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Mt. Gox Fallout: Examining the Impact on Bitcoin and Altcoin Markets

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On Monday, the price of Bitcoin briefly dropped to nearly $59,000. Since then, it has gone back above $61K and, as of writing, is trading around $61,125. With that, BTC's price is now down over 17% from its all-time high (ATH) of nearly $73,740, which it hit in mid-March. 

This recent retreat from $70K has formed a double-top bearish reversal pattern. However, this time around, both spot and futures volumes on centralized exchanges (CEXs) have been significantly lower than record highs seen in March, which can be considered decreased investor participation. 

This conviction in selling may represent a “bear trap” for the world's largest cryptocurrency, with a market cap of $1.2 trillion, which has been struggling these past few months. BTC's drop sent altcoin prices tumbling, and total crypto market capitalization is now at $2.36 trillion, down from $2.785 trillion in early June and $2.89 trillion in March this year.

The latest weakened price action also has the Crypto Fear and Greed Index falling under the ‘fear' category with a reading of 30 on a scale of 1-100, its lowest score since Sept. 2023. Just last week, the market was experiencing ‘greed' with a reading of 74, and yesterday, it showed neutral sentiments. 

This change in sentiments came as negative price action was exacerbated by the liquidations in the past 24 hours, which increased 69.74% to $296.97 million. During that time, 65,805 traders were liquidated, as per Coinglass. The largest single liquidation order happened on Binance for BTCUSDT, valued at $15.36mln.

The total open interest (OI) in the market also dropped by almost 2% to $61.48 bln. OI is the total number of open derivative contracts. Increasing OI indicates additional money coming into the market, while decreasing OI represents money flowing out of the market.

When it comes to Bitcoin OI, which is 533.8K BTC (worth $32.46bln), CME is in the lead with 153.35K BTC ($9.31bln), dropping by 5.65% in the past 24 hours. During this time, Binance, which is in 2nd place, saw the biggest decline in its OI by over 8% to 115.90K ($7.05bln).

Interestingly, among the top 100 coins, Bitcoin saw the biggest drawdown in the past 24 hours at about 3% as well as in the 7-day by 7.3%. 

This is because altcoins have already been bleeding for many days. For instance, WIF's price is down over 62% from its ATH three months ago, BODEN 87%, TAO 64%, BONK 52%, POPCAT 45%, RNDR 44%, and PEPE 32.5% from their respective peaks this year. 

But this is not all. The latest price action has been particularly brutal for BTC because of the coin-related news. On Monday, Mt. Gox announced that it will begin distributing the recovered assets in the first week of July, so next week. The recovered BTC and BCH will be sent to designated exchanges after a lengthy wait by creditors. 

Mt. Gox BTC Repayments Finally Coming to the Market

Mt. Gox

Founded in 2010, Mt. Gox was once the world's leading crypto exchange, handling more than 70% of all BTC transactions. The now-defunct Bitcoin exchange was hacked multiple times between 2011 and 2014, during which about 840,000 BTC, which were worth $64mln at the time, were stolen. Then, in February 2014, Mt Gox ceased all operations, halting all trading activities and taking its website offline.

Out of those, 141,687 BTC were recovered, which are now to be returned to creditors. For several years, trustees have been putting together a payment plan with deadlines that are always being postponed. But, a decade later, it is finally happening. 

Last year, a Tokyo court set Oct. 2024 as the deadline. Then, last month, for the first time in five years, Mt. Gox moved over 140,000 BTC worth $9 bln from cold wallets to an unknown address. This week, trustee Nobuaki Kobayashi said:

The repayments will be made from the beginning of July 2024.”

As per the statement posted on the Mt. Gox website, under the Rehabilitation Plan, repayment will be made in Bitcoin (BTC) and Bitcoin Cash (BCH). Trustee Kobayashi further said that they are making considerable efforts, including due diligence, to ensure safety and compliance “with financial regulations in each country.” 

Given that payment will be made in the crypto, the market is concerned about the upcoming selling pressure. While not everyone would sell their coins, many may finally decide to sell and realize profits, given that BTC has hit a new ATH this year. 

At the time BTC was stolen, it was worth around $70. Since then, its value has increased 1,000x, making it likely that some creditors will sell at least a part of their holding. Hence, the price is drawing down in anticipation of the coming sell-off.

