Navigating the Mt. Gox FUD: Why Bitcoin’s Long-Term Future Remains Bright

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After a decade, Mt. Gox, one of the first major Bitcoin exchanges that operated from 2010 until its closure in 2014, handling over 70% of global Bitcoin transactions, is finally preparing to distribute the coins it held at the time of its bankruptcy.

We did an article on the repayments beginning in July here. 

The market is in a state of panic over this development. However, indications of the impending distribution were evident as early as April this year. Mt. Gox creditors noted an update to the payment system on the website.

Someone posted a screenshot dated April 18, 2024, revealing that plans to redistribute the Bitcoin were beginning to materialise. This suggests that much of the anticipation might have already been factored in with the selling majorly front run. 

But what is the real impact of this selling?

The Mt. Gox funds account for 141,142 out of a total of 21 million Bitcoin, which is just 0.675%, a little over half a percent of the total supply. The actual amount sold is likely to be much lower.

Why? Creditors, who are former Mt. Gox customers have had over a decade to sell their claims. Selling a claim means exchanging the right to Bitcoin owed by Mt. Gox for a fiat payment today. These claims were sold at various discounts, such as 40%, 50%, or 60% of their value.

So, why is the market panicking today? Likely because traders are shortsighted and react to short-term news as a catalyst for trading, or, given the general sentiment has been low since March, general fear ensued.

But is it really all that doom and gloom?

If you dive a little deeper, the release of these Bitcoins may not create as much chaos in Bitcoin’s price as many anticipate.

Galaxy Digital’s head of research, Alex Thorn, estimates that about 65,000 out of the rough 141,000 Bitcoins held by Mt. Gox may soon be released into the market. This could potentially ease the expected selling pressure from the $9 billion in liquidations.

Following Mt. Gox’s early July announcement of Bitcoin repayments, BTC experienced significant selling pressure on Monday, June 24. The price dropped below $59,000 before rebounding to $61,700/USD as of writing. 

Market analysts argue that the reaction may be exaggerated and that Mt. Gox’s repayment plan might not be the sole factor in Bitcoin’s price volatility. Tony Sycamore from IG Markets noted that the market is weighing numerous factors and that around half of Mt. Gox’s Bitcoin, valued at $4.5 billion, could be sold in early July.

Despite the anticipated influx of Bitcoins, Sycamore believes the current market conditions have already accounted for this potential selling pressure.

Speaking to CoinTelegraph he stated:

“The repayments have been coming for a long time. The repayments are happening against the backdrop of deteriorating market sentiment, technical selling, and outflows from the Bitcoin ETFs.”

In a broader analysis of Bitcoin’s price trends, Sycamore expressed doubt about the likelihood of further substantial declines during the ongoing sell-off. He highlighted the strong support at the 200-day moving average, which he believes fosters optimism for the weeks ahead. Sycamore remarked:

“I think we’ve just had a flush. The cause of the flush is all of these effects culminating in the expectations of Mt. Gox selling. I suspect it probably offers a pretty good entry point for people that have been holding on for better buying levels.”

In a post on X earlier today, Alex Thorn, head of research at Galaxy Digital, estimated that just 65,000 of the 141,000 Bitcoins held by Mt. Gox are likely to enter the market. Thorn pointed out that roughly 75% of creditors opted for an “early” payout, accepting a 10% reduction, which initially released around 95,000 BTC into circulation.

Additionally, he mentioned that 20,000 BTC were set aside for claims funds, and about 10,000 BTC were allocated to Bitcoinica BK, leaving an estimated 65,000 BTC for regular creditors.

“Creditors have been stuck in Mt Gox bankruptcy for 10+ yrs. Finally, Trustee says the in-kind distribution of Bitcoin and Bitcoin Cash will begin in July. We think fewer BTC will be distributed than people think and that it will cause less Bitcoin sell pressure than market expects,” Thorn stated.

His evaluation is grounded in thorough analyses of bankruptcy documents and conversations with creditors.

Historical records show that Mt. Gox lost about 940,000 BTC, but managed to recover just 15% of that amount (141,868 BTC). Originally worth roughly $63.9 million, these assets have surged in value to approximately $9 billion due to Bitcoin’s price appreciation. Although the potential profits are significant, the payout conditions might incentivise creditors to retain their assets instead of selling them.

Thorn highlighted several factors that could deter individual creditors from selling their newly received Bitcoin.

