As the news of the trust fund (handling the Mt. Gox bankruptcy) beginning distribution in July emerged, investor concerns are understandable."

Last week, another cryptocurrency exchange, Gemini, returned over $2 billion in Bitcoin to users whose funds were locked in its Earn lending program. At the time, Bitcoin's price had risen 230% since Gemini halted withdrawals from its Earn program on January 16th of last year. Last week, analysts at JPMorgan suggested that the recent decline in Bitcoin prices could be attributed to some Gemini users who received their funds selling off their Bitcoin holdings. They anticipate at least a partial sale to capitalize on the recent gains.

These analysts expect that Mt. Gox users, similar to their Gemini counterparts, will also be inclined to sell off some of their received Bitcoins, realizing profits from the substantial cryptocurrency gains.

However, media outlets highlight that most analysts believe the downward trend in Bitcoin's price is likely to be controlled, and any dip will be temporary. In their report, JPMorgan analysts write that if a majority of Mt. Gox creditor liquidations occur in July, it will create a downward pressure trajectory for Bitcoin prices throughout July. However, they predict a bounce back for Bitcoin prices starting in August.

Lennix Lai, Chief Commercial Officer of cryptocurrency exchange OKX, anticipates that sell-off concerns related to Mt. Gox are likely short-lived. He points out that many early Mt. Gox users and creditors are long-term Bitcoin enthusiasts who are unlikely to immediately sell all of their Bitcoin. He also mentions that previous cryptocurrency sell-offs related to government seizures, including the case of the Silk Road dark web marketplace, did not result in sustained catastrophic declines in Bitcoin prices.

Butterfill believes that market liquidity is sufficient to mitigate the impact of any potential large-scale sell-off. He notes that Bitcoin daily trading volume on reliable exchanges has consistently remained at $8.74 billion this year, suggesting that liquidity is ample to absorb sell-offs in the coming summer months.

Alex Thorn, Head of Research at Galaxy Digital, suggests that the amount of cryptocurrency being returned by Mt. Gox will be less than anticipated, implying that the downward pressure on the Bitcoin market will be smaller than market expectations.

Vijay Ayyar, Head of Consumer Growth for Asia Pacific at Gemini, explains that given the diverse nature of the recipients, the overall impact of