The now-defunct cryptocurrency exchange Mt. Gox reportedly liquidated around $312 million worth of Bitcoin (BTC) throughout February and June of 2018 through a Japanese exchange called BitPoint.
GoxDox, an organization that was established to assist Mt. Gox creditors, released a photograph of a bank account statement on February 5 showing the alleged transactions sent from BitPoint to the Mt. Gox trustee led by Nobuaki Kobayashi.
If the report of GoxDox is accurate, the trustee went out of his way to disregard the suggestion of Kraken CEO Jesse Powell, who explicitly told the trustee to refrain from selling the company’s BTC holdings. If needed, Powell previously said that the trustee has to liquidate the remaining Bitcoin funds on an over-the-counter (OTC) trading platform to minimize its impact on the price of Bitcoin.
It is possible that the trustee and the rest of the individuals dealing with the Mt. Gox case were rattled by the circumstances, prematurely liquidating a significant portion of the organization’s assets to move forward with the bankruptcy.
Was the dump of Mt. Gox the primary cause of Bitcoin’s crash in 2018?
According to GoxDox, the Mt. Gox trustee began to sell the exchange’s Bitcoin holdings starting in early 2018, possibly even before February. From early February to June, the trustee is said to have sold tens of millions of dollars worth of Bitcoin on a weekly basis.
The researchers said that the frequent wire transfers supposedly initiated from the bank account of BitPoint to that of the Mt. Gox trustee show the trustee’s intent to hide the transactions in an event of a security breach on the side of BitPoint.
The trustee likely expected a public backlash if it were revealed that the trustee had been selling large amounts of Bitcoin in the public cryptocurrency exchange market, putting the price of BTC at a significant risk of dropping.
“It seems fair to conclude that the reason for sending frequent wires was to prevent counterparty risk. A hack at BitPoint could expose the MtGox Estate to a loss and the trustee didn’t want to get Goxxed. It follows that the trustee would have instructed BitPoint to wire JPY [Japanese yen] over as soon as he had it. This way, MtGox Estate assets wouldn’t be exposed to any hacking incident at BitPoint.”
On May 2, based on the data provided by GoxDox, the trustee received 3,822,436,400 yen from BitPoint, worth around $34,845,330. From then on, at an interval of one to four days, the trustee continued to receive tens of millions of dollars from BitPoint.
Coincidentally, in the exact same time frame, the price of Bitcoin, which initiated a strong recovery from $7,000 to $10,000 from April to May, began to plunge. Since May 4, the price of Bitcoin began to drop substantially against the United States dollar. By the end of June, less than two months since the sell-off of Mt. Gox holdings began, the price of the dominant cryptocurrency dropped from nearly $10,000 to $5,912, by over 40 percent.
In February 2018, when the trustee started to sell BTC on a cryptocurrency exchange, Kraken CEO Jesse Powell reaffirmed that the company, which was hired to track the lost coins of the exchange, advised the trustee not to dump millions of dollars worth of BTC in the market.
“We were explicit about not dumping a large amount of coins on the market. Unfortunately, it looks like the trustee made their own decision or was taking advice from elsewhere — maybe whatever exchange they dumped those coins on. We had zero knowledge of these sales happening until it was announced at the recent creditors’ meeting.”
The initial correction of the cryptocurrency market in January of last year may have been completely unaffected by the Mt. Gox situation, which cannot be confirmed due to the lack of information presented in the leaked bank statement of the trustee. Some analysts have suggested that the opening of the CME Bitcoin futures market crashed the price of the asset.
The San Francisco Federal Reserve wrote that the time frame of the decline in the price of Bitcoin aligned with the launch of the CME Bitcoin futures market.
“The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. It is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.”
Others have said that the short-term bubble of BTC initiated by retail traders came to an end, and it was not caused by a specific set of factors.
But, from February onward, it is believed by traders that the unexpected liquidation of a large chunk of Bitcoin’s circulating supply had a drastic impact on the short-term trend of the asset.
The trustee was heavily criticized by industry experts including GoxDox researchers, who said that Mt. Gox creditors need to demand an explanation from the trustee to clarify the reasoning behind the dismissal of the advice of Kraken.
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