“Many of these creditors are long-term Bitcoiners, early adopters who are technologically adept and have previously rejected aggressive offers to liquidate their claims for cash,” he stated.

Additionally, selling these assets would incur substantial capital gains taxes, which might dissuade some creditors from cashing out.

Following deductions for early payouts, individual creditors are expected to receive around 65,000 BTC. Even if only about 10%—or 6,500 BTC—of this amount were sold, it would introduce a relatively small volume into the market. This is considerably less disruptive than many market participants fear.

Although some analysts do argue that the Mt. Gox announcement contributed to BTC/USD reaching its lowest levels in nearly two months on June 24, this is debated.

“There isn’t a massive ‘dump’ from Germany or Gox,” stated Samson Mow, CEO of Bitcoin adoption firm Jan3, referring to recent movements of confiscated BTC held by the German government.

Mow explained, “Right now this Bitcoin dip is purely sentiment and fear driven, not from selling of large holdings. Even when Gox coins come to market, if there are sales, they will likely be via OTC and will have minimal impact on price.”

Thus, it is completely plausible that the FUD (fear, uncertainty, doubt) generated from Mt. Gox (for the 4th time in just 15 months) that has created forced selling may have impacted price more negatively than the actual selling itself and created a local bottom in Bitcoin’s price as it reclaims the $60,000/USD range. 

The above indicates the other 3 times this type of FUD was released to the market created sharp forced selling that formed local bottoms.

Interestingly enough, this FUD and sell off marked the most oversold RSI has been since our $25k liquidation bottom in 2023.

In any case, unless you are trading, as a long term investor, you shouldn’t let this type of bearish fundamental news change your outlook over the long term time horizon. 

If it is the cycle you follow, Bitcoin should be able to weather any storm and have a strong 2024-2025. 

Despite the overwhelmingly bad sentiment fuelled by these FUD pieces, zooming out sometimes and understanding where we are relative to prior halvings and cycles is important.

From the 2016 halving, it took roughly 270 days to reach all-time-highs from late 2013.

From the 2020 halving, it took roughly 220 days to reach all-time-highs from late 2017.

In 2024, we actually breached the all-time-high from late 2021 42 days prior to the halving.

This is the first time Bitcoin has done this in its infancy given the huge demand derived from the ETFs. Some analysts suggest this is bearish, whereas I see it as bullish as ever based on prior post Halving returns into an expanding global liquidity cycle which I’ll touch on later. 

Are there any other Bitcoin specific indicators we can look to?

One indicator that may be signalling this is a local bottom generated from Mt. Gox, or that a capitulation bottom isn’t far off is the Hash Ribbons indicator.

The Hash Ribbons indicator is derived from the hash rate, a key measure of the Bitcoin network’s performance. The hash rate reflects the total computational power being produced by all BTC miners at any given time.

(SMAs) of the hash rate: the 30-day SMA and the 60-day SMA. Additionally, the indicator considers the 10-day and 20-day moving averages of the BTC price. The generation of a blue buy signal occurs in three stages:

1. Miners’ Capitulation: This stage is identified when the 30-day SMA drops below the 60-day SMA, turning the Hash Ribbons chart red.
2. End of Capitulation: This stage is marked by the 30-day SMA rising above the 60-day SMA, with a green dot appearing and the Hash Ribbons chart turning green.
3. Recovery of BTC Price Momentum: Finally, the 10-day SMA of Bitcoin’s price surpasses the 20-day SMA, causing a blue dot to appear, signalling a buy.

I have shown the last two times this buy signal has flashed for Bitcoin.

Bear market lows, then the $25k dip to high time frame support in which we had to maintain that level or bullish market structure was broken.

Fascinating this signal is close to flashing a buy signal here. Miner capitulation could be on the horizon with the halving slashing rewards in half, and Mt. Gox fears worsening Bitcoin’s price to a point that miners are becoming unprofitable.

Thus, could we see an impending outcome in which Bitcoin price recovers soon enough as weaker miners have finally exited the market and the hashrate begins to increase once again, marking the end of miner capitulation? Hopefully, given these phases throughout Bitcoin’s infancy have been essential for Bitcoins further price stabilisation and growth.

Another metric we can use for past cycles to guide us is the MVRV Z-Score.

