The following is a guest post by Nischal Shetty, co-founder and president of Shardeum.

Mount GoxBitcoin’s dormancy may not be over, but a series of tokens leaving wallets has caught the market’s attention. A total of 137,890 BTC valued at $9.4 billion is assumed to be headed to lenders’ wallets, and this has warranted a mixed set of responses from experts, most of whom are concerned about a potential increase in selling pressure and a subsequent drop in the price of Bitcoin. .

Gox was once the world’s leading Bitcoin exchange before it was hacked in 2014, leading to the loss of over 850,000 BTC. After years of legal battles, Japanese authorities finally approved a rehabilitation plan in 2021, launching a legal procedure known as “civil rehabilitation,” allowing creditors to recover a portion of their lost funds.

The plan came into effect because creditors who lost their funds now receive a share of the remainder. Mt. Gox’s planned repayments to creditors may have played some role in the 4% drop in the price of Bitcoin in the last 24 hours, which the market was able to shake off with an eventual recovery. However, there is concern that these newly released coins will flood the market, leading to a sell-off and lowering the price even further.

In an official statement, Marcos Karpelesformer CEO of Mt. Gox, confirmed that although Bitcoin sales are not happening now, the tokens being transferred from Mt.Gox to a new wallet are part of a larger distribution plan to creditors.

Understanding Long-Term Holders (LTHs) and Short-Term Holders (STHs)

The Bitcoin market can be broadly divided into two categories based on investors’ holding times: Long-Term Holders (LTHs) and Short-Term Holders (STHs).

• LTHs: These investors held their Bitcoins for more than 155 days. They are generally considered to be more resolute and less likely to panic during market crises.
• HTS: These investors have purchased Bitcoin in the last 155 days. They are typically more reactive to market news and events and may sell more quickly in response to negative sentiment.

LTH Selloff vs. Selloff History

Senior Analyst at CryptoSlate James Van Straten shares a perspective that illuminates the potential of the Mt. Gox cashback event in the market. He shared on his X account how Grayscale Bitcoin Trust and Long Term Holders have sold around 1 million BTC in the last five months.

The market has managed to demonstrate impeccable resilience in absorbing these sales. In comparison, Mt. Gox’s payments to its creditors would be 1/10 of the 1 million BTC sold.

Bitcoin’s recent rally, which reached an all-time high this year ahead of the halving, was strong enough to encourage some long-time holders to sell, as indicated by a decrease in its total supply. Van Straten argues that this recent LTH selloff would decrease the amount of Bitcoin released through refunds from Mt.

Data and market analysis

According to on-chain data, research firm Glassnode reported earlier this year that the number of Bitcoin addresses holding coins for more than 5 years has reached a new low, suggesting that some long-term investors were taking profits. The massive move in BTC has raised concerns that Mt. Gox creditors may decide to sell their recovered coins on exchanges, flooding the market and driving down prices.

This fear is amplified by the fact that the average daily flow of Bitcoin on exchanges has hovered around 2016 levels, suggesting potentially less liquidity to absorb a large sell-off.

But compared to this larger LTH sell-off, the impact of the Mt. Gox refunds may be less impactful for the market. It is important to remember that not all creditors who receive your BTCs will immediately sell their recovered Bitcoins. And the distribution has not yet formally entered into force.

Among lenders, some may choose to hold or buy more, based on their individual investment strategies. While the immediate market reaction may be negative due to short-term investor jitters, the long-term impact of the Mt. Gox refunds could be positive. Increased institutional adoption often follows periods of market consolidation, and the resolution of the Mt. Gox saga could improve investor confidence in the overall health of the Bitcoin ecosystem.

Conclusion

The Mt.Gox saga and its potential impact on the price of Bitcoin highlight some gaps that can be better addressed at this crucial point in the market’s maturity.

While short-term volatility is expected, especially when large amounts of coins are moved, market stability and an increase in liquidity can boost investor confidence and set a safe tone for the long-term implications of Bitcoin’s performance.

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