There was a time when crypto was just one cryptocurrency, going by the name of Bitcoin. Around this time, a former Magic: The Gathering Online exchange, which had quickly been forgotten, was renovated as a Bitcoin exchange that went by the name of ‘Mt. Gox’.
Some months later and after a leadership change, Mt. Gox was handling over 20,000 transactions per day, at a time where Bitcoin was trading at $. Albeit some minor hacking events, the exchange continued to grow in value at an impressive rate. At one point, Mt.Gox was the world’s largest crypto exchange, processing 70-80% of all Bitcoin trading volume. In comparison, Binance, which is currently the world’s largest exchange, handles only about 7% of all Bitcoin trading volume.
For more context, at this time, the only cryptocurrencies in existence, besides Bitcoin, were Litecoin and Namecoin, so a huge percentage of the crypto space’s transactions happened in Mt. Gox.
However, things took a turn for the worse in June 2011.
On June the 13th, Mt. Gox reported some 25,000 BTC (US$400,000 at the time) robbed from 478 accounts.
The theft continued throughout the day, dropping Bitcoin’s value from $17 to $0.01.
Remember this event as it will come back to haunt us later in the story.
All Good Things Come To An End
Over the following years, Mt Gox had plenty of issues concerning halted withdrawals, suspended trading… you name it (some of these sound all too familiar recently). However, on February 14th, 2014, the unprecedented occurred. 850,000 Bitcoin, with an estimated value at today’s valuation of $17,283,050,000 which, for the lazy readers who don’t want to count, is about $18 billion worth, was stolen. This amount accounts for 4% of the total supply of Bitcoin, today.
If that number hasn’t “cartoon-style” dropped your jaw to the floor, let me borrow a great quote from our favorite ‘Barbie Ken’, Ryan Gosling, acting as Jared Vennett in the film The Big Short, with some slight modifications for the sake of the article:
If the suspended tradings were the match, then the halted withdrawals were the kerosene-soaked rags, then the stolen Bitcoin event was the atomic bomb with a drunk President holding his finger over the button
And, unsurprisingly, did my boy Mt. Gox nuke. After weeks of unnerving silence, on the 24th of February, an internal document was leaked confirming the actual loss of the 850,000 Bitcoins. Days later, Mt. Gox officially filed for bankruptcy.
According to sources, doubling down on the 2011 hack, not only they stole the 25,000 Bitcoin, but they also stole the private key, enabling that second Bitcoin theft of 2014.
Then… There Was Light… Or Not
A month later, Mt Gox. released a statement that announced they had managed to recover 200,000 Bitcoin, of which around 137,000 were to be handed back to original owners in the close future… a “close future” that it’s actually, well, now.
In November 2021, the Tokyo District Court handling the case announced the intentions to repay through what they described as the “Rehabilitation Plan”. Consequently, on the 6th of July creditors of those Bitcoin received notice that:
“The Rehabilitation Trustee is currently preparing to make repayments (“Repayments”) in accordance with the approved rehabilitation plan of which confirmation order of the Tokyo District Court (the “Court”) was made final and binding on November 16, 2021 (“the Rehabilitation Plan”).”
Which in plain English means:
137,890 lost Bitcoin, with a combined value of over $3 billion, are about to be given back to the original owners, which means a lot of them, and it will be a lot, are going to sell, potentially creating the highest selling pressure for Bitcoin we have ever seen.
So, What Is Really Going To Happen?
First and foremost, having justice enforced is always good news to society, as owners of an asset can finally, after an 8-year-long stroll across the desert, receive what is rightfully theirs. If you are one of the lucky people, congrats to you!
On the other hand, for the rest of the Bitcoin owners (like myself), and besides the overall positive sentiment of the ending to the Mt. Gox drama, there is absolutely nothing positive about this retrieval, for many reasons:
* As the own Satoshi Nakamoto, creator of Bitcoin, once said, “lost Bitcoin is a donation”, firstly because it will probably never be sold, and secondly, because it reduces the available supply of Bitcoin and, therefore, increase the value of the existing Bitcoins due to its scarcity, as Bitcoin has a limited supply of 21 million Bitcoins (19 million are in existence as of now, of which 4 million are supposedly lost according to forensic estimates). Similarly to each gold mine discovery, any discovery of this sort increases supply, and, thus, increases the likelihood of a potential decrease in value.
* Many of the creditors bought at prices as low as $1000, some of them far lower, so all of them will have made enormous returns with that recovered Bitcoin. The temptation to sell will be huge.
Looking at these reasons, you’ll maybe be tempted to think that we are in for Bitcoin’s doomsday. Despite this, there are also plenty of reasons to think that will not be the case:
* The repayment of the coins is suspected to be progressively done, over a three-month period from August to October. More than a one-day implosion, the selling pressure could last for more time but with a more gradual decline.
* The creditors are all long-time owners that understood the power and potential of Bitcoin long before any of us did. Consequently, chances are they still understand its potential and will continue to hold at least some part of the coins received.
* Liquidations and panic sellers aside, everybody understands it is not a good time to sell your coins as we clearly are on a bear market, and the historical trend for Bitcoin is always positive. Many of the creditors will see it this way and hold for a little while longer.
* Considering all the recent liquidity issues across the space, especially in CeFi protocols, many of these creditors will be extremely wary of depositing their coins in exchanges, as liquidity problems always evolve into halted withdrawals (these people already suffered this with Mt. Gox, so they know the pain); having your coins on exchanges is trusting them with your coins, which chances are is not the best strategy as of right now.
The Truth Is… No One Knows
On top of all this, and this is the most important bit, we have no idea when these payments will happen. It’s even unlikely they will all happen at the same time, given the creditors themselves have already been broken up into four distinct categories based on the timing of their initial claims and other qualifications.
Sure, if all creditors immediately sell their coins there could be some unusually high selling of bitcoin that has been tucked away for years. The reality is that many are unlikely to do that considering the constitution of long-term bitcoin investors. Research from Coinbase suggests that long-term bitcoin investors have preserved their holdings in recent weeks as speculators flee the market. In short, honey badger don’t care.
All said, we don’t know exactly what will happen. While the worst-case scenario isn’t that bad, it probably won’t happen. All in all, any claims that Mt. Gox rehabilitation payouts will spell doom for the market are premature.
Let me repeat that:
No one knows what is going to happen.
If someone claims that they know, they are full of sh**. It’s impossible to get in the mind of who-knows-how-many creditors that are about to receive huge amounts of Bitcoin; probably even themselves aren’t sure what they will do when the moment comes.
My only recommendation is the one I always give, you shouldn’t be trading in crypto unless you really know what you’re doing. If that’s not the case, please don’t trade, make a thorough research, and invest for the long term in cryptocurrencies you truly believe will exist 10 years from now.
In the event you decide to invest, please do so considering that the money you are about to invest could potentially go to zero at any time, so it has to be money you are willing to lose.
Consider having a proper risk management strategy and don’t be scared of taking profits; events like the Terra/Luna collapse rest my case with regards to that argument.