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Did the Mt. Gox Trustee Bitcoin Sell-Off Cause the Crypto Market to Crash?

Last Updated March 4, 2021 3:44 PM
Joseph Young
Last Updated March 4, 2021 3:44 PM

On September 25, the Mt. Gox trustee released a document entitled “Announcement on Measures to Secure Interests of Bankruptcy Creditors,” disclosing the sale of over $230 million worth of crypto including Bitcoin and Bitcoin Cash.

While it still remains unsure whether the decline in the price of BTC and the valuation of the crypto market was triggered by the sell-off of Bitcoin and bitcoin Cash by the Mt. Gox trustee, the recent correction of the market coincided with the release of the document.

Since March, within a period of six months, 25.98 billion yen ($230 million) of Bitcoin and Bitcoin Cash were sold by the Mt. Gox trustee in the cryptocurrency exchange market.

Impact on the Market

The daily volume of Bitcoin is estimated to be around $4 billion, which increases to mid-$5 billion in rallies and corrections. Tens of millions of dollars worth of Bitcoin can be easily liquidated and absorbed by the cryptocurrency market without demonstrating unexpected price movements.

But, if $250 million worth of Bitcoin is dumped on the cryptocurrency exchange market in several big chunks, it is possible to trigger a domino effect across major trading platforms and cause the price of BTC to drop.

If the BTC price dropped by 3 percent due to the Mt. Gox trustee and its sell-off of $230 million in BTC, then the Mt. Gox either sold a large chunk of its holdings throughout the past week or decided to dump the entire $250 million on exchanges several days before drop in the valuation of the market.

Hence, while it is possible that the Mt. Gox trustee had an impact on the downtrend of Bitcoin, it is not realistic to solely attribute the wipeout of $22 billion from the market to the sell-off of the Mt. Gox trustee.

Rather, as seen in the rapid decline in the price of XRP, the native cryptocurrency of Ripple, which fell by more than 15 percent in a 24-hour period, it is more likely that the sell-off of Ripple led the crypto market to fall, affecting both Bitcoin and Ethereum.

Jed McCaleb, a co-founder of Ripple, who is estimated to have more than $2 billion in XRP, has started to accelerate the sell-off of XRP.

“A founder’s increasing sale of XRP could be a negative for the token’s value, just as it would be if a CEO of a publicly traded company suddenly started dumping shares in the company’s stock,” the WSJ reported. 

More to that, if the Mt. Gox trustee caused the valuation of the crypto market to drop, once the document was released, it should have led the market to initiate a short-term recovery. However, the crypto market is still showing no signs of recovery from its fall on September 25.

Market’s Future

The corrective rally of the crypto market in the last seven days demonstrated strong momentum and volume. But, as it is possible for Ripple to record a three-fold increase in price, it is possible for the market to record a 20 percent decline in a 24-hour period.

In the upcoming months, depending on the performance of BTC, the crypto market may initiate a corrective rally after stabilizing in the low $200 billion region.

Featured image from Shutterstock.