Do Mt. Gox's Large Sales of BTC Really Deserve all the Panic?

After a trustee sold $230M in Bitcoin from the Mt. Gox wallets, the markets got into a bit of a flurry, but does this reaction really fit?

It seems that every time there’s a massive sell-off of Bitcoin, the price of the cryptocurrency goes down further than expected. Take, for example, the latest sale of BTC from a Mt. Gox wallet by a trustee.

Almost like clockwork, after the trustee sold $230 million in Bitcoin, the coin shed almost $3 billion from its market capitalization and brushed off roughly $250 from its price with 4% fall in a 24-hour period. Trading volumes were stable through that period with no major anomalies, suggesting that traders may have just switched to selling what they had to hedge against losses.

That loss of market cap was more than ten times the worth of the BTC actually sold by the trustee, indicating that there was a slight, albeit significant market panic. It’s hard to tell whether this was an organic flight from the asset or the sheer number of poorly-configured trading bots from get-rich-quick amateur day traders just decided to bail upon seeing such a price movement.

Throughout that 24-hour period, the price drop rippled through all exchanges, with most of them uniformly agreeing on the price with deviations of no more than $60 as they usually do, further indicating—though not solidly—that automated trading may have caused the bail.

Looking to the past for answers

Let’s look back at another Mt. Gox sale. On May 12, we saw 8,000 BTC pour out of four of Mt. Gox’s old wallets, valued at roughly $74 million.

In the period immediately after that, Bitcoin’s market capitalization lost a whopping $16 billion from its market share.

Only half a month earlier, the mere transfer of 16,000 Bitcoin in some of Mt. Gox’s cold wallets sparked another disproportionately high disappearance of $15 billion from the coin’s market capitalization.

Shortly after the “bank run,” the coin began a slight recovery.

Proof in the FUDding

Less than two weeks ago, we covered a Telegraph interview with Kim Nilsson, a former trader at the massive exchange now being liquidated, where he asserts that its payouts could “completely crash the market.”

Though veterans may consider this as sensational, it has the potential to ring alarm bells for amateur traders and speculators that aren’t yet accustomed to news like this. In our coverage of the Nilsson interview, we went through every reason why Bitcoin is more resilient than he gives it credit for.

During Mt. Gox’s public rehabilitation process, it is expected to hand over more than a hundred thousand BTC to former customers of the exchange. If we were to include all 160,000 BTC that remain in the exchange’s wallets, that amounts to a hair over $1 billion.

It sounds like a lot, but let’s remember that Bitcoin’s market cap is at least 100 times that much and its current level of circulation (17,289,350 at press time) reflects this as well. So, even if everyone who ever touched one of these coins would sell all of them today, Bitcoin would lose less than 1% of its total supply and market capitalization.

The only things that could make Bitcoin lose market capitalization at such a disproportionately high rate are overly-sensitive trading bots and a public that is excessively sensitive to good old fear, uncertainty, and doubt (FUD) spread by sensationalist headlines proclaiming that “this time”, Bitcoin is done for.

The moral of the story? Be resilient, and Bitcoin, too, shall be resilient.