CoinShares Study Suggests Overblown Concerns About Mt. Gox Bitcoin Sell-Off
A recent study by CoinShares, an asset management firm, suggests that concerns over the potential impact of the Mt. Gox Bitcoin (BTC) sell-off may be exaggerated in the crypto market. The study indicates that a worst-case scenario of a 19% daily drop in BTC price due to simultaneous selling of all BTC is highly unlikely.
Currently, the Mt. Gox trustee holds 142,000 BTC and an equivalent amount of Bitcoin Cash (BCH), valued at $8.85 billion and $55.25 million, respectively. Luke Nolan, an Ethereum Research Associate at CoinShares, highlighted that creditors were given the option to receive 90% of their owed amount this month or wait for the conclusion of civil litigation.
Approximately 75% of creditors chose early repayment, reducing the July distribution to around 95,000 BTC. Notably, the list of Mt. Gox creditors includes claims from Bitcoinica and MtGox Investment Funds (MGIF) for 10,000 BTC and 20,000 BTC, respectively.
However, MGIF has stated its intention not to sell its Bitcoin holdings, reducing the potential market impact to 75,000 BTC. Consequently, only 65,000 BTC will be distributed to individual investors. Despite this, investors have seen a significant increase in their holdings since the Mt. Gox incident, making a mass sell-off an impractical choice due to tax implications.
The distributions are set to take place on various exchanges on different dates throughout the month, making large-scale simultaneous selling less probable. Daily exchange inflows have averaged 32,000 BTC over the past year, peaking at 150,000 BTC during the launch of spot Bitcoin exchange-traded funds (ETFs) on January 11th.
In a scenario where 75,000 BTC hits the market, CoinShares estimates a potential price impact using a Sigma Root Liquidity model. With a daily traded volume of $8.74 billion on trusted Bitcoin exchanges, a worst-case scenario of $2.8 billion being sold in a day could lead to a 19% price drop, although such an event is deemed unlikely.
In contrast, if all Mt. Gox creditors sell their BTC over the next 30 days, the impact is expected to be minimal and may be offset by potential interest rate cuts. Additionally, the study suggests that Bitcoin Cash, with its smaller market cap and lower liquidity, is more susceptible to selling pressure, with an estimated 80% of distributed BCH potentially causing market disruption.
