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Mt. Gox Creditors Registration Deadline Nears as $1BN of Silk Road Bitcoin (BTC) Moves
Published3 months ago
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A Bitcoin stash associated with the Silk Road online black market – shut down by US federal authorities in Oct 2013 – has recently been moved, prompting debates around it. Investigation into the infamous market platform in 2013 found that it was an avenue for crime, including money laundering activities and drug sales with payments made in Bitcoin. Prosecutors drew from these the charges laid on the founder Ross Ulbricht.
Last November, after more than nine years, the US Justice Department announced that one James Zhong had pleaded guilty to stealing more than 50,000 bitcoins from the marketplace. Zhong, charged with wire fraud, forfeited to the department the crypto cache constituting 51,351.9 BTC in the form of proceeds from criminal activity. This sum was held on two separate wallet addresses, according to blockchain analytics platform PeckShield which tracked the latest series of events earlier today.
Another batch of Silk Road Bitcoin enters into circulation
The coins transferred this week, which totaled slightly under 50,000 BTC, were part of the hoard that US law enforcement agencies took possession of in relation to the legendary marketplace. The on-chain security firm noted that three outbound transactions were made, one involving a fraction of the 9,861 BTC sent to Coinbase. Bitcoin mempool and blockchain explorer tool similarly observed that as many as 40,000 BTC was on the move. Crypto market intelligence platform, Glassnode also noted an anomaly in Bitcoin activity by US government-linked addresses, reporting a movement of around 18,860 coins which reduced the wallet balance to 125,600 BTC at the time.
US law enforcement agencies have in the past auctioned assets, including crypto seized from the dark web marketplace and others. In Oct 2015, for instance, the US Marshals Service dumped auctioned 21 blocks of 2,000 BTC and another block of 2,341, adding to nearly 30,000 BT sold a year prior. The latest transfer reported early Wednesday bred various rumors and theories as the crypto community attempted to explain the timing of the transfer and the possible impact on Bitcoin price if the remaining stash is sent to exchanges.
Bitcoin teeters around $22K, Wednesday dip triggered by latest remarks on Federal Reserve action
The Coinbase dump barely impacted the flagship crypto's price, which has been on a mild descent path this week. Still, Bitcoin was spotted struggling to hold at $22,000 at press, down roughly 6% since the start of the week. Creeping negative market sentiment, coming on the back of an impressive run in Jan and early Feb, could likely send the leading asset lower toward support above the mid-$21,000 mark.
This slight midweek pullback follows a Mar 7 statement by Fed Chair Jerome Powell, who warned that the Open Markets committee could hike interest rates beyond initial estimates as part of efforts to tame inflation.
Centralized exchanges' Bitcoin balances are on a five-year low
Despite the testing market conditions, Bitcoin HODLers have strengthened their resolve after experiencing a harsh market downturn in the previous year. This group of holders has remained committed, showing limited selling and increased their exposure to the asset amid teasing recovery from previously depressed prices. Recent data from Glassnode show that Bitcoin supply held by crypto exchanges is hovering around its lowest point in the last five years.
Evidence that Bitcoin owners are holding steadfast to their tokens, the analytics platform explained that on-chain activity shows the BTC balances of major exchanges remain in a “down only” state. As of the end of February, exchanges tracked by the platform had a combined balance of 2,272,798 BTC, low levels that haven't been touched since March 2018 and nearly 30% lower than the highs of March 2020. The decline to record levels has been progressive since the COVID-19 pandemic, with the deterioration in numbers peaking during the 2022 bear market. In line with exchange balances, the introduction of Mt. Gox Bitcoin supply into circulation has called forth different views from market commentators.
Mt. Gox Bitcoin won't flood the markets, UBS
The liquidation of crypto exchange Mt Gox which filed for bankruptcy in 2014, has advanced, and some creditors are due to receive payments after nearly a decade's wait. From the 850,000 Bitcoin stolen at the time, about 20% has been recovered – 142,000 Bitcoin, 143,000 in Bitcoin Cash (BCH), and 69 billion Japanese Yen (about $510 million). Creditors who choose the early lump sum option can decide whether to receive their payout in BTC, BCH, or the entire amount in fiat.