“That's like over half of all the ETF inflows being negated in one shot.”

– Balchunas, Senior ETF analyst at Bloomberg Intelligence

However, not everyone shares this belief. Some argue that the repayments to creditors next month might not disrupt prices as much as anticipated.

According to IG Markets analyst Tony Sycamore, an estimated half of the total BTC can hit the market next month. However, he told Cointelegraph that there are just too many historical factors to make any solid prediction about repayments' impact. Sycamore believes most of the supposed Mt. Gox sell pressure is already priced in, given that “repayments have been coming for a long time.”

He further noted that the Mt. Gox repayment is currently happening against the backdrop of technical selling, deteriorating market sentiment, and outflows from ETFs. According to him, the speculative “hot money” in crypto has already left for “greener pastures” in stocks like Nvidia and Apple.

At the beginning of this year, the chipmaker Nvidia was trading around $48, only to rally as much as 191.6% over the past six months to surpass $140 on June 20. This helped it briefly become the most valuable public company in the world as its market cap lifted to $3.34 trillion, surpassing Microsoft and Apple.

However, since then, the price has fallen 15.7% to now trade around $118. On the back of generative artificial intelligence (AI) popularity, Nvidia stock has multiplied by more than ninefold since the end of 2022, thanks to the company having 80% of the market for AI chips used in data centers.

Is it Really that Bad?

Bitcoin Price

With multi-billion dollars to be released to the creditors and potentially into the market, it's only natural the market is fearing what could be ahead for the Bitcoin price. However, much like IG Markets' Sycamore, Alex Thorn of Galaxy Digital believes only about 65,000 of the total Bitcoin will actually hit the market, reducing much of the expected selling activity substantially. 

Thorn pointed out that about 75% of creditors have chosen to receive an ‘early payout, giving up 10% of their repayment in the process. This may result in about 95,000 BTC hitting the market initially. Additionally, only 65K BTC is owed to regular creditors, as 20K BTC is owed to claims funds, and about 10K BTC is owed to Bitcoinica BK.

Thorn had discussions with some of the claims funds, which suggests a majority of the partners in those funds are high net-worth bitcoiners who are not looking for a quick, profitable trade but rather building their stack.

Another reason for subdued selling is that Bitcoin holders are “HODLers.” Mt. Gox creditors should also be expected to be “diamond-handed,” said Thorn, explaining that the majority of these creditors are “long-term Bitcoiners” having resisted years of “compelling and aggressive offers” of payouts in USD, which suggests a preference for Bitcoin.

Then there's the matter of capital gains tax, as many claimholders have secured a 140x gain since the bankruptcy proceedings. Thorn actually expects the selling pressure on BCH to be “far worse” as many investors only received it in 2017 due to Bitcoin Cash being the hard fork of Bitcoin.

Alistair Milne of Altana Digital Currency Fund is of a similar view that potential sell pressure could, in fact, be overblown. “Mt Gox creditors in need of funds (i.e., weak hands) have had ~10 years to sell their claims,” posted Milne on X. “There are no distressed/urgent sellers left.”

Click here to learn why Bitcoin (BTC) will not dump due to Mt. Gox.

More Reasons for the Selling Pressure

Bitcoin and negative market sentiments

While Mt. Gox is the prominent reason driving the negative market sentiments, it is not the only one. There are more than a couple, actually. 

For starters, Bitcoin hit its new ATH just over three months ago, and a correction is to be expected. Not to mention, the fourth halving only took place in the second half of April, and historically, rallies don't really start until many months later. As crypto trader @CryptoParadyme noted on X, “It took ~150 days from the last halving to start marking up.”

The halving slashed Bitcoin miners' profit in half, from 6.25 BTC to 3.125 BTC per mined block. In addition to the falling transaction fees, this has also pushed miners to sell their BTC to stay afloat.

According to IntoTheBlock, miners have sold over 30,000 BTC ($2bln) this month. This represents the heaviest sales in over a year, which could be attributed to miners adjusting to “tighter margins” after the halving.

QCP Capital said the following while noting that their Bitcoin balance has fallen to the lowest level in 14 years:

“Miners have been under tremendous pressure to sell given higher breakeven prices post-halving.”

The total reserves, meanwhile, have dropped by 50K from the beginning of this year.

