As an old-timer of the Bitcoin game, you know its price swings to be no less electrifyingly nerve-wracking than a rollercoaster ride. Today, what caught your attention was that Bitcoin plunged, along with prices, by more than 5 percent to $60,700. The cause? A report says that the trustee of the infamous Mt. Gox crypto exchange is lining up a return of over 140,000 BTC to long-waiting clients next month.
Mt. Gox was originally the largest Bitcoin exchange until a disastrous hack in 2014 killed its business. Now, if that much Bitcoin were to be released into the open market, it would get nervous. It's not hard to understand why. Imagine 140,000 BTC suddenly hitting the market. It would have been tantamount to the instant liquidation of Fidelity's spot bitcoin ETF, which also holds a gigantic amount of bitcoin.
One almost feels the fear amongst traders and investors, with many wondering how this could affect the price of Bitcoin. Before panicking, let's consider the bigger picture. Alex Thorn, the head of research at Galaxy, has a view that may, for a moment, help soothe our nerves: He feels that the Mt. Gox distribution sell pressure may be much less than what the market is pricing in.
Only about 95,000 BTC will go into distribution in July. That's because only 75% of creditors need to agree to the "early" payout, but even here, Thorn thinks the sell-off will not be as brutal as most people believe. Much of Thorn's reasoning rested on a few interesting insights. First, he pointed out that many of those individual creditors due to receive approximately 65,000 BTC, are already quite resilient.
Over the years, they refused several tantalizing offers for claim funds. That suggests a bit of a "diamond-handed" mentality among these creditors. Now that they have waited this long and Bitcoin's value has increased 140-fold since the bankruptcy, they may be much more willing to continue holding onto their underlying BTC rather than cashing out the moment they can. After all, selling now would imply substantial capital gains taxes, which should dissuade immediate liquidation.
Second, Thorn elaborates on the kind of funds making claims. Most of these funds are sponsored by high-net-worth Bitcoiners who are more interested in accumulating BTC at a discount rather than flipping for profit. ICT: This point of view is essential, for it would mean the selling pressure is much less if these funds were motivated by short-term arbitrage opportunities.
Essentially, though the headlines might sound scary at the very mention of a massive Bitcoin dump, Thorn's insights put things into perspective. It just shows that market reactions typically come out of fear and speculation rather than any grounded analysis. Instead, investors should look at what is happening beneath before rushing into decisions.
While the present dip in Bitcoin might seem quite alarming, there could be an extreme case for calmer waters ahead. At the level of individual creditors and the strategic aims of high-net-worth investors, such resilience could very heavily piss off, mitigate the feared sell-off, and maintain more stability in Bitcoin's price than many expect.