Bitcoin Risks Crash To $40K Due to Mt. Gox Supply Blast

Bitcoin (BTC) may crash to $40,000 due to the market’s perceived inability to absorb the Mt. Gox supply, according to Papi, a CryptoQuant-verified on-chain analyst.

Bitcoin’s Net Flows Are Insufficient to Handle Mt. Gox Supply Blast

Papi’s bearish outlook for Bitcoin stems from two things: the average number of Bitcoins leaving crypto exchanges daily and the total number of Bitcoins Mt. Gox creditors will likely sell.

For instance, Bitcoin Exchange Netflows (green), which are measured after subtracting outflows from inflows from all exchanges, show an average positive net flow of 150 BTC entering exchanges daily. At the same time, the median amount of Bitcoin leaving exchanges daily (blue) is around 22,360 BTC, indicating implied buying.

Bitcoin net flow across exchanges. Source: Papi/CryptoQuant

In contrast, the Mt. Gox trustee has dispatched over 47,000 BTC (yellow) out of the total 140,000 BTC. With implied buying sitting around 22,350 BTC, Papi argues that the market is insufficient to absorb the potential supply flood from Mt. Gox creditors, noting:

“If large-scale deposits occur from Germany or Mt. Gox BTC holders, prices could drop into the $40,000 range or even the upper $30,000s in a worst-case scenario.”

This analysis aligns with what Jacob King, financial analyst at Whale Wire, has said. He noted that 99.2% of the Mt. Gox Bitcoin would be sold, adding:

“Imagine billions worth of Bitcoin all being dumped gradually over the next several weeks. There is no way to spin this to be bullish, or news that could offset this.”

Still, the market can avoid a selloff scenario toward $40,000 if demand rises due to ongoing macroeconomic signals. For instance, the latest U.S. jobs data—which helped increase bets on a September interest rate cut to 76% versus around 45% a month ago—could boost demand for riskier assets like Bitcoin.

That is visible in the resumption of inflows in the U.S.-based Spot Bitcoin exchange-traded funds. On July 5, when the U.S. jobs data was released, these ETFs attracted $141.1 million worth of BTC to their reserves, signaling an improved risk sentiment.

Bitcoin Recovery Hits an Obstacle

From a technical perspective, Bitcoin must reclaim its 200-day exponential moving average (200-day EMA; the blue wave in the chart below) as support to improve its bullish prospects for the rest of Q3 2024.

As of July 7, BTC faced upside rejection near the 200-day EMA at around $58,200, raising its likelihood of a pullback toward $54,000 in the coming days. A breakout event, however, may push the price toward $61,000, aligning with the 0.236 Fibonacci retracement line.