The Bitcoin MVRV Z-Score is a metric used to evaluate whether Bitcoin is overvalued or undervalued relative to its “fair value.” A high Z-Score, typically above 6 (as observed during previous bull markets), suggests that BTC is overvalued compared to its realised value. Historically, this has often coincided with market peaks.

You can note per the above that we are a fair way off the value of 6 that would suggest historically that we have topped for the cycle, like it has accurately depicted in prior cycles.

You’re not a cycle person? Hate indicators?

You can always look at prevailing trends in wider macroeconomics as well to gain a greater outlook on Bitcoin and where it currently sits, as opposed to just solely relying on Bitcoin itself.

The correlation between Bitcoin price and global M2 (a measure of the money supply that includes cash, checking deposits, and easily convertible near money) cannot be denied. 

Moreover, the Global Liquidity cycle is prevalent, just like Bitcoin itself.

You can see this correlation further below:

Why is global liquidity important for Bitcoin and why is there such a strong correlation?

An increase in global money supply can drive investment in perceived ‘risk assets’ like Bitcoin. Consequently, it is crucial for strategic investors to track changes in global liquidity over time in relation to Bitcoin’s price.

Historically, Bitcoin bull markets as per the above have often aligned with periods of rapid global liquidity expansion.

Some view Bitcoin as a potential alternative to the traditional Central Banking system due to its fixed monetary issuance schedule. This is another reason why monitoring Bitcoin’s price alongside changes in global liquidity is important.

Why Should I Expect Global Liquidity and M2 to Expand Through 2024 and 2025?

Central Bank Policies – Central banks worldwide, including theEuropean Central Bank, are likely to continue adopting accommodative monetary policies and continue cutting rates. This could involve maintaining low interest rates and ongoing quantitative easing (QE) programs to foster economic growth, given that interest rates around the world have been categorically high for a long period of time now. This is most definitely the case in the United States right now in which interest rates have remained their highest in decades, and likely soon to be cut at the end of 2024. 

Inflation Management – In response to inflationary pressures, central banks may adjust their strategies to ensure economic stability. However, maintaining ample liquidity in the market will likely remain a priority to support continued economic recovery.

High Public Debt – Many countries have accumulated significant public debt due to pandemic-related expenditures. To manage this debt and prevent economic contraction, governments may implement policies that expand the money supply. Continuous fiscal stimulus aimed at supporting employment, businesses, and healthcare systems will also likely necessitate an increase in the money supply.

Thus, I do expect the expansion of global liquidity and M2 throughout 2024 and 2025 which should be driven by a combination of accommodative monetary policies, ongoing economic recovery efforts, high public debt levels, fiscal stimulus, global economic conditions, technological innovations, and market sentiment. These factors collectively create an environment where increasing the money supply is seen as essential to sustaining economic growth and stability. This should be the case if the majority of governments can officially tame inflation, in particular the United States, and begin further quantitative easing.

Don’t want to rely on just charts, indicators, cycles, data and macroeconomics? The fundamentals for Bitcoin outside of these metrics are just as bullish. 

I believe that even with these bearish overheads of Mt. Gox, Germany, and more, people are quick to forget just how bullish the fundamental outlook for Bitcoin (and wider cryptocurrencies) is for the rest of 2024 into 2025.

The reason the general fundamental sentiment leans bearish right now is because we have in fact made ATHs before the halving, and as a result, the cyclical crab-like volume and volatility post halving that is occurring right now seems like it’s the end of the world.

Why are we in this situation? ETFs as mentioned prior.

We are living in a world where Larry Fink and BlackRock have close to $20 billion in Bitcoin under management. Fidelity has $10 billion. They collectively have over $50 billion. These institutions are launching an Ethereum ETF in the next few weeks as well. 

The very same traditional finance whales that got themselves a gold ETF and look what exactly happened to that commodity over the long term.

The first gold ETF was approved in the United States in 2004. Following this, gold saw an extraordinary rise of nearly 350% from 2004 to 2011. During this time, the price of gold jumped from approximately $450 to over $1,820 in August 2011, marking an impressive increase of 346%.

Just recently, two separate ETFs launched in Australia on the CBOE and ASX. Just prior to that, Hong Kong launched both BTC and ETH spot ETFs. 

It is being reported that a number of entities, including major banks, are adding Bitcoin via these ETFs to their balance sheet. Like Larry, the Banks have been orange pilled. 

