Empire Newsletter: Mt. Gox repayments hang over the crypto market

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Gox Watch

Mt. Gox has for years made for a great bogeyman.

The whole saga poses a question: What would you do with a small fortune in long-lost bitcoin, almost all of it pure profit?

The median Mt. Gox claim was previously calculated at a little over four BTC, which at $500 per coin would’ve been only $2,000 when the exchange went bust. Now, it’s over $250,000.

We’ll sadly never know for sure exactly how many Mt. Gox creditors dump their bitcoin shortly after receiving it. Creditors are being paid directly to their crypto exchange accounts, which means the bitcoin will first go to a hot wallet, which jumbles it all together with the rest of user funds — practically impossible to track beyond that.

Still, Mt. Gox repayments will be one button away from trading it for some other cryptocurrency, or, even boomer fiat. Tempting. The government of German state Saxony otherwise sold most of its $2.8 billion bitcoin stash over-the-counter, rather than directly on exchanges, to avoid price impact.

All we really have is the market reaction, which hasn’t been too bad. As of this morning, there are only two transfers in the trustee’s blockchain history that are part of repayments, per Arkham Intelligence data:

• 1,545 BTC to Japanese exchange Bitbank on July 5, worth $84.9 million then and $98.9 million now.
• 48,641 BTC to an address believed to be Kraken’s on Tuesday (July 16) — $3.07 billion then, $3.11 billion now.

Bitcoin fell a few percent after the transfer to Bitbank but has since recovered and then some, now up 15% from those lows, jumping from below $55,900 to over $64,000.

There’s now 90,344 BTC ($5.77 billion) sitting in Mt. Gox’s bitcoin wallets, waiting to be sent out (there’s additional bitcoin cash to be repaid, resulting from the 2018 hard fork, but it’s currently unknown from which addresses).

Bitcoin cash, in purple, has been hit far harder than bitcoin, in blue — losing more than 20% over the past three months amid repayments

That means the final phase of the Mt. Gox repayment plan is about 36% complete — 10 years after it filed for bankruptcy. Kraken confirmed to Blockworks that repayments would be credited to relevant user accounts over two weeks.

Mt. Gox trustee Nobuaki Kobayashi in a recent letter wrote that the transactions to Bitbank and Kraken meant over 13,000 creditors had been repaid to date. There were 20,658 individual creditors with claims to bitcoin in total, so Mt. Gox is 65% of the way through repayments, going by straight headcount.

But creditor claims skew heavily toward the top, with the bottom half only set to receive 1.3% of the total, per a 2022 report from Blockchain Research Lab. The top 1% of creditors meanwhile have claim to more than half of it, and 23 alone had more than a quarter.

Blockstream cofounders Gregory Maxwell and Adam Back are reportedly among Mt. Gox creditors, as well as Roger Ver. There’s also Fortress Investment Group, to which some Mt. Gox creditors had sold their claims for an earlier payout in cash.

The real question is whether the worst of Mt. Gox’s market impact is still left to come.

Going by Kobayashi’s numbers, the remaining 35% of creditors will receive 64% of the remaining bitcoin, worth close to $6 billion. The bigger fish are next on the repayment list.

How does that saying go? The bigger the fish, the harder the hands?

— David Canellis

Data Center

• Global stablecoin supplies grew $860 million in the past week to nearly $163.33 billion on Thursday — the highest point since TerraUSD collapsed in May 2022.
• Weekly NFT volumes have hit their lowest point in at least two years: $32.3 million, down from $39.4 million in the prior period.
• There has been only one Ethereum validator slashing event so far in July. Last month saw six slashings. Not one was recorded in May.
• BTC and ETH have slipped 1% each, to $64,000 and $3,400.
• Only two top-100 cryptocurrencies are in the red over the past week: TIA is down 7.3% and TRX has shed 1.2%.

Hodlin’ on

Is a downside from Mt. Gox just around the corner? Well, it depends on who you talk to. But things might not be looking too shabby.

According to a cheeky post from CryptoQuant CEO Ki Young Ju, the sell-side liquidity is a little “scary.”

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I know, I know, I’m doing another segment on bitcoin. But hear me out, this one’s all about that data.

Bitcoin, which had been trending lower prior to the assassination attempt on former President Donald Trump’s life last weekend, seems to have given up some of the recovery it made.

We’re still up over 10% on the week, mind you, but the chart shows a bit of the momentum tapering off.

