Cryptocurrency prices pulled back from a strong rebound over last week as apprehensions rose over a flood of Bitcoin from potentially two large-scale dumps of the cryptocurrency into the market.
Bitcoin, the world’s largest cryptocurrency by market capitalization, was down 3.9% in the past 24 hours to US$20,447.52 in evening trade in Asia, according to CoinMarketCap. Ethereum, the world’s second-largest crypto by market capitalization, was trading at US$1,144.15, down 3.8% in the same period.
The two cryptocurrencies were down 8.4% and 9.4% since Friday in late evening trade in Asia, weighing on the 18% and 13% gains made last week.
The moves come amid speculation that two major dumps of cryptocurrencies from the trustee of bankrupt crypto exchange Mt. Gox Co., Ltd. (Mt. Gox) and from embattled crypto lender Celsius Network LLC would upend an already fraught market.
Mt. Gox, once the world’s biggest crypto exchange and processing an estimated 70% of all Bitcoin transactions going into 2014, went defunct after it realized it had been hacked for 850,000 Bitcoin worth some US$500 million at the time. The firm’s Rehabilitation Trustee, Nobuaki Kobayashi, reached out to creditors via email last week saying customers and creditors would receive 137,000 Bitcoin, worth roughly US$2.8 billion at current prices.
Read more: Mt. Gox may return Bitcoin worth over $6 billion, Karpeles says
“The worst-case scenario would be a majority of those people deciding to sell down their Bitcoin,” Blake Cassidy, the chief executive officer of crypto trading platform Bamboo, told Forkast in an interview. “This obviously won’t happen all at once, but as a result of that there would be downward price pressure in the order books on exchanges.”
Meanwhile, a large wallet known to have links to the Celsius Network reportedly paid off US$41.2 million in debt to Maker, one of the world’s largest decentralized finance (DeFi) platforms.
On-chain data showed that almost 22,000 wBTC, worth some US$449 million at current prices, has already been transferred to an account on FTX, a crypto exchange operated by FTX Trading Ltd., prompting concerns that another dump may be on its way.
Read more: Celsius repays debts, cuts jobs amid bankruptcy fears
“If [any liquidations] happen on-chain through a decentralized platform, the damage would be a lot worse because the market orders would be executed to liquidate the loans, to margin call them essentially,” Cassidy said. “It could cause a liquidity run.”
However, Ben Caselin, Head of Research at AAX, told Forkast much of the concern over Mt. Gox is overblown.
“The worst-case scenario is that this becomes a media event rather than an actual market event [or] a liquidity event,” Caselin said, “and we all start becoming fearful and worried.”
Each recipient of the Mt. Gox proceeds will have different options available to them, Caselin said. It is highly unlikely for all of Mt. Gox’s creditors to move in unison — certainly not enough to have a significant impact on the market, he added.
Bitcoin was trading at roughly US$550 when Mt. Gox filed for bankruptcy, which would mean a tidy profit for anyone wishing to cash out right away.
Just as likely, however, is that these early adopters have reinvested in the intervening years and developed a “HODL” mentality, Caselin said, referring to a widely used term for remaining invested in crypto for the long term.
“It’s a good thing that people that have been wronged so many years ago and saw their funds disappear are being able to make amends,” Caselin said. “We should celebrate that.”
The Flippening
The large supply of Bitcoins in the market coupled with the highly anticipated Ethereum merge in August has given rise to speculation about the “Flippening,” an industry term referring to the hypothetical moment when Ethereum overtakes Bitcoin to become the world’s biggest cryptocurrency by market capitalization.
Caselin remained skeptical, saying there’s no telling of the impact of the transition to Ethereum 2.0 ahead of time amid a strong correlation between the two cryptocurrencies. “It is extremely naïve to think that if Bitcoin undergoes a massive crash that somehow Ethereum will thrive,” Caselin told Forkast.
Not much has been thriving in the crypto industry as the total market capitalization as tracked by CoinMarketCap was down 3.3% over the past 24 hour period to US$912.59 billion in late evening trade in Asia. The market capitalization is down more than 58% from the start of the year.
“I think overall, the worst is over,” said Cassidy, “if you have a reduction in price from here, it wouldn’t be as severe as it has been in the past few months.”