Creditors have been trapped in Mt. Gox bankruptcy case for over 10 years — finally trustee says physical distribution of BTC, BCH will begin in July.
We believe the number of tokens distributed will be smaller than people think, and it will cause less selling pressure on Bitcoin than the market expects. Here are the reasons:
The data in this article is based on reviewing bankruptcy filings, conversations with creditors, and various assumptions. Please note that these are estimates and are intended to provide directionality rather than certainty. This is not investment advice, please do your own research.
Details of Mt.Gox compensation BTC distribution: How many BTC will be sold?
On May 13, I sent a notification to Galaxy customers and counterparties detailing some of the numbers, which are summarized in the graphic below.
Mt. Gox lost about 940,000 BTC ($424 million at the time) and recovered 15% (141,868 BTC, or about $63.9 million at the time) , now worth $9 billion. Although only 15% was recovered, it was a 140x gain for creditors in U.S. dollars.
In order to get paid now (early payout), creditors accepted a haircut of about 10%. We believe that about 75% of BTC creditors chose this option, with about 95,000 Bitcoins used for early payout.
Of these, about 20,000 bitcoins went to the claims fund, about 10,000 bitcoins went to Bitcoinica BK, and the remaining about 65,000 bitcoins went to individual creditors. 65,000 BTC/BCH is far less than the 141,868 bitcoins regularly published by the media.
But there are reasons to believe that individual creditors will be more inclined to hold Bitcoin than the market expects :
1. Creditors are clearly long-term Bitcoin holders. They are tech-savvy early adopters.
2. For years, individual creditors have resisted compelling and aggressive offers from the claims fund, indicating that they want their Bitcoin back rather than dollar-denominated compensation.
3. The impact of the sale on capital gains will be huge. As prices rise, despite only 15% physical recovery, the amount of Bitcoin (in US dollars) recovered by creditors has increased 140 times since the bankruptcy.
That is, even if only 10% of the 65,000 bitcoins are sold, 6,500 BTC are dumped on the market and are likely to be sold on the market. Creditors will receive bitcoins in accounts at Kraken, Bitstamp or Bitgo, and most individuals will deposit them directly into Kraken or Bitstamp trading accounts.
Some thoughts on claim funds. My understanding from talking to some of them is that the vast majority of LPs in these funds are high net worth Bitcoin holders seeking discounted BTC, not credit funds doing arbitrage trading. While some LPs will certainly sell, I don’t think these funds are primarily made up of traders seeking arbitrage.
BCH selling pressure will be much greater than BTC
Judging from the Mt. Gox allocation, BCH may perform much worse than BTC.
1. No creditors originally purchased BCH. The recovered BCH originated from the fork of Mt.Gox using its BTC key Claim, which occurred several years after Mt.Gox went bankrupt.
2. BCH liquidity is very low. The liquidity of $400,000 on the order book is within 1% of the market price.
3. Liquidity is much thinner (obviously) if we only look at Kraken and Bitstamp, where individual creditors will receive tokens. BTC is 60x more liquid than BCH on these exchanges.
Therefore, I believe the amount of currency distributed was lower than the market expected (see all types of headlines).
And I think that once these crypto tokens are distributed, BCH will perform worse than BTC - a large portion will be sold by creditors into less liquid markets.