The institutions aren’t enough? Well, we literally have the two US presidential candidates using Bitcoin and cryptocurrency to win votes over.

Trump is going bananas on Bitcoin and crypto. This is bullish. 

Bitcoin appears to be on the verge of a seismic shift in Washington next week, following former President Donald Trump’s surprising announcement that he intends to become the “crypto president.”

Furthermore, In a June 11 post on his platform, Truth Social, the presidential hopeful expressed his desire for “all the remaining Bitcoin to be MADE IN THE USA!!!” and asserted that this would contribute to the nation being “energy dominant.”

He argued that Bitcoin represented the country’s “last line of defence” against the implementation of a central bank digital currency.

“I will end Joe Biden’s war on crypto, and we will ensure that the future of crypto and the future of Bitcoin will be made in America; we’re going to keep it right here, and a lot of it is going to be done right here in Florida,” Trump declared during a special address in West Palm Beach, Florida. The event took place on June 14, his 78th birthday.

He is also in discussions to give a keynote address at the Bitcoin 2024 convention, scheduled for July 25-27, 2024, in Nashville. This event, organised by Bitcoin Magazine, is the premier annual meeting for Bitcoin enthusiasts and industry experts. Imperial Wealth’s crypto team will be in attendance! 

This has forced Joe and the Democrats’ hand.

Earlier this month, The Block reported that the Biden campaign is in discussions about accepting bitcoin and cryptocurrency donations through Coinbase, based on information from anonymous sources.

Last week, a leaked email from California Congressman Ro Khanna’s office to Bitcoin Magazine disclosed that officials from the Biden administration, the House, the Senate, and Shark Tank billionaire Mark Cuban are scheduled to meet in early July for what is being described as “the most significant meeting between policymakers and innovation leaders in blockchain to date.”

Cuban, a vocal supporter of President Joe Biden, has cautioned that Trump could potentially win the 2024 election due to Biden’s opposition to crypto.

Another Trump critic and Biden supporter, Anthony Scaramucci, managing partner at hedge fund SkyBridge Capital and former director of communications for Trump in 2017, has stated that Biden’s opposition to crypto is unlikely to persist into a second term.

“I have talked to many people on the Biden campaign, people like [Coinbase investor and venture capitalist] Ron Conway … [who] will take a softening approach to crypto,” Scaramucci told Laura Shin on her Unchained podcast.

He added, “I also think that the anti- crypto nonsense which is really sponsored by senator Elizabeth Warren and [Securities and Exchange Commission chair] Gary Gensler is behind us,” Scaramucci concluded that the crypto industry “has already won.”

With the elections at the end of year in November, with both candidates desperate to win over votes, namely cryptocurrency voters, you bet Bitcoin and crypto should get a lot of love over the coming months leading into that election. 

Not only are Governments looking to get on the right side of history, but some of the largest businessmen and billionaires on earth are buying Bitcoin.

Just recently, the infamous Michael Dell, CEO of Dell Technologies, has stirred up excitement in the cryptocurrency community by sharing an AI-generated image of the Cookie Monster consuming Bitcoin.

According to U.Today, Dell hinted at a potential shift towards Bitcoin in a recent post discussing the concepts of scarcity and value.

The 59-year-old, with an estimated net worth of $113.5 billion, also reshared a message from MicroStrategy CEO Michael Saylor, further fueling the speculation.

Just recently, Saylor was able to buy yet another 11,900 Bitcoin for $786 million, taking the company’s current holdings to 226,331 Bitcoin, just shy of $15 billion worth. 

Saylor and MicroStrategy began accumulating the largest and oldest cryptocurrency in 2020 and have since aimed to lead a movement encouraging other corporate treasuries to adopt BTC as a reserve asset. While a few companies have added modest amounts of Bitcoin to their balance sheets, U.S.-listed Semler Scientific (SMLR) stands out. Over the past three weeks, Semler has not only added Bitcoin as a significant treasury asset but, similar to MicroStrategy, is attempting to leverage capital markets to purchase Bitcoin in amounts that exceed its current market cap.

Since MicroStrategy started its Bitcoin purchases four years ago, its shares have risen approximately tenfold. Meanwhile, Semler’s shares have increased by more than 60% since the company announced its initial Bitcoin acquisitions in late May.

More companies to follow suit? You bet. 

Japanese public company Metaplanet has announced its decision to issue ¥1 billion ($6.2 million) in 0.5% bonds to acquire more Bitcoin.

