Mt. Gox BTC Sales Could "Crash the Market," Says Former Trader

A person who used to trade BTC at Mt. Gox had some ominous words to share about its claims process.

A stash of Bitcoin that Mt. Gox currently has in its possession is now being made available to the greater public through a civil rehabilitation claiming process. Over $1 billion in Bitcoin is on the table, available for any of the victims of the hacking incident that lost the company more than $460 million in 2014.

According to a Telegraph interview with Kim Nilsson, a trader at the exchange who spent years attempting to get his coins back, a payout of this magnitude could “completely crash the market.” Currently, the number of coins stands at 160,000.                   

This isn’t an entirely far-fetched scenario, as we’ve seen Bitcoin’s price take a hit every time Mt. Gox privately paid out its creditors. These slumps in value have made the coin appear vulnerable to speculators, creating a sort of snowball effect that caused subsequent sell-offs.

A little FUD in the mix?

To see the effects of a civil rehabilitation of Mt. Gox’s BTC assets, we can look back at the market fluctuations that occurred on the days that the exchange was unloading funds to creditors.                                                                     

In May this year, the derelict exchange moved a massive 8,000 BTC (today worth about $50 million) from one of its cold storage wallets. Just after that, Bitcoin shed $15 billion from its market capitalization.

Though it is tempting to attribute all of Bitcoin’s drops to something, it’s not very clear just how much this sell-off influenced markets.

First of all, $15 billion is 30 times larger than the sum that Mt. Gox moved. There may have been some knee-jerk trading going on at that hour, but the market started a firm recovery at around 2 PM GMT on May 14, only two days after the sell-off.

This time, however, we’re dealing with a sum of 160,000 Bitcoin, which is just under 1% of the entire coin’s circulation. When a gargantuan sum like this moves around, it doesn’t take a zealous trading bot to notice the subtlety.

Still, we cannot ignore the facts:

  • Bitcoin has survived worse (namely, the Mt. Gox attack itself) in the past and has somehow maintained a somewhat healthy value through storms like these;
  • Rehabilitation for the public isn’t the same thing as rehabilitation for creditors. For the latter, one would expect the Bitcoin to be exchanged for fiat. In the former, that expectation weakens a bit as we can’t anticipate everyone just selling everything they get out of the payout.
  • Nobuaki Kobayashi, the individual responsible for the civil rehabilitation proceedings, may be anticipating possible mass sell-off activity. Should he work with that assumption, he probably would process claims made by the public in a staggered form.

Regarding that last point, we must make it clear that nothing in Mt. Gox’s civil rehabilitation announcement submitted on June 22, 2018 suggests that market stability will be accounted for, but even if Kobayashi doesn’t care about the market, many recipients will care about getting the best bang for their buck.

Given this information—some of which, admittedly, is based partially on a couple of assumptions—we can surmise that anyone wishing to sell the Bitcoin they receive would prefer to do so when the market is healthy. Since “health” is ultimately a subjective opinion when it comes to financial markets, we don’t believe that everyone would sell their BTC at the same time.

And even if they did, it’s 1% of the circulation. It would, in all likelihood, not lead to a “fire and brimstone” scenario.