Should Bitcoin Investors Be Worried About Imminent Mt. Gox Payouts?

Mt. Gox Rehabilitation Plan Causes Fear of Bitcoin Price Crash

On November 16, the Tokyo District Court issued a “Notice of Confirmation Order of Rehabilitation Plan becoming Final and Binding.” As the notice’s name suggests, this means that Mt. Gox’s “Rehabilitation Trustee,” Nobuaki Kobayashi, is now legally obliged to distribute the trust’s assets to former customers of the defunct exchange.

As the official document reads, “The Rehabilitation Trustee will then make repayments to rehabilitation creditors holding allowed rehabilitation claims in accordance with the Rehabilitation Plan. An announcement will be made to rehabilitation creditors on the details of the specific timing, procedures, and amount of such repayments.”

To clarify, the trustee holds precisely 141,686 BTC and (and also 142,846 bitcoin cash), as well as fiat worth 68 billion Japanese yen. At current prices, this tranche of bitcoin is worth roughly $8 billion. Assuming it were all redistributed and then quickly sold, this would have a big impact on bitcoin’s price, given that 141,686 BTC is approx. 31.6% of Coinbase’s current daily volume for bitcoin trading.

Selling such an amount of bitcoin is arguably enough to move the market in a big way, in that it could cause a chain reaction of sales, with one big offloading causing a sizable dip that causes even more selling, and so on. As such, traders seem to be spooked already, given that the price of bitcoin has fallen by over 10% since November 16, when news of the rehabilitation plan’s confirmation emerged.

Source: CoinGecko

Pessimists among the cryptocurrency community have unsurprisingly begun fearing the worst. Some have even prophesied that the price of BTC could tank by as much as 90%.

Source: Twitter

Even more bullish Crypto Twitter people have acknowledged that the Mt. Gox rehabilitation payments have unnerved the market, even if they would very likely not agree that bitcoin’s price will fall by over half as a result.

Source: Twitter

In order to put this into some perspective, it’s worth looking at previous examples of large amounts of BTC being dumped on the market. In March, data revealed that a whale deposited 18,000 BTC with the US-based Gemini exchange, preceding a 10% fall in bitcoin’s price across the very same day. Likewise, a 28,000 BTC deposit on February 21 was followed by a 20% drop in the price of bitcoin over the next two days.

These are modest amounts in comparison to the 141,686 BTC awaiting former Mt. Gox customers. It therefore stands to reason, at least on the face of things, that the market could witness a really big fall once the bitcoin is redistributed, which some are expecting to happen as soon as either Q1 or Q2 of next year.

Not As Bad As Some Fear

A big ‘BUT’ is needed, however, beginning with the claim that payouts will indeed begin in either the first or second quarter of 2022. This claim appears to have only one source: Matthew Dibbs, the COO at Singapore-based crypto asset manager Stack Fund, who spoke to Reuters on November 16 and said the following:

“Those affected will receive a large sum of bitcoin, likely happening in Q1 or Q2 of 2022. This has brought some fear into the market on a longer term horizon.”

However, Dibbs provided no source of his own for this claim or estimation, and there doesn’t appear to be one. And as you may remember from the Tokyo District Court’s notice, an announcement on the “specific timing, procedures, and amount” of payments is yet to be made.

Indeed, Mt. Gox creditors are still waiting for news on when they’re likely to receive payments. And in fact, many of those participating in the @mtgoxcreditors Telegram group expect rehabilitation sums to be paid in two instalments, beginning from late 2022. Again, this isn’t confirmed, but it at least suggests that we certainly shouldn’t jump to the worst conclusions.

Source: t.me/mtgoxcreditors

As the Telegram post above highlights, former customers will be paid in Japanese yen as well as bitcoin. In fact, analysis by cryptocurrency security firm WizSec indicates that “the first 200,000 JPY of [a customer’s] combined claim will be paid out in full as JPY.” In other words, if you lost roughly $1,783 or less through Mt. Gox, you will receive only Japanese yen.

Basically, this hints at the possibility that not all 141,686 BTC will need to be paid out. That said, there are around 860,000 BTC/BCH and 8.8B JPY in determined claims, although “determined” here means the trustee has decided whether to approve or reject a claim, with it not yet clear how many claims have been approved.

Regardless, the point remains that we still don’t know how much bitcoin will actually be paid out by the trustee. This is important, because combined with the fact that rehabilitation payments will be paid in two stages (likely beginning from late 2022), it suggests that the impact on the bitcoin market may not be as drastic as some fear.

And looking at the bigger picture, even if 141,686 BTC is dumped on the market in a short space of time, this doesn’t change the fact that Bitcoin has a hard supply cap and the securest blockchain network in crypto. As such, if you believe in Bitcoin now, Mt. Gox rehabilitation payments should do little to change this.