Institutional Top of Mind #19

This edition's Top of Mind has 10x Research analyzing upcoming major cryptocurrency payouts from Mt. Gox, Genesis Global, and FTX, and their potential market implications, providing a roadmap of anticipated market flows through the end of 2024.

Analysis of Upcoming Cryptocurrency Payouts and Market Implications

TL;DR

• Several significant multi-billion-dollar events are anticipated to impact cryptocurrency markets in 2024. The German state of Saxony recently sold 50,000 Bitcoins, providing valuable insights for future cryptocurrency transactions.
• These include payouts from the defunct exchanges Mt. Gox and FTX, as well as Genesis Global.
• A negative flow overhang from Mt. Gox will persist until late September. In contrast, positive cryptocurrency inflows from Genesis Global and FTX payouts are anticipated to begin around October and continue through December.
• This analysis provides a mental roadmap of potential market flows and their implications.

While numerous factors influence cryptocurrency prices, including Bitcoin and Ethereum Spot ETF flows, the US Presidential election, and US interest rates, several multi-billion-dollar events could significantly impact the cryptocurrency markets. Although the exact payout timelines and amounts are still uncertain, the following analysis aims to provide a general roadmap of potential market flows through the end of the year.

German Bitcoin Selling

The German State of Saxony recently sold nearly $3 billion worth of Bitcoin over 25 days, causing Bitcoin prices to drop by almost 20%. This event highlighted the impact large-scale Bitcoin transactions can have on the market. The selling began when Bitcoin was trading at $66,000 and concluded at $58,000, with public interest peaking on July 5 when Bitcoin dropped to $54,000. An average of $130 million worth of Bitcoin was sold daily. However, as this selling pressure eased, Bitcoin prices began to recover.

Mt. Gox Payouts

Mt. Gox creditors are expected to receive approximately $9 billion worth of cryptocurrencies, including 141,000 Bitcoins, from late July 2024 onwards, with the process completed by October 31, 2024. Approximately 95,000 Bitcoins will be distributed initially over a 90-day period, with a 10% reduction for those choosing early distribution. 20,000 Bitcoins are expected to go to distressed debt funds that will liquidate their holdings. In comparison, 10,000 Bitcoins are allocated to the defunct exchange Bitcoinica, which is still navigating its bankruptcy process.

SBI VC Trade and Bitbank will complete payouts within 14 days, potentially by late July. Bitgo, serving significant distressed creditor funds, will process payouts by mid-August, while Bitstamp and Kraken are expected to complete their processes by late September and late October, respectively.

An unofficial social media survey indicated that 52% of creditors plan to sell their Bitcoin holdings.

As a result, the selling pressure may be slightly lower (49,400 BTC) compared to the 50,000 BTC sold by the German state of Saxony. This reduced selling pressure likely contributed to Bitcoin's recent rally over the past few days. This is still significant but spread over a longer time, coinciding with the seasonally weak months for Bitcoin.

Historically, Bitcoin has shown an average return of +2.7% in August while typically declining by -4.8% in September. This period is generally considered a seasonal weak phase for Bitcoin. This year, the selling pressure from Mt. Gox creditors could further influence price movements during this time.

Genesis Global Payouts

Genesis Global, a bankrupt cryptocurrency lender, secured court approval in May 2024 to distribute about $3 billion to its creditors, including a $2 billion settlement. The exact timeline for these payments is expected to be in October or November 2024, with an anticipated net inflow of about $700 million into the crypto market.

FTX Payouts

FTX creditors are poised to receive between $14.5 billion and $16.3 billion. Creditors must vote on their claim processing by August 16, and Judge Drosey's decision on the funding plan is scheduled for October 7, 2024. Payouts may begin in December 2024.

Some of the largest distressed investors have significant claims in the FTX bankruptcy, and their repayments will not be redeployed into cryptocurrency. Assuming 30% of the remaining $12 billion will be deployed into cryptocurrencies, this could result in $3.6 billion inflows by December 2024.

FTX creditors who reinvest their payouts into cryptocurrencies might act swiftly, potentially resulting in daily inflows of approximately $100 million once the funds are disbursed.

Summary

• German Bitcoin Selling: Caused a 20% decline in Bitcoin prices from late June to mid-July 2024, with $3 billion sold over 25 days or $130 million daily.
• Mt. Gox Payouts: Expected to add selling pressure from August to October 2024.
• Genesis Global Payouts: This is anticipated to result in a $700 million net cryptocurrency inflow in October/November 2024.
• FTX Payouts: This could lead to $3.6 billion in cryptocurrency inflows starting December 2024 with approximately $100 million daily crypto inflows.

These events collectively represent significant market movements and highlight the potential for both inflows and outflows in the cryptocurrency market throughout the year.

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