The Breakdown - Mt. Gox Distribution Begins and Honeybadger Don't Care

Episode Date: July 18, 2024

After a decade of FUD, Mt. Gox bankruptcy distributions have finally begun. And yet, Bitcoin doesn't appear to be as scared of the reality of a distribution as the threat of it, at BTC hits a 6-week high. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, July 17th, and today we are talking about the much-anticipated and feared Mount Gawks distribution finally beginning. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, friends, after more than a decade of waiting, the Mount Gox distribution has finally begun in earnest, with Bitcoin starting to move early on Tuesday night. Initially, coin movements indicated internal wallet shuffling.

By Tuesday afternoon, Cracken users received an email informing them that assets had been received on the exchange. Cracken gave a timeline of 7 to 14 days for the Bitcoin to be credited to individual accounts and made available for trading. Overall, the Mount Gox estate holds around 140,000 Bitcoin. Bitcoin worth around $9 billion. Not all of this amount is being distributed to individual creditors. Around 20,000 Bitcoin is owned a bankruptcy claim funds, and around 10,000 Bitcoin will be sent to the Bitcoinsica bankruptcy estate, which is still subject to an ongoing

legal process. This is also technically an early distribution, despite coming almost a decade after the failure of Mount Cox. Creditors were required to agree to a 10% haircut to receive their Bitcoin in this initial distribution. Galaxy Digital Head of Research, Alex Thorne, estimated that around 65,000 Bitcoin will be delivered to individual dual creditors during this particular distribution. According to Arkham Intelligence data, the distribution received by Cracken on Tuesday morning was around 48,600 BTC. There is expected to be another large distribution to BitStamp, which is the other primary distribution agent. We have no solid confirmation of when that will go ahead, but Mount Cox placed around 42,600 Bitcoin in a segregated wallet

yesterday, following the same pattern as other distributions. If we presume that the BitStamp distribution is ready to go, then a total of around $6 billion worth of Bitcoin will be returned, to creditors in this tranche and will become available for trading over the coming weeks. BitStamp has given themselves two months to credit individual accounts, but so far, these timelines have been dramatically shortened in each instance. The BitStamp distribution is understood to include most of the institutional claims funds. These funds are generally structured to distribute the Bitcoin in kind to their investors, so probably won't add to selling over the short term. In terms of a best guess, we're probably looking at around $5 billion in Bitcoin

supply unlocked for individual creditors over a timeline of one to eight weeks. Debates are still raging on how likely it is that the Mount Gawks Bitcoin will be sold off. The market clearly had some views, immediately falling by 3% once the coin started moving early on Tuesday morning. Interestingly, this price plunge was filled back entirely by midday and has marched higher since. This could be an indication that the impact of Mount Gawt is fading. It's still clearly having an impact when the news hits, but that pessimism is quickly being bought up. By the time the coins are actually in the hands of creditors, the narrative could be exhausted, dampening any impact of final selling pressure. Austin Barack of Relayer Capital narrated the move, tweeting,

On the move down, mid-curve sellers saying Mount Cox distributions are bearish, on the rebound, left curve and right curve seeing Bitcoin is cheaper and Mount Cox is a non-event. Indeed, there are still some bearish predictions out there, but they are becoming harder and harder to come by. Much more common is the positive take that any dips will be quickly filled in. Runner XBT tweeted, I expect crypto-Twitter to react to the first few 5K Bitcoin transfers to exchanges. Transfers on chain does nothing, just like with the Germany transfers, eventually they will have no price impact, and that's when I hope to long. Now, this is not exactly how this is playing out, with it turning out that the coins are being sent in one large batch. However,

the idea that the fud will die down quickly seems fairly evident from yesterday's price action. Cryptoquant CEO Ki Yongju tweeted out an interesting chart showing the Mount Gok's supply against the overall realized Bitcoin market cap. It was so minuscule it could barely be seen, leading him to comment, even if Mount Gox's $3 billion is sold on Crackin, it's just 1% of the realized cap increase in this bull cycle. Manageable liquidity. An anonymous account called Few commented on how much clean narrative space there will be once the Mount Gox fut is cleared, tweeting, what's on the other side of Mount Gox is nothing short of amazing. After all these years to finally get rid of this news will be phenomenal. With grayscale

gone, the only similar news left is the Bitcoin that's left to be sold by the U.S. government. There is certainly some potential for further drawdowns as the distribution is completed and the selling pressure comes to market. But it's just not in the charts at the moment. It's worth noting that the market is only really able to freak out because they can see the coins moving on chain. Once they are distributed to exchanges, that signal will be lost, so we won't have any idea how much is actually sold. All we can really go on is the market reaction and signs of stress liquidity. Trader Chimpsu thinks this just isn't likely after watching the charts, commenting, you know what's crazy? Just 18 hours ago everyone was panic selling their Bitcoin because Mount

