How much will Mt. Gox compensation drive down BTC? Can the crypto market still experience a turnaround after the five lows and six extremes?

Author: Asher Zhang, BitPush

The road to compensation for Mt.Gox is particularly long and has recently sparked renewed discussion. So, what impact will this Mt.Gox compensation have on the crypto market? How low could the BTC price potentially drop? Can the crypto market stage a comeback after a poor performance in May and June? Why is it said that this might be the best time for Mt.Gox compensation?

The Long Road to Compensation, Mt.Gox Creditors Have Finally Seen the Light

In 2014, Mt.Gox, the world's largest exchange that accounted for 70% of Bitcoin trading volume, was reported to have suffered a hacker attack, and three days later, Mt.Gox filed for bankruptcy. Subsequently, Mt.Gox embarked on a long journey of bankruptcy compensation, entering a substantive phase during the last bull market.

According to BitPush, the already bankrupt Bitcoin exchange MT.Gox (nicknamed "MenTouGou") originally planned to submit a compensation plan for the trading platform on March 31, 2020, but this plan was postponed again to July 1, 2020. On October 20, 2021, the Mt.Gox compensation plan finally received approval from the vast majority of claim creditors.

According to official information, the compensation methods provided by Mt.Gox include basic compensation and proportional compensation. After the compensation plan was confirmed in 2021, Mt.Gox did not immediately initiate compensation. According to an announcement on the Mt.Gox official website, creditors must register and choose a repayment method by March 10, 2023, with the final deadline for the first batch of compensation being September 30, 2023. The latest compensation plan offered by Mt.Gox to creditors includes basic compensation and proportional compensation. The basic compensation part allows each creditor to claim the first 200,000 yen to be paid in yen, while the proportional compensation provides creditors with two flexible options: "early lump-sum repayment" or "mid-term and final repayments." Among them, the lump-sum repayment method only allows creditors to receive partial compensation (about 21% of the funds they had locked on the platform during the hack), and for amounts exceeding 200,000 yen, creditors can choose a mixed payment of BTC, BCH, and yen or pay the full amount in fiat currency. According to one creditor, the ratio is approximately 71% cryptocurrency and 29% cash. The "mid-term and final repayments" offer more repayment amounts than the previous method, but the mid-term payment will only be received by September 30, with the final payment to be made in the coming years.

Mt.Gox creditors, who have been passively locked up, have finally seen the light. According to Japanese bankruptcy law, the value of BTC claims for Mt.Gox will be calculated at the price when the company went bankrupt in April 2014—each BTC claim is fixed at 50,058.12 yen (approximately $314 at current exchange rates). This is mainly used for basic compensation, while for proportional compensation, each creditor will receive compensation based on their claim proportion. Currently, the Bitcoin price is $62,059 (as of June 26), which is an increase of 197.6 times compared to the fixed value determined by the Japanese court.

Huge Selling Pressure, How Low Could BTC Price Drop?

This is the first time Mt.Gox has repaid in the form of BTC and BCH, with its holdings of 141,686 BTC (and a roughly equal amount of BCH) accounting for 0.72% of the total circulating supply of Bitcoin, valued at approximately $8.54 billion. From a numerical perspective, this selling pressure is significant, but how much impact will it actually have? Let's analyze this from a data perspective.

Andrew Kang, co-founder of Mechanism Capital, previously estimated the inflow of BTC funds from institutional accumulation in a recent article. Kang believes that, overall, Bitcoin spot ETFs have now accumulated over $50 billion in AUM (assets under management). This is a rather optimistic figure. However, if we strip out the funds related to GBTC, we find that the net inflow of funds will shrink to $14.5 billion. In fact, this number still needs to be further reduced, as it includes many "delta neutral" trades, particularly some "basis trades" (such as selling futures while buying ETFs) and "spot rotations" (i.e., selling spot to buy ETFs). Based on CME data and analysis of ETF holders, about $4.5 billion of the inflow is related to "basis trades"; additionally, some ETF experts have pointed out that large institutions like BlockOne have conducted massive "spot rotation" operations, with the scale of such trades estimated at around $5 billion. Excluding these "delta neutral" trades, we can estimate that the actual net inflow of Bitcoin spot ETFs is about $5 billion.

