Bankrupt Crypto Exchange Repayments Shakes the Bitcoin Market

Like a dormant volcano, defunct crypto exchange Mt. Gox is erupting a decade after its bankruptcy, unleashing investor suffering all over again.

On Friday, Mt. Gox’s estate trustee announced it had begun paying off its roughly $9 billion debt to former customers, sparking a massive selloff of the OG cryptocurrency. The one-off event shows both how much the bitcoin market has grown and how volatile it remains.

How Low Can You Go?

For those with a hazy memory of the early days of crypto, Mt. Gox, which launched in 2010, was the marquee crypto exchange. Until it wasn’t. By 2013, it processed roughly 75% of all global bitcoin trades, per a 2013 feature in The Verge. Then came a massive heist, and, by early 2014, bankruptcy. The hackers had stolen around $400 million worth of bitcoin. At today’s value? That’d be worth around $45 billion (there’s a reason bitcoin truthers preach Holding On For Dear Life).

After 10 years of lawsuits and legal battles and a bit-by-bit recovery process, Mt. Gox is prepared to repay around $9 billion worth of bitcoin and bitcoin cash to its customer base. While that’s just a fraction of what investors should be owed, the liquidation event is still massive enough to rattle the entire market:

• By early Friday morning, a burst of selling pushed the price of bitcoin down to $53,500, its first time below $55,000 since February. Meanwhile, the German government last week sold around $175 million worth of bitcoin it had seized in an anti-piracy operation, further fueling a broader sell-off.
• While clawing back some of its losses, bitcoin was still trading under $60,000 as of Sunday afternoon, which most investors consider its critical support level, as well as below its 200-day simple moving average; it’s down roughly 18% over the past month. The entire crypto industry shed roughly $170 billion in value over a 24-hour window on Friday, according to CoinGecko data.

“Bitcoin is more likely to fall to $51,500 than rise to $65,800,” FxPro senior market analyst Alex Kuptsikevich told Decrypt last week.

ETF Phone Home: The rise of spot bitcoin ETFs earlier this year has placed much of the currency’s value at the mercy of large entities and institutional investors. Those groups tend to still view it as a not-so-stable bet. “Crypto ETFs belong to the most volatile investments in a traditional investment portfolio,” Basile Maire, co-founder of the exchange D8X, told Decrypt. “Therefore, whenever portfolio managers need to sell the most risky assets, crypto is a likely candidate.”