With this recent move, Metaplanet is following MicroStrategy’s strategy of using debt to purchase Bitcoin. As reported by U.Today, the Virginia-based company recently announced a massive $768 million Bitcoin purchase financed through its latest convertible note offering.

Metaplanet, already nicknamed “Asia’s MicroStrategy,” added the flagship cryptocurrency to its balance sheet in April.

Boom.

Thus, as I asked towards the start of the article, is it really all that doom and gloom as a result of the Mt. Gox repayments?

Maybe not once a broader view is examined…

For now, whether it’s Mt. Gox, Germany, Tether FUD, or whatever flavoursome FUD is sticky at the time, it’s likely that Bitcoin over the next 6-18 months sees further upside as a result and you shouldn’t be shaken out on such news.

However, if you are after some counter arguments, of course they are there both technically and fundamentally to potentially support brief further downside if FUD persists and the market caves:

The above is the bullish market structure we have developed since our low in November of 2022.

A clean break below $48k, then $42k, and further down into the $30k range could indicate that we have reached the peak of this cycle if things don’t go as planned and bearish market structure ensues. 

Fundamentally, this could be attributed to several factors: Bitcoin not performing cyclically as expected with the introduction of ETFs and all-time highs before the halving, a lack of global liquidity expansion as seen in previous cycles, continued quantitative tightening due to persistent inflation, significant Bitcoin sell-offs by governments, or renewed hostility towards cryptocurrency from Joe Biden.

For those looking for further technical evidence supporting a bearish outlook in the short-to-medium term, consider the current double top pattern:

The idea here is that the price has broken its uptrend that began from the “sell the news” low after the Bitcoin Spot ETF approval in January. Recently, the ETH Spot ETF approval appears to have capped the market. If the neckline of this double top is broken and it is confirmed as a legitimate double top, I would target a range between $42,000 and $52,000.

Another pattern that aligns with this double top concept is the Bullish Bat Harmonic, which suggests a bearish move down to around $42,000 before reversing bullishly for the rest of the year:

In this scenario, the price would drop in the C-D leg, the final leg, reaching the 88.6% retracement of the X-A leg and landing in the major Golden Pocket around $42,000. This could potentially trigger a strong bullish reversal later in the year, especially if quantitative easing resumes and elections approach.

These two bearish scenarios (with one actually being long-term bullish) counter the technical bullish perspectives for the low-to-medium time frames, where the market could bottom out lower. While most of this article suggests these scenarios are unlikely, as a technical trader and investor, I always consider sound technical ideas that oppose my bias in case I need to adjust my strategy.

In conclusion, the market’s reaction to the Mt. Gox Bitcoin repayments and other bearish factors has indeed stirred up considerable FUD. However, a deeper analysis reveals a less alarming picture. While the prospect of a significant influx of Bitcoin into the market might seem daunting, historical data and expert insights suggest that the impact may be less severe than feared. The anticipated selling pressure from Mt. Gox, combined with ongoing global economic trends, presents a complex scenario that requires a balanced perspective.

In my extended analysis, we explored technical patterns such as the double top and the Bullish Bat Harmonic, which potentially support the notion of short-to-medium term bearish movements. A break below key levels like $48k, $42k, and into the $30k range could indicate a cycle top if external factors don’t align favourably, thereby invalidating the bull case. These scenarios underscore the importance of having a diversified strategy and being prepared for market fluctuations.

However, it’s crucial to remember that these bearish patterns also present buying opportunities. For long-term investors, any substantial dip should be viewed as a chance to dollar-cost-average and accumulate more Bitcoin, positioning for future gains when market conditions improve. The potential for a bullish reversal later in the year, or from current levels, remains strong, especially with possible quantitative easing and the approach of elections, which aligns with my main thesis.

These bearish short-to-medium term patterns may never materialise. Bitcoin has a tendency to leave many investors on the sidelines, whether that happens now or in a few months. Therefore, it’s prudent to stay prepared.

Ultimately, while short-term volatility and FUD are to be expected, the long-term outlook for Bitcoin remains positive. By examining Bitcoin’s historical price trends, hash rate indicators, and global liquidity cycles, we can maintain confidence in its bright future, regardless of any short-term fear, uncertainty, and doubt.

Until then, Godspeed, and long live Satoshi Nakamoto.