Speculation that Mt Gox payouts will crash the Bitcoin markets has been gathering ever since creditors of the exchange began filing civil rehabilitation claims in August.

Specifically, one of the numerous Mt Gox creditors, Kim Nilsson, uses the very intense wording that the payouts will “completely crash the market”. Upon review, however, it appears that Nilsson’s claims aren’t likely to happen.

Japan-based Mt Gox was the biggest Bitcoin exchange during the early days of Bitcoin. It collapsed spectacularly after a hack in 2015, resulting in the theft of BTC 850,000 Bitcoins worth USD 473 million then but a whopping USD 5.44 billion as of this writing on 20 September 2018. Hope arrived for creditors when BTC 200,000 was found in a wallet used before 2011; these are today worth more than twice the amount in US dollars lost at the time of the hack.

While creditors will not recover lost Bitcoin, they stand to receive a full refund in US dollars with modest profits.

Speculation on the effect of these returns began when the recovered Bitcoin were liquidated for US dollars towards the peak of the Bitcoin rally in late 2017 and early 2018. After the liquidation, somewhere between BTC 138,000 and BTC 170,000 will be distributed to creditors. These payouts are what Nilsson is referring to, which won’t occur until February 2019 at the earliest when Mt Gox’s trustee will submit a payout plan to Japanese courts.

Even at the high-end estimate of BTC 170,000, which is USD 1.09 billion, there is no chance that the market would significantly crash when the payouts occur. As of September 2018, Bitcoin’s spot markets have USD 4 billion of trading volume daily, so that payout would only account for 25% of average daily trading volume.

Other mitigating factors are that creditors are unlikely to receive Bitcoin payouts at the exact same time. Some will also choose to hold Bitcoin due to its long-term profit potential, while others will use over the counter (OTC) markets as well as peer-to-peer trading networks to liquidate.

All factors considered, the Mt Gox payouts should only have a temporary, even negligible impact on the Bitcoin market price. If there is any noticeable impact at all around the time payouts occur, it will likely be from other traders and investors dumping due sell-off pressure.

 

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