Almost overnight, for millions of investors, crypto turned to kryptonite.
Now, a cryptocurrency exchange that went bankrupt eight years ago could be about to make the 2022 crypto winter much, much worse — or not. We’ll know soon, either way.
The OG of crypto flops
In 2013, when one bitcoin was worth just a few hundred dollars, Japanese exchange Mt Gox was the world’s largest crypto company by some distance, handling over 70% of all bitcoin trades at its peak.
But on February 28, 2014, Mt Gox officially filed for bankruptcy after hackers stole 850,000 bitcoin – worth around $500 million at the time and about $17 billion at the current price – from the platform. Of these, 100,000 belonged to Mt Gox itself and 750,000 to its customers.
The hack precipitated a 36% fall in the price of bitcoin, making it one of the first major crypto disasters.
Like the terraUSD crash in May 2022, the Mt Gox hack followed a rollicking bull run in 2013, during which bitcoin crossed $1,000 for the first time, hitting a peak of $1,151 on December 4.
But by April 2014, bitcoin had fallen below $500, where it would remain for years.
Ghost of crypto past
In 2018, after a barrage of lawsuits, the defunct crypto exchange approved a plan to repay its customers. It would be another three years before this plan was finalised.
Then on July 6, 2022 attorney Nobuaki Kobayashi, the appointed trustee in the Mt Gox rehabilitation process, confirmed he was “preparing to make repayments” to account holders, which could begin as early as August.
However, customers won’t get all 850,000 bitcoin as originally planned since the firm has ‘only’ 137,890 in its exchange reserve, worth about $3 billion at current prices
The prospect of a long-dormant Mt Gox spewing bitcoin worth billions into the cryptosphere has kindled fears of another devastating crypto crash next month.
Some have predicted the additional sell pressure could drive bitcoin down to $10,000.
After all, when the Luna Foundation Guard sold 80,000 bitcoin in a desperate attempt to rescue terraUSD and Luna in May, bitcoin went on to lose half its value in a few weeks.
Will it, won’t it?
But fears of bitcoin dropping to $10,000 next month may be overblown.
First, this assumes that most or all of the investors who get their long-lost bitcoin back from Mt Gox will look to liquidate it at once.
While possible, that’s highly unlikely, especially in a bear market where bitcoin is down 50% from May and more than 70% from its November peak.
Second, as Bloomberg reported in March 2021, many of Mt Gox’s creditors have already sold their claims to crypto funds such as Fortress Investment Group, which offered to pay them up to 80% of what they were owed — in cash.
Like these funds, investors who didn’t take an early settlement aren’t likely to sell their bitcoin in a rush either. Remember, these are people who were into bitcoin long before most of today’s YOLO and FOMO crowd had even heard of it — the true believers.
Prediction is a fool’s errand, of course, and doubly so in crazy crypto land. But if bitcoin does drop to $10,000 next month, you’ll at least know why.
Written by Zaheer Merchant
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