Bitcoin Price Fluctuations Due to MtGox liquidation

The steady decline in Bitcoin’s price since December 2017 when it hit an all time of just under $20,000 could arguably be partly attributed to the liquidation of over 40,000 bitcoins from mid- December to early February by the trustee overseeing the distribution of the now famed and bankrupt Mt Gox exchange.

In February 2014 Mt Gox, which at the time accounted for over 70% of Bitcoin transactions, was hacked and lost over 750,000 of its customers bitcoins and a further 100,000 of its own from a hot wallet.

Later Mt Gox discovered 200,000 bitcoin in an old wallet that had not been hacked but the exchange essentially lost, at then market value, US$450 million of customer funds. It filed for bankruptcy and the court appointed lawyer Nobuaki Kobayashi as trustee of the exchange.

To recover the costs of the theft Kraken was the exchange selected by the trustee to sell the coins.  Prior to December 2017 as an exchange Kraken was averaging under 30,000 bitcoins transacted daily.  Then between mid-December and early February large sell orders, verified on the blockchain, were placed on the exchange in lumps of 6,000 and 8,000 bitcoins. That’s over a 20% increase on the daily supply of the exchange. Such large volumes of supply predictably affected the demand and so limit orders were being filled quickly and the selling continued until support was found.

You can see on this chart where the large sell orders started hitting the exchange:

The large spike on 5 February was when 18,000 bitcoins were sold from the trustee, a more than 60% increase on previous average volume transacted.

To date the trustee has sold approximately 36,000 bitcoins (BTC) and 34,000 bitcoin cash (BCH) resulting in US$400 million return, which is just short of the $450million that was initially lost by Mt Gox.

The trustee still has 166,000 bitcoin in their possession and have announced they “…plan to consult with the court and determine further sale of BTC and BCC”

Criticisms have emerged that such a large sale volume should not have taken place through an exchange but over the counter where independent parties deal privately so as not to have such dramatic effects on the price.



Business Insider

Alistair Milne



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