Regarding various bankruptcy cases and seizures of illegal Bitcoin holdings, including the collapses of the cryptocurrency exchanges FTX and Mt. Gox, there are over $10 billion worth of cryptocurrencies in the possession of liquidators. When will these significant cryptocurrency holdings enter the market?
While the demand for Bitcoins continues to rise due to institutional interest, many market participants are focusing on the supply side. Currently, over $10 billion potential selling pressure is in the hands of various bankruptcy trustees and liquidators. Here's an overview of the cryptocurrency holdings of the US government, Mt. Gox, and FTX.
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US Government initiates the sale of $5.6 billion in Bitcoin
In March of this year, Bitcoin transfers from a wallet owned by the US government caught attention. The address sent nearly 10,000 Bitcoins (BTC) - worth $280 million today - to the cryptocurrency exchange Coinbase. Further analysis of government wallets revealed remaining holdings of 194,188 BTC ($5.3 billion). This accounts for almost 1% of the total Bitcoin supply. Questions arose about the origin of these Bitcoins and when they would enter the market. The 21Shares Research Team created a dashboard and traced the holdings back to the following confiscations:
- November 2020: 69,369 BTC related to an anonymous criminal known as "Individual X," who hacked the funds from the Silk Road dark web marketplace between 2013 and 2014.
- January 2022: 94,643 BTC related to Ilya Lichtenstein and his wife Heather Morgan. The Internal Revenue Service (IRS) accuses the couple of laundering $4.5 billion stolen during the Bitfinex hack in 2016.
- March 2022: 51,326 BTC confiscated from the hacker James Zhong, who pleaded guilty to fraud for stealing the funds from Silk Road in September 2012.
After the sale in March, the US government announced in a court filing that they would liquidate the rest of Zhong's holdings ($1.15 billion in Bitcoin) over the year. Recently, $250 million was moved to another wallet in July. It's unclear when the US government will sell the remaining $900 million in Bitcoin. Another tranche this year is likely. There is no information available about the confiscated funds related to the other two court cases.
Mt. Gox repayments approach
The cryptocurrency exchange Mt. Gox was once the dominant marketplace for cryptocurrencies. Founded in 2010 as the first exchange, it handled over 70% of Bitcoin volume at one point. Its sudden bankruptcy declaration in 2014 deeply impacted the then-young crypto industry. The exchange claimed that about 750,000 BTC of its customers and 100,000 of its own BTC were stolen. Investors with Bitcoin balances at the time of Mt. Gox's shutdown could file claims with the appointed trustee.
Despite the bankruptcy case being nearly a decade old, former Mt. Gox users have not received any funds so far. The trustee's balance currently includes at least 141,686 Bitcoin ($3.94 billion), 142,846 BCH ($320 million), and 69.7 billion JPY ($465 million). A repayment plan was announced in 2022, but just a few weeks ago, the trustee extended the deadline by another year. It's likely that over $4 billion in cryptocurrencies will not be sold until the end of 2024.
FTX Bankruptcy Trustee Begins Cryptocurrency Liquidation
The most recent prominent bankruptcy case occurred just a year ago and is still fresh in the minds of most market participants. The FTX debacle revealed not only a balance deficit of several billion US dollars but also the abuse of customer funds on an unimaginable scale. The sister company, Alameda Research, used FTX customer deposits for its own trading activities, primarily securing illiquid FTT, SOL, and SRM tokens as collateral. Despite managing over $10 billion in customer funds, FTX only held $560 million in Bitcoin and $190 million in Ether. The exchange held around $1.15 billion in Solana tokens (SOL).
A few weeks ago, the FTX bankruptcy trustee applied for approval to liquidate the remaining $3.4 billion in semi-liquid cryptocurrencies. In mid-September, US bankruptcy judge John Dorsey approved the procedure. FTX is allowed to sell up to $100 million in cryptocurrencies per week and can enter hedging and staking agreements to minimize the price volatility of the bankruptcy estate. The actual sales have not been disclosed by the bankruptcy trustee.
Since the managed Solana tokens are not tradeable until 2026 due to lock-up periods, the potential selling pressure on the crypto markets remains limited. Blockchain trackers recently identified a staking transaction by the bankruptcy trustee worth 5.5 million SOL ($120 million). FTX is likely to stake more cryptocurrencies to generate passive returns on the holdings.
FTX estate is staking 5.5M SOLhttps://t.co/ajRgBHFNt9 https://t.co/UGorSGMtwC
— ashpool (@4shpool) October 14, 2023
