After several postponements and lawsuits, the Mt. Gox theft has finally entered the compensation phase, and its creditors are expected to receive the first repayment in March this year. In the past nine years, the soaring price of Bitcoin has also forced Mt. Gox creditors to receive a considerable amount of "windfall income" after years of "passive lock-up".

But what creditors are more concerned about is the true financial situation of Mt. Gox? How will it be compensated? When will it receive the repayment? In addition, once the nearly 140,000 bitcoins used to repay creditors are released, will the market face the risk of being smashed?

Mt. Gox’s repayment method: basic repayment and proportional repayment

From filing for bankruptcy liquidation to determining the compensation plan and finally preparing for repayment, the nine-year-long Mt.Gox theft incident is finally coming to an end.

According to the 2019 balance sheet of Mt.Gox, its debtors held about 142,000 Bitcoins (BTC), 143,000 Bitcoin Cash (BCH) and 69 billion yen (about 510 million U.S. dollars). A creditor revealed that the balance sheet of Mt.Gox has not changed much since then. The latest data from Token Unlocks as of March 6 shows that Mt.Gox holds more than 137,000 Bitcoins, with a total value of 3.08 billion U.S. dollars.

According to the announcement on Mt.Gox's official website, creditors need to register and choose a repayment method before March 10, 2023 to receive compensation, and the deadline for compensation is September 30, 2023. If the registration and registration are not completed within the deadline, these creditors will not be able to obtain an early lump-sum repayment, and will lose the right to recover part of the cryptocurrency claim, bank remittance payment, or remittance through a fund transfer service provider. In addition, they also need to bring the required documents to the headquarters of MTGOX Co., Ltd., and can only accept repayments in cash in Japanese yen.

The latest repayment plan provided by Mt.Gox to creditors includes basic repayment and proportional repayment. The basic repayment part allows the first 200,000 yen claimed by each creditor to be paid in yen, and the proportional repayment provides creditors with two flexible options, namely "early lump-sum repayment" or "mid-term repayment and final repayment". Among them, the lump-sum repayment method can only allow creditors to receive partial compensation (the funds they locked on the platform at the time of the hacker attack were about 21%). For the part exceeding 200,000 yen, creditors can choose a mixture of BTC, BCH and yen or pay the full amount in legal currency. According to a creditor, the ratio is about 71% of cryptocurrency and 29% of cash.

For example, Mt. Gox's largest creditors, Bitcoinica and MGIF, chose a one-time payment plan and chose to obtain their bankruptcy claims mainly in the form of Bitcoin rather than legal currency. This also greatly reduced the market's concerns about Mt. Gox selling a large amount of Bitcoin to pay legal currency compensation. It should be noted that the claims required by these two major creditors account for about one-fifth of the total.

The "interim repayment and final repayment" method repays more than the previous one, but only the interim payment will be made on September 30, and the final payment will be paid in the next few years. Some creditors can continue to wait for the results of the lawsuit if they want to get a higher proportion of repayment, which means they need to wait longer to receive payment. MGIF said in a memorandum in 2022 that this process may take five to nine years.

It is worth mentioning that since creditors must register and designate an exchange to receive funds on their behalf, and each exchange gives a different timeline for processing payments, the time they receive compensation is also different. For example, BitGo will make payments within 20 days, Kraken's payment process may take 90 days, etc.

The crypto market will not face a concentrated sell-off

In 2014, Mt.Gox, the world's largest exchange that once accounted for 70% of Bitcoin trading volume, was exposed to hacker attacks. A total of 100,000 Bitcoins and 750,000 Bitcoins of users were stolen (200,000 Bitcoins were later recovered and 60,000 Bitcoins were sold off). User assets were "vanished" overnight, and Mt.Gox filed for bankruptcy three days later. Recalling this "Mentougou incident", many investors still have lingering fears.

At that time, the price of Bitcoin was about $800, but many years later, its price has skyrocketed, reaching a peak of over $50,000. Even at the current price of $17,000, it has increased by more than 21.8 times compared to 2014. With such a high rate of return, it is hard to guarantee that many creditors will choose to sell and withdraw cash. Currently, the number of Bitcoins available on Mt. Gox accounts for 21.6% of the current daily trading volume of Bitcoin (632,000). So, will such a large amount of Bitcoin have an impact on the market?

In this regard, UBS strategist Ivan Kachkovski said that the upcoming Mt. Gox bankruptcy repayment may not cause concerns about Bitcoin prices. Mt. Gox provides creditors with a variety of repayment methods and time options, and most creditors are still believers in cryptocurrencies, so they are unlikely to sell Bitcoin. But Mt. Gox's early one-time payment option for legal repayment will cause the exchange to sell Bitcoin to raise the necessary cash and may make "long-standing concerns that Mt. Gox redemptions will hurt Bitcoin prices" a reality.

Although the number of creditors and bitcoins to be compensated for the first time is still unknown, it is expected that it will take some time for Mt. Gox to complete all data statistics, and creditors’ repayment methods are diverse and multi-stage, and some may even take several years to obtain more compensation. This means that the release of this part of bitcoins may not be very concentrated, and will not cause a very concentrated market impact.