Sygnum Market View – 15 December 2020
Bitcoin is consolidating on a high level. But will the Mt. Gox rehabilitation plan put a stop to the high-flyer’s astonishing performance? Meanwhile, MicroStrategy raises funds to buy even more BTC.
Spot market rehabilitation plan for Mt. Gox
The shutdown of Mt. Gox - once the world's largest Bitcoin exchange handling 70% of all global transactions - was one of the most infamous events in the history of blockchain and cryptocurrencies. When they suddenly halted activities in February 2014 after announcing the loss of 850,000 BTC during various attacks, several early Bitcoin investors lost their substantial holdings - and the industry's reputation was seriously affected.
However on December 15 2020, the Mt. Gox saga may finally come to an end with a distribution of around 140,000 BTC to users who lost funds following the 2014 shutdown. With approximately 28,000 Bitcoins mined each month, this is roughly equivalent to five month's block rewards. This has come about due to the Japanese court's "rehabilitation plan" to compensate Mt. Gox creditors.
The upcoming distribution will see the stash of recovered Bitcoin worth USD $2.6 billion go to a number of former Mt. Gox users. As Bitcoin was only trading at around USD $700 when Mt. Gox halted withdrawals in February 2014, its price increase of around 2600% since that point would represent a considerable windfall for the recipients should they choose to cash-out.
The temptation to sell at such a profit could put additional pressure on the Bitcoin price, which recently dipped below USD $18,000 after hitting new all-time-highs on several exchanges. That could create a bearish landscape if sentiment suddenly changes as a result of the distribution. However, despite the Mt. Gox’s rehabilitation plan being pushed back a number of times by the Japanese courts, at least it looks like the long awaited closure Mt. Gox is almost at hand.
Another push by Microstrategy
MicroStrategy, the world's largest publicly traded business intelligence company, has announced that it intends to invest the proceeds of a $400 million securities offering on acquiring Bitcoin (if not required for general corporate needs). The business-intelligence group first purchased USD $250 million worth of Bitcoin in August 2020, calling it a "reasonable hedge against inflation." At the time, its investment equated to 21,454 BTC.
Recent price action of the listed business intelligence giant in tandem with BTC
At the beginning of December 2020, MicroStrategy bought even more of the cryptocurrency, stating in their SEC filing that they now held approximately 40,824 Bitcoins. With the purchase of a further USD 400 million, the company could potentially increase its stake to a total of BTC 62,000, worth nearly $784 million at current prices. This means that the company has achieved a profit of almost 65 percent, as its original acquisition costs were around $475 million.
Shortly after the announcement, Citibank aired their views on this move by downgrading the company to “sell” from “neutral”. The Citibank analyst said that the Microstrategy CEO had a “disproportionate focus on bitcoin” which puts investors at considerable risk, especially after the “overextended” rally since September 2020.
If we look at the current developments on the institutional side of the market, we are still convinced that the year 2021 can continue to be a very positive one for digital assets, and Bitcoin in particular.
Bumps in the road like the Mt. Gox rehabilitation plan might pose some short term risks and elevate volatility, however we believe the market is managing these situations in a more and more mature manner these days. We believe that Bitcoin's current consolidation will continue as it gather's its strength - and possibly takes out the all-important psychological mark of USD $20,000.
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