On January 11, at midnight Beijing time, the U.S. Securities and Exchange Commission (SEC) approved Bitcoin spot ETFs for the first time in history, authorizing 11 ETFs to begin trading on Thursday. Following the announcement, Bitcoin's price surged over $2,000, reclaiming the $47,000 mark. Subsequently, due to profit-taking pressure, Bitcoin fell back to around $43,000, and after a period of consolidation, BTC began another significant upward trend, briefly breaking through $70,000.

This means that Wall Street institutions may have used around $5 billion to push Bitcoin from $43,000 to around $70,000. Currently, the BTC compensation value from Mt.Gox is as high as $8.5 billion; if about half of this BTC is sold into the market, it is highly likely that the BTC price will drop to around $47,000.

There is a viewpoint in the market that the creditors of this batch of BTC are all old OGs, and the selling pressure may be relatively controllable. However, in reality, many speculators participated in Bitcoin trading back in 2014, and this article believes that the 80/20 rule generally applies; many people do not change their speculative nature just because they have held for a long time. The author has also seen many veterans in the crypto space ultimately suffer losses, and the influx and outflux during this period is also common. Therefore, when a massive fortune arrives, its selling pressure could even exceed 50%, and if panic selling and cascading liquidations occur, it would be even more terrifying. Overall, this article believes that BTC could very likely be pushed down to around $47,000, with a specific range possibly between $42,000 and $48,000. Why this range? The following text will provide a detailed interpretation of this range prediction.

Can the Crypto Market Stage a Comeback After a Poor Performance in May and June?

From the simple data comparison above, we believe that Bitcoin could be pushed down to $47,000. Next, let's explore this issue from a broader perspective.

The author previously discussed four factors influencing Bitcoin's market in the article "Bitcoin's Repeated Fluctuations: Four Driving Forces Behind the Market": Bitcoin ETFs, Bitcoin miners, macro finance, and Bitcoin technological development. Overall, the macro market currently expects the Federal Reserve to cut interest rates around September, with the market anticipating a generally weak performance in July; from the perspective of Bitcoin ETF fund inflows, the author believes that Wall Street institutions have gradually moved from the accumulation phase to the distribution phase, marked by BlackRock's Bitcoin holdings surpassing Grayscale's, indicating that the momentum for institutions to continue accumulating in the short term is clearly weakening; from the perspective of Bitcoin technological development, the OP_CAT proposal in the Bitcoin ecosystem is worth noting, but there will not be any major breakthroughs in the short term; from the data perspective, miners are currently experiencing continued selling, which undoubtedly adds pressure to BTC's upward movement. Overall, BTC lacks the momentum to sustain its rise; at the same time, it faces significant selling pressure, making a prolonged period of correction and consolidation very likely.

From a technical chart perspective, this article believes that there is strong support around $57,600 (MA200), and at the same time, the shutdown price of the Avalon A1366 miner is around $57,000, which provides the first layer of support for Bitcoin.

However, if, as we anticipate, Mt.Gox creditors begin to sell, the MA200 defense line is likely to be breached. From a technical chart perspective, the $43,000-$47,000 range is a stronger support zone formed after the approval of Bitcoin ETFs and is also the lowest cost zone for many institutions to build positions. Meanwhile, the $43,000-$47,000 range is also the shutdown price for the vast majority of miners. Theoretically, if BTC plummets to this level, it will receive strong support, and this situation will not last long, which means a "V" shaped rebound is likely to occur, followed by a prolonged period of maintenance around the MA200 line. In a sense, after the "V" shaped reversal, it will allow institutions to conduct a more thorough distribution, and for bottom-fishing users, it could be a turnaround.

Mt.Gox Compensation at This Time May Also Be the Best Opportunity

The timing of Mt.Gox's compensation is relatively good in a certain sense, primarily because institutions like Wall Street are entering the market in large numbers, which means that when the Bitcoin from Mt.Gox's compensation flows into the market, there will be buyers. For creditors, the current price of BTC is still at a relatively high historical level; although they may incur losses in terms of coin value, the passive locked-up earnings are quite considerable.

For the current market situation, after the halving, the cost of Bitcoin has increased, which in a sense determines the maximum downside potential for Bitcoin. In addition, the Federal Reserve has not yet cut interest rates, and the market remains optimistic. For Wall Street, this is an opportunity to accumulate at lower levels again, which they may also welcome. Overall, Mt.Gox's compensation at this time may also be the best opportunity.