Over the past few months, Nobuaki Kobayashi, a bankruptcy trustee for Mt Gox, sold over 35,841 Bitcoin (BTC) and 34,008 Bitcoin Cash (BCC) on the open market. Details of the transactions were published in a report earlier this week, indicating this mass sell-off as a potential cause of the December 2017 and January 2018 slump in the value of bitcoin.
Kobayashi liquidated a portion of the seized BTC and BCC on behalf of Mt Gox’s creditors and plans, according to the report, to sell approximately $2.4B CAD more.
Analysis of the transactions suggests a correlation between the sales and BTC’s bearish price action in late December 2017 and early 2018, according to Trustnodes. The sales may have shaken a market already in a downward trend following a slew of bad news regarding regulatory crackdowns, hacked exchanges, and fraud.
The downfall of a giant
Japan-based Mt Gox formed in 2010 and quickly became the largest Bitcoin exchange in operation at the time. By 2014, Mt Gox was responsible for over 70% of all Bitcoin transactions.
In 2014 it was revealed that approximately 850,00 Bitcoin had been stolen from Mt Gox by a malicious attacker. Although close to 200,000 Bitcoin were recovered, the remaining 650,000 were never found. Following the theft, Mt Gox filed for bankruptcy protection in Japan.
Japanese whale unwittingly enters the marketplace
In November 2017, some creditors of Mt Gox petitioned the Japanese court to commence civil rehabilitation proceedings.
“As a result of the consultation with the court, I considered it necessary and reasonable to sell a certain amount of BTC and BCC at this point and secure a certain amount of money for distribution resources,” said Kobayashi.
— Richard Heart (@RichardHeartWin) March 7, 2018
By selling large volumes of Mt Gox’s BTC and BCC on the open market, Kobayashi unwittingly became a whale, a trader who sways the market with high volume trades.
Unloading a large volume of BTC and BCC requires the seller to accept lower and lower bids, which causes the price to drop rapidly. Some traders watching the market closely may see this as a signal of an oncoming crash and quickly sell their holdings before it drops even further. A snowball effect begins and a market can quickly see a flash crash.
Why wasn’t the trade done over the counter?
After hearing the news, many in the community cried out that Kobayashi’s actions were irresponsible.
Trades this large are often done in what is called an ‘over the counter’ (OTC) trade, which refers to trades completed via a dealer network as opposed to a centralized exchange. The benefit of an OTC trade is the ability to negotiate a better deal. It also has the added benefit of being less likely to sway the market, since it is not contributing to buying out lower bids in the marketplace.
The strangest thing about this guy selling 40K #Bitcoin for MtGox victims is that he just sold on exchanges. How can such an incompetent person be in charge of this? Just OTC it.
— WhalePanda (@WhalePanda) March 8, 2018
In the report, Kobayashi says he has “consulted the court” regarding the sale of the remaining BTC and BCC. There is no legal obligation for Kobayashi to use an OTC trade, rather than a centralized exchange, although the outcry from the community may persuade him to do so.
Regardless of what actions Kobayashi takes, hopefully the sales will be more transparent in the future and not lead to further fear, uncertainty, and doubt in an already volatile marketplace.
Editor’s note: a few sentences in this article were updated for clarity.