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As Voyager Digital and Celsius Network customers scream, “Where the hell’s my money?” Mt. Gox creditors must feel like James Franco’s nameless character in “The Ballad of Buster Scruggs,” who asks his neighbor at the gallows, “First time?”
After eight years of holding the bag, creditors of the famed, failed bitcoin (BTC) exchange may soon get at least a sliver of their money back. While that might sound like good news at a time when the crypto market could really use some, some are worried about the prospect of Mt. Gox customers dumping their newly reclaimed BTC. While the situation bears watching, such fears may be overblown.
Let’s back up a bit.
This article is excerpted from The Node, CoinDesk's daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.
Last week, the trustee who is carrying out a plan to make Mt. Gox bagholders – known in the Tokyo District Court as “rehabilitation creditors” – as whole as possible asked them to register on an online claim-filing system.
This request signaled that the trustee is preparing to make repayments under a plan approved by the creditors last year.
In that registration request, creditors were asked to choose between receiving an early, partial lump sum payment or waiting until the end of civil rehabilitation on the off-chance there will be more funds available to be disbursed, meaning they’d recover a larger sum. (There’s an outstanding lawsuit by CoinLab against Mt. Gox.)
Creditors are able to choose between receiving their reimbursement in native currency (a mix of BTC, bitcoin cash and yen) or opt for the trustee to liquidate the entirety of their claim into cash. Payment dates and specific payout amounts weren’t outlined in the publicly available letter. Every creditor will also receive some of their payout in cash, even if they didn’t have any on Mt. Gox.
In short, the trustee is saying: “If you want some of the money you’re owed, get online and tell us how you want to get it.”
Will Mt. Gox creditors dump their BTC?
There is chatter about this portending a bearish situation for bitcoin. Especially when we consider what happened just last month when the Luna Foundation Guard liquidated roughly 80,000 BTC when LUNA collapsed (hint: the price went down). Since Mt. Gox lost 850,000 BTC in a hack, a creditor dump could conceivably be worse.
That said, Mt. Gox wasn’t able to get back the stolen bitcoins, so the trustee is not actually paying out 850,000 BTC to creditors. Mt. Gox only holds around 141,686 BTC, 142,846 bitcoin cash (BCH) and 69,776,002,441 yen (~$3.2 billion, all told). So instead of a one-time 850,000 BTC liquidation, a worst-case scenario would look like this: 100% of creditors opt for the trustee to liquidate, and the trustee opts to do that all in one fell swoop and sell 141,000 BTC. That represents 8.8% of total daily exchange volume. Sure, that’s meaningful, but it wouldn’t be the first time 141,000 BTC was sold in a day.
So what would it take for this worst-case scenario to happen during the current bear market cycle?
First off, all creditors would have to choose to receive the early, lump-sum payment, which is likely to be paid out in the coming months (as opposed to, potentially, years).
Then they would all have to dump all their BTC on the exchanges at once. This would mean either everyone would ask for their payouts in cash only – meaning the trustee would cash out the BTC all at once (unlikely) – or everyone would opt to get their BTC, BCH and cash combination payouts and coordinate to dump all of that bitcoin at the same time (again, unlikely).
Alternatively, and more likely, creditors will opt for some combination of the above. Some will choose the later payment option; some will want a cash-only payout; some will accept the mixed payout.
And once people do finally get their bitcoin, there is no reason to assume that everyone will dump all of it anytime soon.
One confirmed creditor told CoinDesk they will hold “whatever they get from the rehabilitation plan.” This particular creditor has watched bitcoin grow from what it was in 2014 to a global store of value with potential as a reserve asset. In 2014 bitcoin was worth less than $1,000. Bitcoin in 2014 and bitcoin in 2022 are hardly the same thing. Anecdotally, we’ve seen this sentiment echoed by other creditors we’ve contacted and by many participants in the MtGox Insolvency Discussion Subreddit.
“I hope I get the cash part of the settlement while the price is still low so I can buy more bitcoin,” another creditor told CoinDesk.
Perhaps more importantly, we know that private equity giant Fortress bought up some Mt. Gox creditor claims and so have other investment firms. If these firms opt for a payout in native currency (of course they could opt for a cash payout), then the eventual sale of that bitcoin would likely happen over the counter, meaning it wouldn’t show up in exchange volume numbers that spook traders.
On top of all this, and this is the most important bit, we have no idea when these payments will happen. It’s even unlikely they will all happen at the same time, given the creditors themselves have already been broken up into four distinct categories based on the timing of their initial claims and other qualifications.
Sure, if all creditors immediately sell their coins there could be some unusually high selling of bitcoin that has been tucked away for years. The reality is that many are unlikely to do that considering the constitution of long-term bitcoin investors. Research from Coinbase suggests that long-term bitcoin investors have preserved their holdings in recent weeks as speculators flee the market. In short, honey badger don’t care.
All said, we don’t know exactly what will happen. While the worst-case scenario isn’t that bad, it probably won’t happen. All in all, any claims that Mt. Gox rehabilitation payouts will spell doom for the market are premature.