Then there's the current season to blame. Summer typically tends to be boring for trading with liquidity all dried up and price ranging. So, a subdued price action is to be expected

Recently, a big event was also witnessed: the German government transferred a significant amount of BTC to exchanges for selling. This new flow of supply is spooking the market. 

The German Federal Criminal Police Office (BKA) seized about 50K BTC from the piracy site Movie2k.to back in 2013. A couple of weeks ago, they moved 1,700 BTC worth tens of millions to major crypto exchanges such as Kraken, Coinbase, and Bitstamp. Blockchain analytics firm Arkham has noted that the authorities have moved around even larger sums between multiple wallets. 

The government has allegedly already sold 3K BTC, but there's a lot more supply, which is worth $3 billion, left to be sold, hence remaining a major concern for the market.

With its BTC stash, Germany holds the position of the fourth top Bitcoin holder globally after the US with 213,246 BTC (worth over $13.7bln), China at 194,000 BTC ($12.2bln), and the UK with 61,000 BTC ($4bln). 

Another great cause for concern has been the lack of inflows by Spot Bitcoin ETFs, which were behind BTC's run-up to new highs earlier this year. On Monday, these products saw an outflow of $174 million, which comes after almost $1 billion in outflows last week.

As per Coinglass, the ETF market has seen net outflows for seven consecutive days. The net outflow from US spot Bitcoin ETFs points to a significant shift in investor sentiment regarding the crypto king, which James Butterfill of digital asset manager CoinShares said highlights a “true correction is underway” as this trend extends beyond a week.

The launch of spot Bitcoin ETFs, meanwhile, has improved BTC liquidity, although the gap between weekend and weekday trade volumes continues to widen, according to Kaiko's research. The share of weekend Bitcoin trade volume has fallen to an all-time low of 16% in 2024 from 20% last year and 28% in 2019, noted Kaiko. 

What's Good Though?

Amidst all this selling, some accumulation is also happening, with Michael Saylor's MicroStrategy purchasing an additional 11,931 BTC through proceeds from its $800mln convertible notes. As a result, MicroStrategy now holds 226,331 BTC purchased at the cost of $8.33 billion.

Another positive piece of news came from Nomura, which, along with its digital asset subsidiary Laser Digital, surveyed 547 Japanese investment managers in April. The survey found that more than half (54%) of respondents plan to invest in crypto in the next three years. 

It further showed that institutional investors, including family offices and public-service corporations, had a positive impression of crypto, with 62% of managers seeing it as a diversification opportunity. The survey, however, noted high volatility, counterparty risk, and regulatory requirements as barriers to entry preventing some managers from investing in crypto.

Still, the investors surveyed could allocate between 2% and 5% of their AUM into crypto, with almost 80% planning to invest over a year amidst increasing concerns surrounding the yen's exchange-rate volatility and Japan's debt load.

Recently, Tokyo-listed Metaplanet adopted BTC as a reserve asset to hedge against these problems and said on Monday that it would buy another $6.2 million worth of BTC.

Amidst the ongoing negative price action and market sentiments, AllianceBernstein provided a dose of ‘hopium,' as it said that the global investment firm “remains convinced” Bitcoin will hit $500,000 by 2029 and $1 million per token by late 2033. As for now, they see BTC at the early phase of a bull cycle, which can send its prices to $200K by mid-2025. 

These huge numbers, per Bernstein's prediction, will be caused by spot Bitcoin ETFs being on the verge of a major wave of further adoption by traditional finance (TradFi) giants, including major wirehouses and large private bank platforms, which can come within months.

According to Bernstein analysts Gautam Chhugani and Mahika Sapra:

“The institutional basis trade looks like the ‘trojan horse' for adoption, and these investors are in the process of evaluating ‘net long' positions as they get comfortable with the improving ETF liquidity.”

Overall, significant pressure is on Bitcoin's price, which is likely to keep the leading asset depressed and cause short-term volatility to rise. However, strong support on the 200-day moving average and rate cuts by global central banks may help the prices gain traction in the coming months. 

Click here to learn all about investing in Bitcoin.

Gaurav started trading cryptocurrencies in 2017 and has fallen in love with the crypto space ever since. His interest in everything crypto turned him into a writer specializing in cryptocurrencies and blockchain. Soon he found himself working with crypto companies and media outlets. He is also a big-time Batman fan.