Gox moves some Bitcoin. 18 hours later, we're trading at a new local high. This should be your obvious sign that we are in a raging bull market now. Quote unquote bad news is being totally ignored. Loma of Haven Crypto added, Bitcoin trading. as if Mount Gox distributions will be directly used to leverage long more Bitcoin. And you know on this show, we always look for a variety of takes. I never like to present just the positive or just the negative, depending on where we are, but it is hard to find a good bearish take out there. Everything the media outlets are using that's bearish is from a week ago or more, and it's pretty clear that the influencers have pivoted to bullish when it comes to Mount Gox. Frankly, it's remarkable that after a

decade, literally a decade of hearing Mount Gox unlock Fudd, so far we had a 14% drawdown on the July 4th week, with the first coin movement combined with the German selling, and a 3% drawdown yesterday with the crack in distribution going out, both of which are already filled, with Bitcoin back to a six-week high. In some more bullish news, FinTech services provider Stripe has switched on Crypto Rails in Europe. The payments company will now allow EU customers to purchase crypto tokens, including Bitcoin, Ethereum, and Solana using their credit cards. Crypto has also been integrated for online merchants who can accept crypto through a simple widget. Stripe will deal with charges, disputes, and KYC requirements in the background, allowing online stores to simply take crypto payments without the hassle.

John Egan, the head of crypto at Stripe said, This expansion allows crypto companies to help European customers buy cryptocurrencies quickly and easily. Now, merchants who rely on Stripe's on ramp for things like conversion optimization, identity verification, and fraud prevention can reach a more global audience. This lets them focus on growing their business and helping their customers. The news follows integration of stablecoin payments which began earlier this summer. The focus on Europe is intriguing given rapidly emerging regulatory clarity. While the new Mika regulations have had some teething problems for established players,

they allow new entrants like Stripe to establish crypto services with a clear understanding of the rules. Europe has also emerged as one of the most concentrated markets for crypto ownership. A recent study from Coinwire found that Europe leads the world in crypto trading volume so far this year, accounting for around 37% of global trading, that narrowly edged out Asia, but was more than three times larger than North America. Hello, friends. Before we get back to the rest of the show,

I want to implore you to join me at Permissionless. Permissionless is the conference for Cryptonatives by CryptoNatives, and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now we are in a major political parties platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permission list is the conference for those using and building on-chain products.

It's home to the power users, the devs, and the builders. And perhaps more importantly, I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use code Breakdown 10. Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use Code Breakdown 10 to get 10% off.

Staying on bullish theme, the Bitcoin ETFs are on an absolute tear at the moment. Tuesday saw $422 million added to the products, which is the highest inflow in six weeks. We've now had three days in a row with collective net inflows above $300 million per day. The streak of positive days overall is now eight and counting. Tuesday's clear outperformer was BlackRock, which pulled in $260 million, on the back of an extremely positive media experience from CEO Larry Fink. Fink told the CNBC audience that Bitcoin is now a, quote, legitimate financial instrument. Last week was already an extremely promising performance for the Bitcoin ETFs.

They saw net inflows above $1 billion for the first time since early June, good enough for the six biggest week since launch. So far this week is seeing almost double that pace, although it is still well short of the March highs. All-time inflows are at a new all-time high, implying that the spate of outflows in June have been completely filled in. Perhaps even more exciting to many crypto-Twitter denizens, it sounds as though the SEC has given the green light for the Ethereum ETF.

