Mt. Gox Begins Repayment of $9 Billion, Triggering Massive Bitcoin Sell-Off

Bitcoin recently gained 4% to trade around $63,350, partially recovering its losses from June. However, overall sentiment in the cryptocurrency market remains nervous.

Mt. Gox Begins Repaying $9 Billion

Mt. Gox, the defunct cryptocurrency exchange that collapsed after a major hack in 2011, began issuing bitcoin repayments to creditors this week. Those creditors will receive about $9 billion worth of bitcoin, a sizeable sum considering the current market.

According to a statement released by Mt. Gox on June 24, the exchange’s rehabilitation trustee will process repayments in bitcoin (BTC) and bitcoin cash (BCH). Repayments will be paid to cryptocurrency exchanges that have exchanged and confirmed the necessary information.

Major Mt. Gox-Driven Sell-Off Coming

JPMorgan analysts say some Mt. Gox creditors may sell some of their bitcoin, which could create initial market pressure. JPMorgan's Bitcoin futures position indicator fell slightly, supporting this expectation, indicating that retail investors, rather than institutional investors, have been selling crypto assets recently.

Analysts expect the market to recover from August, partly due to cash repayments from FTX, another bankrupt crypto exchange.

FTX repayments coming soon

Fulfilled by FTX, which is also bankrupt, will repay creditors in cash, with an estimated amount of between $14 billion and $16 billion. These repayments, which are expected to take place after FTX's liquidation plan is finally approved in October, may provide support to the cryptocurrency market as creditors may reinvest funds in digital assets.

FTX, a troubled cryptocurrency trading platform that collapsed in 2022, has proposed a reorganization plan to repay creditors in cash equivalent to the dollar value of the crypto assets at the time of the exchange's collapse.

FTX repayment details

The bankruptcy estate plans to offer a 118% return to 98% of creditors with claims below $50,000. Non-government creditors will receive 100% of their claims plus potential interest payments of up to 9% since FTX collapsed.

While creditors lost about $11 billion, the bankruptcy estate has amassed more than $16 billion through fund consolidation and asset sales, including properties owned by former FTX executives.

At the time of FTX's collapse in November 2022, Bitcoin was trading at around $16,000. Currently, Bitcoin is valued at more than $63,000.

Creditor objections

FTX creditors, led by activist Sunil Kavuri, objected to the plan, arguing that it did not comply with certain bankruptcy law requirements. They objected to title issues, the adequacy of the debtor liquidation analysis, and the fulfillment of the best interest test.

FTX's legal team maintained that the proposed cash repayment complies with bankruptcy law, which is designed to prevent creditors from facing capital gains taxes on recovered assets.