By
Chimamanda U. Martha
June 28th, 2024
JPMorgan analysts suggest that these cash repayments could positively influence the crypto market, as crypto-friendly creditors are likely to reinvest their funds back into cryptocurrencies.
JPMorgan analysts believe that the upcoming Bitcoin repayment plan by defunct crypto exchange Mt. Gox might exert downward pressure on the market due to anticipated sell-offs by creditors. However, a market comeback might start in August.
Mt. Gox, once the world’s largest Bitcoin exchange, collapsed in 2014 after a massive cyberattack. Under the restoration plan, it will repay creditors with 142,000 Bitcoins, worth around $9 billion at current prices. The repayments are planned to occur between July and October, although JPMorgan analysts predict that most of the distributions will take place in July.
Nikolaos Panigirtzoglou, leading the team of JPMorgan analysts, explained that the market might experience similar downside risks in July as seen with the Gemini Earn creditors’ recent liquidations. Last month, Gemini Earn creditors received $2.18 billion worth of digital assets in two installments, 97% on May 29 and the remaining 3% on June 20.
Interestingly, the repayment coincided with a significant decline in the broader crypto market since late May. During this period, Bitcoin has fallen by over 10%. This pattern indicates that some Gemini creditors, primarily retail investors, may have sold part of their assets, capitalizing on Bitcoin’s fourfold price increase since November 2022.
JPMorgan’s Bitcoin futures position indicator also backs this assumption. It indicates that recent selling activity has primarily been driven by retail investors rather than institutional ones.
According to the analysts, the upcoming Bitcoin repayments to Mt. Gox creditors in July are expected to mirror this trend. “Assuming most of the liquidations by Mt. Gox creditors take place in July, it creates a trajectory where crypto prices come under further pressure in July, but start rebounding from August onwards,” they stated.
A Sigh of Relief
On the other hand, creditors of the once-leading crypto exchange FTX are also expected to receive repayments in the coming months. Unlike Mt. Gox and Gemini, FTX creditors will receive their repayments in cash, estimated to be around $14 billion to $16 billion, following the final approval of its wind-down plan on October 7.
JPMorgan analysts suggest that these cash repayments could positively influence the crypto market, as crypto-friendly creditors are likely to reinvest their funds back into cryptocurrencies. However, they noted a potential market challenge: a three-month gap between the expected liquidations by Mt. Gox creditors in July and the anticipated reinvestments by FTX creditors in October or November.
Bitcoin is currently trading at approximately $61,150, having dropped 8% in the past week. This represents a 17% decline from its all-time high of $73,750 recorded in March this year. Meanwhile, the fear and greed index stands at 40, signifying a sense of fear in the market.