Multiple sources are claiming that SEC staff have indicated. the final paperwork will be approved next Monday after market close. That means the funds can begin trading on Tuesday. According to Reuters, at least three asset managers have been given preliminary approval at this stage, and all eight products are expected to launch simultaneously. The SEC had reportedly called for final documents to be filed by today, including fee disclosures. At this stage, we only have fees from Invesco and Vanek, who are setting their prices at 0.25% and 0.2% respectively. All eyes, of course, are on grayscale, which will be converting their Ethereum trust into an ETF. The Bitcoin Trust conversion saw massive outflows, which put a dampener on the Bitcoin

ETF launch. This outflow was largely blamed on high fees, but it seems that Grayscale has a plan in place to avoid the same fate this time around. The company will spin out 10% of assets into an Ethereum mini trust on Thursday, with existing holders seeing their shares split. The mini trust will not be redeemable at first, so at least 10% of assets should be safeguarded over the short term. Grayscale will still need to convert with a competitive fee if they want to avoid another round of vicious outflows, so we'll have to wait and see what they decide to do. Inflow predictions remain optimistic. Tom Dunleavy, a managing partner at crypto investment firm, MV Global, said he expects up to $10 billion in inflows over the first few

months. In a recent investor note, Dunleavy wrote, we believe that there will be strong by pressure with a much more clear narrative that traditional investors can understand. ETH has cash flows. It can be described as a tech stock, an app store of crypto, or an internet bond. That is a much easier sell for financial advisors than digital gold. Finally, a couple of political crypto campaign-related updates. According to filings for the most recent quarter, crypto users have donated $3 million to the Trump campaign. Around 100 people donated $1.8 million in Bitcoin, 900,000 in ETH and a few hundred dollars worth of doge coin in Shiba Inu.

The campaign only began accepting crypto donations in late May, so these figures reflect six weeks of fundraising. There was a mix of small and large donors. Cameron and Tyler Winklevoss of Gemini donated $1.6 billion in Bitcoin, while Crackenpounder Jesse Powell donated $845,000 worth of Eith, making up, as you can tell, the vast majority of the value of the donations. Still, the option was used by dozens of regular individuals as well, the Wall Street Journal highlighting the owner of a Michigan pizzeria and a ticket machine operator on the Long Island Railroad. Crypto donations made up a small sliver of the $331 million

raised in total in the second quarter. The most impactful crypto donations will likely come alongside Trump's appearance at the Bitcoin Conference. Rumors spread last week that a fundraiser would be held during the event, with tickets going for $60,000 per head. Reports now suggest that the fundraiser expects to bring in $15 million. Bitcoin Magazine's CEO, and conference host David Bailey said he fielded a huge volume of calls from Bitcoiners hoping to secure a ticket. He added, Keep seeing that we're raising 15 million for President Trump in Nashville. Don't believe the mainstream media and fake news.

We're raising way more than that. Separately, a new super PAC has been spun up to coordinate Trump donations across the tech industry. According to the latest filings, Cameron and Tyler Winklevoss have also contributed to this organization with an additional 8.75 million. Other donors include former managing director of Sequoia Capital, Douglas Leone, and Palantier co-founder Joe Lonsdale. There were reports that Elon Musk had pledged to donate $45 million per month to the new pack, but now that seems to be in question.

You might have caught yesterday Ben Horowitz and Mark Andresen's podcast explaining the hostility they felt from the current administration towards crypto. Andresen described it as a, quote, brutal assault against the nascent industry that I've never experienced before. It's been impossible to make progress on with this White House. It's a totally intolerable situation. Horowitz reflected on comments from Democrat donor Reid Hoffman, who said they should vote for Biden because the most important thing to business is rule of law.

Horowitz said, I thought that's so ironic because they basically subverted rule of law to attack the crypto industry. Over in Massachusetts, meanwhile, Ripple Labs is helping build a war chest to defeat Elizabeth Warren. The company donated $1 million to the Commonwealth Unity Fund, which was set up by crypto attorney James Murphy, better known as Meta Lawman. The funds will be used in an attempt to unseat Warren in favor of Republican crypto lawyer John Deaton. Deaton is best known for his work advocating for ripple holders during the SEC lawsuit. He provided reams of evidence to show the mindset of ripple investors, which helped tip the scales against the SEC. Deaton will still need to win his primary in September to get on the ballot, but there are many

in crypto who are very excited about that campaign. For now that, that is going to do it for today's breakdown. Continues to be interesting times. Appreciate you listening as always. And until tomorrow, be safe and take care of each other. Peace.