Given the scale of Bitcoin in play, traders and investors alike have reasonably been worried about the potential impact (selling pressure) of these tokens if they are released into the market. In addition, strategists Ivan Kachkovski and James Malcom of investment banking company UBS noted in a recent report that Mt. Gox's option for early lump-sum fiat repayments indicates it may need to sell some of its Bitcoin holdings to raise the necessary cash.
Early adopters are likely among the crypto faithful
It has long been a concern that Mt. Gox redemptions could negatively affect the price of Bitcoin. However, UBS quelled concerns that the Bitcoin released as payments to the creditors would cause a sudden flood in liquidity in the market. While the potential for the repayments affecting Bitcoin prices is still feasible, the bank said that the actual amount of Bitcoin sold on the market is expected to be significantly lower, given that many initial adopters likely still have faith in this space.
Moreover, as per recent reports, two of the biggest creditors in defunct New Zealand-based crypto exchange, Bitcoinica, and MtGox Investment Funds, have chosen to receive their payouts in crypto, getting the largest possible portion of their money in Bitcoin. This means that any new supply that does enter the market would be less concentrated, and the anticipation may have contributed to the recent unexpected strength of Bitcoin, according to the bank.
Bitcoin HODLers of 10+ years now hold 16% more Bitcoin than exchanges
William Clemente, the co-founder of Reflexivity, a Bitcoin-centric research company that recently collaborated with Glassnode, also recently pointed out that the current exchange balance declines imply that these centralized giants possess fewer Bitcoin holdings than the oldest HODLer wallets. Clemente noted that the measure of Bitcoin holdings that has remained untouched for at least a decade is now more than the amounts in exchanges' coffers. Glassnode data showed that 2,645,956 BTC has remained dormant for ten years or more, about 16% more Bitcoin than the total exchanges' balance.
Concerns that the Fed will take a more hawkish stance
Moreover, at least 28% of all Bitcoin has remained unmoved for the last five years, a new all-time high. The HODLers aside, interest from institutional investors is also on the up, a sign that there's an overall recovery, according to the head of new markets at crypto asset manager Hashdex Bruno Ramos de Sousa. In addition, CEO and co-founder of Web3 global bond-market platform Umee Brent Xu told CoinDesk that the gains hadn't been erased as forced sellers have already sold, indicating a possible bottom for this cycle and accumulation phase for the markets.
In the Fed 27 edition of the Digital Asset Fund Flows Weekly report, CoinShares noted that Bitcoin saw outflows totaling $12 million in the week leading to the report's release. In comparison, short Bitcoin experienced inflows of $10 million during this period. This negative sentiment was limited to the US, likely an indicator of the nervousness of US investors about the Federal Reserve adopting a more hawkish stance, triggered by the stronger-than-expected macro data releases and the market's sensitivity to recent heightened regulatory action.
Extended deadline for registration under Mt. Gox's first payments elapses this week
The creditors of the defunct crypto exchange have had to wait longer than initially communicated to receive their funds. In January, the platform's appointed trustee Nobuaki Kobayashi revealed that key deadlines for the compensation timeline had been moved. The update indicated that the deadline for creditor registration had been pushed back from Jan 10 to Mar 10 after the court granted permission.
The deadline for distribution of the first batch of payments was also moved to Sept 30 from the initial Jul 31 date. The trustee cited “various circumstances, such as the progress by rehabilitation creditors in respect of the Selection and Registration” as the reason(s) for the delay. Meanwhile, unconfirmed reports have suggested that the delay could be due to Kraken's announcement of exiting Japan earlier this year. It caters to those who had provided the exchange as their preferred way to receive payment to provide an alternative.
To learn more about Bitcoin, check out our Investing in Bitcoin guide.
Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.