“The price of Bitcoin may have already found a local bottom last week as large sellers realized losses and went out of selling power. Prices may have seen the bottom after heavy selling from the German government (50,000 Bitcoin) and news of the start of repayment for Mt. Gox creditors (95,000 Bitcoin transferred to exchanges). Additionally, sellers realized at least $2.5 billion in losses, which is also a signal of selling exhaustion,” CryptoQuant wrote in a report earlier this week.

Looking at some other data sets, it does look like the lead up to the Mt. Gox distributions could have had more of an impact than the distributions themselves.

Which is in line with what Alex Thorn, Galaxy’s head of research, told us.

He continues to believe that the Mt. Gox “claims holders, on balance, are more likely to hold than sell. I also think the market has already priced in a decent amount of fear already regarding these repayments. That being said, with ~47,000 BTC having been transferred to Kraken, when the actual distributions happen to end-creditors (in 1-2 weeks), there could be volatility then.”

Back in June, for example, open interest on derivatives exchanges saw a 9.6% decline to $47 billion after liquidations were triggered by a drop in crypto prices that continued from June into July.

Add in concerns around Mt. Gox and, according to CCData, you have an “exacerbated” decline that was led by sleeping pressure fears from the bankrupt exchange. Of course, we also have to acknowledge that the selling from the German government earlier this month certainly didn’t help things either.

But the data shows some upside. We’ve talked extensively about the bullish fall, but there’s data that suggests a reason for some traders to be more bullish right now.

CryptoQuant community manager Maartunn published a chart on the bitcoin short-term holder realized price — the average price at which bitcoin was last transacted onchain — which could show a potential support level in bitcoin’s future. Bitcoin, he noted, recently reclaimed its overall realized price.

Source: CryptoQuant

“This is a positive sign because short-term holders often add to their positions when Bitcoin returns to their average cost basis, creating a support level. Since 2023, Bitcoin has reclaimed the short-term holder Realized Price twice, each time resulting in at least 30% profits,” the analyst said.

So far, so good. If Mt. Gox ends up not impacting price action too much, then things look really good for all of those catalysts that we’ve spoken about.

Thorn told me that it’s “one of the last major overhangs for bitcoin supply, though others still exist. The US government still possesses at least $10 [billion] of BTC.”

Either way, the bulls are still out there and crypto may very well be a “coiled spring” as our own Mike Ippolito said earlier this month.

— Katherine Ross

The Works

• A roundtable seat at a private fundraising event in Nashville next week with former President Donald Trump will cost a cool $884,000, per Bloomberg.
• WazirX called the $235 million hack an event ‘beyond our control,’ according to Blockworks’ Macauley Peterson.
• Barstool Sports founder Dave Portnoy was paid mostly in bitcoin for his sponsorship deal with Kraken, CoinDesk reported.
• OKX is ending services in Nigeria by the end of August, per The Block.
• Kraken’s expanding its institutional business unit’s crypto custody services to Australia and the UK.

The Riff

Q: Is Polymarket this cycle’s breakthrough mainstream app?

Not only that, but a canary in the coalmine.

Prediction markets are one of blockchain’s oldest use-cases — letting anyone put their money where their mouth is about any topic.

The concept translates really well with mainstream audiences. Since long before blockchain, bookies have offered odds on all different types of silly stuff, from the weather to meteor strikes and celebrity divorces.

Adding crypto to the equation is only natural. And, at least for now, the general public has gotten past the whole “prediction markets can quickly become assassination markets” conundrum that had plagued previous iterations from time to time.

But as our lives, both physical and virtual, become hyper-financialized, it’s increasingly likely that prediction markets will seep into baseline reality.

Anything that needs doing, from homework, to artwork, to investigations, can, hypothetically, be crowdsourced through prediction markets. Just nothing illegal. Still not a good idea.

— David Canellis

It’s funny because Polymarket’s come up in a few chats I’ve had this week, with people remarking on how successful it’s become.

Then you add in the news that they’ve brought Nate Silver on as an adviser, and it’s hard not to be impressed. Honestly, I’ve even made Polymarket a saved tab that automatically opens when I launch my web browser so that I can check on the latest odds.

I can imagine it becoming more and more important in the next few months. And I don’t think its popularity goes poof once the ballots are in. It’s a good glimpse into the narratives at play, and a way to gauge the popularity of narratives overall.

For example, Twitter and Reddit used to be some of the best ways to figure out how folks were feeling about certain things in crypto, but now — in most cases — there’s probably a market on Polymarket.

And that type of use case, when it’s accessible to the masses, is one of the best ways to expand past just crypto.

— Katherine Ross

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