Mt. Gox, the now-bankrupt crypto exchange that went bankrupt in 2014, has retained most of its bitcoin holdings. This could ease concerns about a massive sell-off in the nascent cryptocurrency market.
The exchange's trustee currently owns 141,686 BTC worth roughly $3 billion at today's prices. It also holds 69 billion Japanese yen and 143,000 Bitcoin Cash (BCH) tokens.
Creditors Choose Early Payout
One major disagreement among Mt. Gox creditors is whether they should keep their bitcoin (BTC) holdings as part of their refunds or sell them off in a massive sell-off that would destroy the value of cryptocurrency. This issue has been an ongoing concern since the exchange went bankrupt in 2014.
According to sources familiar with the matter, Mt. Gox's two largest creditors - defunct New Zealand-based exchange Bitcoinica and MGIF Investment Funds - have chosen to receive most of their bankruptcy recovery in Bitcoin (BTC). They expect to receive 90% of what's collectible in a ratio of around 70% BTC and 30% cash, according to CoinDesk's calculations.
That could mean the two funds, representing a fifth of all Mt. Gox claims, can get back a significant portion of their stake without any major disruption to BTC prices. This decision may help ease some worries about an impending sell-off and provide comfort to holders of Bitcoin who fear their coins might become worthless in case of bankruptcy proceedings.
However, even if this approach succeeds, it won't completely dispel worries about a possible sell-off. The Japanese trustee overseeing the exchange's bankruptcy has an unfortunate history of pushing back deadlines for creditors; some analysts have even predicted that it could take years to conclude the process.
Another concern is that the bankruptcy trustee holds 141,686 BTC -- approximately 21% of all coins held by Mt. Gox at its collapse. Should creditors sell off all their BTC as part of their repayments, analysts have warned this could put significant downward pressure on Bitcoin's price.
Furthermore, creditors will receive their money in multiple payments over time, so there's no rush to sell off coins as soon as they arrive. They have the option of receiving their reimbursement in BTC, BCH and yen or all in fiat currency.
Creditors Receive Payments in September
Bloomberg reports that Mt. Gox's largest creditor has decided against selling its Bitcoin (BTC) this year, quelling fears about a massive token sell-off as creditors seek reimbursement. A person familiar with the matter told Bloomberg the Mt. Gox Investment Fund has no plans to dispose of its remaining Bitcoins which will be distributed in September.
One week after Mt. Gox's bankruptcy trustee announced that it was set to begin paying out some of its remaining Bitcoin and yen holdings, the bankrupt exchange had 141,686 BTC as of September 2019, along with 69 billion Japanese yen and 143,000 Bitcoin Cash coins.
Kobayashi indicated he would provide an update regarding the payment schedule in his next update, scheduled for September 26th. Creditors have until October 22nd to file their requests and demonstrate they are eligible for a refund.
CoinDesk reports that those opting for the early lump sum payout option will receive 90% of their recoverable holdings in both crypto and fiat currencies, according to CoinDesk. However, those who decline this option must wait for civil rehabilitation litigation to conclude and Mt. Gox to complete its bankruptcy proceedings.
In addition to receiving a lump sum payment, other possible compensation includes receiving equity in Mt. Gox or another exchange.
While most creditors opted to wait for the resolution of rehabilitation claims and other legal processes before receiving their repayments, two large creditors -- defunct crypto exchange Bitcoinica and Mt. Gox Investment Funds -- chose an earlier lump sum payment option rather than having to wait five to nine years.
As such, their repayments will be made using both crypto and fiat, with the first payments starting this month. The deadline to receive these funds is September 30.
Tibanne, which owns 88 percent of Mt. Gox, is in the process of deciding how it will use its surplus funds from bankruptcy proceedings. Mark Karpeles - former chief executive - outlines his plan in a blog post: money will be put towards setting up a fund to pay creditors and complying with laws across America, Europe and Japan; additionally he proposes launching an online fundraiser as well.
Creditors Receive Payments in Fiat
At its peak, Mark Karpeles was an ambitious young entrepreneur determined to make it the world's leading crypto exchange. His vision included using technology to revolutionize how people did business by providing a "peaceful, anonymous and secure" service for digital assets.
Karpeles was unable to keep up with demand and faced an uphill battle in defending his company during bankruptcy proceedings. Additionally, a U.S. tech company called CoinLab was suing Mt. Gox over the exchange's collapse, hoping to recoup some of its investment.
In 2014, when the exchange went bankrupt, it lost 850,000 bitcoins - roughly 7% of total supply at that time. Now, 202,185 bitcoins, or slightly less than half their original worth at that time, are worth roughly $1.4 billion.
Analysts were concerned that the exchange's vast bitcoin holdings might flood the market, potentially leading to a dramatic sell-off. However, the largest creditor has chosen to hold onto any returned bitcoins until after the completion of the bankruptcy process, avoiding this potential outcome.
Bloomberg recently reported that a person familiar with the fund's thinking informed them that it does not intend to sell off the tokens it expects to receive later this year, preventing an influx of returned bitcoin into the market and potentially driving down Bitcoin's price.
Nobuaki Kobayashi, the exchange's trustee, has written to creditors urging them to complete all necessary steps before March 10th - when they must decide whether to accept an early lump sum or wait for a potential larger payout at some unspecified future date. He further encouraged them to register with their preferred method of repayment in cash or cryptocurrency as well as with any exchanges or custodians they plan on using for reclaiming digital assets.
Kobayashi noted that if any creditor does not abide by this request, they must submit documents to Mt. Gox's head office in Japan and receive payments in Japanese yen. He further explained that this process is designed to protect creditors from receiving payment that would cause them financial hardship.
Creditors Receive Payments in Crypto
Mt. Gox's top creditor has taken an unusual step, opting to keep the 200,000 Bitcoins it expects in September instead of selling them off. This could prevent a massive sell-off and allow creditors to receive their money sooner, according to CoinDesk's report.
During the final rehabilitation stage, creditors have two options for receiving their repayments: either an early lump sum of 90% of their recoverable assets, or to wait and witness the conclusion of civil rehabilitation litigation.
To take advantage of the early lump sum option, creditors must first register with an online claim filing system and select a payment method. Options include receiving a lump sum payout, having part of their recovery in crypto, receiving bank remittances or selecting a combination of all three options.
Creditors opting for the lump sum payout can receive either a combination of Bitcoins, BCH and yen or the entire amount in fiat currency. This is an important step for creditors since they will no longer have to worry about being stuck with bitcoins that are worth less than what they were worth when Mt. Gox collapsed.
Though this is a positive step for creditors, some fear it could bring about another price crash like Mt. Gox's 2014 experience. While creditors have chosen this route, they remain vulnerable to potential sell-offs should Bitcoin prices drop significantly after the announcement.
In an effort to reassure creditors, the bankruptcy trustee has issued a statement that "creditors will not be able to transfer their recovery in cryptocurrency to an account controlled by a third party" until after settlement of civil rehabilitation claims are resolved. This restriction also serves to prevent Mt.Gox - once the largest cryptocurrency exchange by market value before filing for bankruptcy in 2014 - from returning.
Creditors have been waiting years for compensation for their losses on Mt. Gox, which was hacked in 2014. Although this is an encouraging development, many may be disappointed that only a fraction of their owed funds has been recovered.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.