Mentougou compensation analysis for throwing and pressing, has the black swan flown away?

Author: Tina

Editor: Xiaolu

The Mt. Gox compensation incident is not just a historical legacy issue, but more like a 'vortex' in the world of encryption. Whenever it stirs, it can quickly stir up market turmoil, and its power is still not to be underestimated.

In this article today, we will delve into the ins and outs of the Mt. Gox compensation event and how it intertwines with multiple Favourable InformationUnfavourable Information factors in the current market, shaping the future direction of Cryptocurrency.

1. Mt. Gox compensation plan

Mt. Gox exchange is an early Cryptocurrency trading platform, headquartered in Tokyo, Japan, founded by Jed McCaleb in 2010, and acquired by French developer Mark Karpeles. At its peak, it accounted for 70% of the BTC trading market share and was once the world's largest Cryptocurrency trading platform. Unfortunately, in 2013, Mt. Gox exchange was stolen more than 800,000 BTC.

At the end of February, Mt. Gox filed for bankruptcy protection with the Tokyo District Court, and also confirmed that the platform was indeed hacked, including over 700,000 BTC of user funds and all of the platform's 100,000 BTC. Based on the BTC price at that time, the stolen assets' market capitalization reached over $400 million.

During the bankruptcy liquidation process, 200,000 BTC were subsequently recovered. In the compensation litigation process for these 200,000 BTC, investors and the court-appointed trustee began a lengthy legal process, with approximately 60,000 BTC used for various expenses, leaving roughly 140,000 BTC available for compensation.

According to the compensation plan, as the stolen assets cannot be recovered, Mt. Gox exchange can only compensate creditors with about 22% of the original claims in assets.

During the period from December 2017 to February 2018, Mr. Nobuaki Kobayashi, the liquidator of Mt. Gox, sold more than 30,000 BTC through Over-the-counter Trading, and the selling price was basically at the high point at that time. Therefore, in the composition of the compensation assets, there is also a small amount of cash, but most of it will be compensated in BTC.

In the compensation plan, if the creditor chooses to accept an advance lump sum compensation, there will be a discount, and the compensation rate is only 21%. If not accepted, the creditor may have to wait for a long time, and the compensation obtained in the end may be longer or less.

Regarding the specific claim methods, a total of 5 exchanges will accept BTC for repayment from Mentougou, namely Kraken, Bitstamp, BitGo, SBI VC Trade, and Bitbank. Mentougou will transfer the BTC to these exchanges, and then distribute them to the creditors' accounts through these trading platforms.

II. Debt Trading

For creditors in Mentougou, because the waiting time for compensation is relatively long, there are also debt transactions in the market. Institutions have been collecting Mentougou's debts in the market, and there are also debt transactions between different creditors.

For example, in 2019, the third-party institution Fortress Investment Group widely sent Inquiry emails to creditors and acquired BTC at prices of $600, $900, and $755 based on the BTC market price. By February 2020, the acquisition price reached $1300, which was basically based on the BTCPA at that time, and then correspondingly discounted.

Although it is currently unclear how many BTC Fortress Investment Group has successfully acquisitioned, the cost varies due to different bidding periods, and the arbitrage returns of this institution may only be revealed on the day when Mt. Gox truly compensates.

3. Mentougou Creditor Benefits

What will the victims of Mt. Gox do with the compensation BTC if they receive it?

Before analyzing this issue, let's first compare the price of BTC at the time and the price of BTC today.

When the Mt. Gox exchange went bankrupt in 2014, the price of BTC was only $485. If you were one of the original creditors of Mt. Gox, based on the current market price of BTC ($64,000), the price of BTC has pumped 131 times since the bankruptcy of Mt. Gox until today.

However, for the creditors of Mt. Gox, they cannot receive 100% compensation. As mentioned earlier, they can only receive about 21%, which means that the original 10 BTC can only receive 2.1 BTC now. Therefore, the final Mt. Gox creditors can obtain a return on investment of 27 times (131*21%).

For some investors, getting a 27-fold return on investment in 10 years is already quite good. Therefore, many creditors of Mt. Gox are actually very grateful to Mt. Gox. Although no one wants to be stolen, it has given them a passive opportunity to invest in BTC. It's like Mt. Gox platform has locked up the users' BTC for 10 years. Just imagine, how many people can hold BTC for 10 years without moving?

99% of investors in the market are unlikely to hold BTC for 10 years. During these 10 years, they may have been get whipsawed out of positions by every big dump and big pump in the market.

Therefore, the theft of Mt. Gox is an unfortunate story, but also a story of passive lock-up of Bitcoin leading to wealth.

Four, Selling Pressure Analysis

Now let's predict, when these Mt. Gox creditors receive BTC, will they sell it?

First of all, for the majority of retail investors, I think they would tend to choose to sell and secure their profits, as a 27-fold return is quite attractive. Retail investors would choose to obtain a certain income. Of course, will there be a few investors who sell immediately? And will they sell all or a large portion? We don't know, but I tend to think that many retail investors will choose to sell a portion of their BTC.

In a poll initiated by a user, 52.1% of participants chose to sell 0%-10% of BTC after payment, 10.8% chose to sell 90%-100%, and the remaining chose to sell 20% to 90%.

Secondly, as we analyzed earlier, in order to receive profits earlier, some creditors of Mt. Gox have already sold their claims to investment institutions such as Fortress Investment Group. Compared to individual investors, these institutions have a stronger willingness to hold BTC and are more inclined to hold rather than liquidate all at once.

Again, it may take some time for the compensation of Mt. Gox to be distributed to the market, and the amount of BTC entering the market daily is not particularly large. Even if the daily demand for SpotBTC ETF is not enough to absorb the selling pressure from Mt. Gox, a series of recent expected Favourable Information (such as interest rate cuts, US elections, SpotETH ETF, etc.) are likely to offset the pressure caused by Mt. Gox's sell-off on the market.

In addition, there has recently been a precedent of the German government selling BTC, and the market has a certain expectation and immunity. Therefore, the sale of Mt. Gox belongs to a certain expected Unfavourable Information, with limited impact on the market.

Finally, on July 17th, Mt. Gox transferred over 90,000 BTC, and some creditors have received the compensation in BTC. However, the market reaction was not as significant as expected, and BTC only fell by about 3000U. But on the next day, BTC not only recovered strongly but also pumped.

In summary, when evaluating the impact of the Mt. Gox compensation incident on the market, we not only need to examine the immediate impact of the incident on the market, especially the short-term market decline caused by the selling pressure it may trigger. What is more important is to consider this event in the context of the current complex and volatile macro environment of the encryption market.

Recently, the encryption market is in a delicate balance between a series of Favourable Information and Unfavourable Information factors. For example, the launch of Spot ETH ETF is expected to attract the attention of TradFi investors; the expectation of a rate cut by the Federal Reserve injects anticipation of liquidity easing into the market, which helps boost the demand for encryption assets; in addition, the clarification of the US election results and the potential buy orders of up to $16 billion on FTX all contribute to the positive momentum in the market.

In a series of Favourable Information, the Mt. Gox compensation event, while inevitably bringing about some market Fluctuation and selling pressure, has significantly weakened its negative impact under the cushion of multiple Favourable Information. With the combined effect of Unfavourable Information, the market is expected to gradually recover and continue to move forward in the Fluctuation.

P.S. This article does not constitute any investment advice.