Cycle capital: Mentougou repayment selling pressure analysis

Original author: Cycle capital, duoduo

Mentougou Bankruptcy Case

Founded in July 2010, MtGox is a Japan exchange, the earliest and largest exchange in the currency circle, accounting for more than 80% of the trading volume at one time. In 2013, the exchange went bankrupt after 850,000 bitcoins were stolen from Mentougou, and about 200,000 tokens were recovered. Since 2014, investors and court-appointed trustees have conducted lengthy compensation proceedings against the 200,000 coins. There are about 60,000 BTC to pay for various fees, and about 140,000 BTC remaining.

Debt Transaction

After the incident, during the long period of waiting for the result, there have been institutions acquiring Mentougou's creditor's rights, and at the same time, creditor's rights transactions between individuals have also been common. For example, in 2019, Fortress Investment Group sent a wide range of inquiry emails to creditors to buy BTC at a price of $900, which is twice the price of Bitcoin at the time of Mentougou's bankruptcy. The price of the debt transaction fluctuates with the market conditions, and the original creditor can get back part of the principal by selling the debt if he is worried that he will not be able to be repaid.

Payout Plan

In 2021, the door communicated a compensation plan, and creditors can get back the residual value of the exchange.

According to the compensation plan, because the stolen assets can no longer be recovered, the Mentougou Exchange can only pay about 23.6% of the assets of the creditor's original claim. If the creditor chooses to accept an early lump sum payment, there is a discount, and the compensation rate is only 21%; If not, creditors may have to wait a long time and may end up receiving more or less compensation. At present, it is not possible to find the proportion of creditors who pay a lump sum in advance.

The composition of the compensation assets is divided into two parts, one part is cash, which comes from the BTC sold by the Japan government during the 2017 high, and the other part is BTC. 5% -10% for cash and 95% -90% for BTC, depending on the percentage. It can be seen that more than 90% of the payouts are in BTC.

Regarding the time of claim (which is also the time when BTC enters the market), it can take two to three months. A total of 5 exchanges will accept the BTC used for repayment and distribute it to the creditor's account. The timeline varies from exchange to exchange. Kraken takes 90 days, Bitstamp takes 60 days, BitGo takes 20 days, and SBI VC Trade and Bitbank will all complete payments within 14 days. This time is the longest and may be earlier.

Also, the deadline for early lump sum compensation is October 31, 2024. This time will not be modified unless approved by the court.

Current Progress

In May 2024, BTC in Mentougou cold wallets moved for the first time since 2018, causing panic in the market. On July 5, 2024, 47,000 tokens were moved to the Mentougou account address, of which 1,545 BTC were transferred to bitbank for compensation. On the same day, the Germany government sold BTC, and the largest drop in a single day exceeded 8%.

As of July 12, 138,000 BTC are still in Mentougou's account address, and it can be considered that Mentougou's selling pressure has not actually entered the market. The July 5 decline was a partial fulfillment of the expectation of a sell-off pressure decline in Mentougou.

Figure: Mentougou account balance

Figure: Recent transfer records of Mentougou account

Selling Pressure Analysis

Mentougou creditors will sell some of the BTC, but probably not all of it.

In terms of profitability, at the time of bankruptcy, the BTC price was $485 at the time of the bankruptcy. If it is the original creditor, BTC will increase by 120 times at the current price; The amount of BTC paid out by Mentougou is about 20% of the original holding, so the profit is about 24 times. Even if it is a debt acquisition, there is more than 10 times the return, and in addition, the debt acquisition institution may hold more BTC, and it will not sell all of it if it is bullish on BTC in the long run.

From the holder's point of view, in the long litigation process, the widespread creditor's rights trading market has given paper creditors a full opportunity to exit. People who are willing to buy debt should be more likely to be long-term holders of BTC.

Assuming that 75% of the BTC accepted for early lump sum repayment, the total number of BTC repaid is 105,750, with a discount of 11%, and the actual BTC used for repayment is 94,117; And assuming a sell-off ratio of 30%, 50%, and 70%, as well as a sell-off time of 1 to 3 months, the number of BTC sell-offs in different scenarios can be calculated. As shown in the table below:

How much impact does this supply have on the market? You can refer to the recent BTC supply caused by the Germany government and the demand for BTC ETFs during this time period for further analysis.

Compare the market impact of the Germany government's sale of BTC

Since June 19, the Germany government has been selling its 50,000 BTC holdings through centralized exchanges. As of July 12, there were 6,394 BTC remaining in its address, which is about 43,700 BTC sold in 23 days, which is worth about $2.4 billion at $55,000.

During this period, the maximum drawdown of the daily pins was about 19% (from 66400 to 53500), and the daily physical bars fell by about 14% (from 64800 to 55900). The largest single-day decline occurred on July 5, when 47,000 tokens were transferred by Mentougou (of which only 1,500 entered the exchange), and under the superposition of double pressure, BTC was inserted to 53.5 K on July 5, a single-day decline of 8.5%, which was the lowest point of this round of decline. After July 6th, BTC rebounded, reaching a maximum of around 59,500.

Chart: Germany government's BTC stream showing intentions (as of July 11)

BTC ETF Demand Analysis

BTC ETFs are relatively stable buying in the current market. During this token sale by the Germany government, from June 19 to July 10, there are a total of 15 working days. In the 15 days, ETFs were net sellers on 6 days, selling $470 million; There were 9 days of net buying, buying $1.07 billion, with a net inflow of $600 million and a daily average of $43 million. The main buying took place after July 5, totaling more than $800 million in buying.

According to the above, the Germany government sold a total of 40,000 tokens to the market during this period, about $2.4 billion. As a result, the demand for BTC ETFs was not enough to provide sufficient capacity, and the market price fell.

Table: BTC ETF Daily Net Inflows (June 20 - July 10)

Conclusion

If Mentougou's compensation is sold out within a month, the selling pressure faced by the market is highly similar to the selling by the Germany government, and the number of sales and the time of selling are comparable. According to the current demand for ETFs, the price of BTC may fall further if it does not provide sufficient undertaking.

If Mentougou's compensation lasts longer (2 – 3 months), the amount of BTC entering the market each day will not be particularly large and will not cause a one-time drop. However, due to the expectation of persistent selling pressure, there may be a period of volatility to digest the selling through the shock. This also means that it is difficult for the main rising wave to arrive in the short term.

At present, only 1,545 tokens of Mentougou's tokens have actually been transferred to the exchange, and the rest of the tokens are still in Mentougou's account, so it can be considered that the actual selling pressure has not yet entered the market. When the BTC held by Mentougou is distributed to several exchange addresses on a large scale, it may cause a large panic to fall, thus forming a crash pin. When a specific individual is sold, it is not necessarily a significant drop in price due to its dispersion and difficulty in tracking and observing.