This article is a highly speculative hypothesis.
The hypothesis is that the market is going to continue to rise, at an accelerating rate as the bull rush begins, from this point onward, until enough Bitcoin has been bought by a single entity, that likely has a timetable on which it must buy Bitcoin and a total cap on how much it will buy. Afterward, there may be a brief drop, before an absolute explosion takes off as a result of a big announcement: MtGox is being rescued or mostly rescued. We’re headed straight to the moon.
This hypothesis assumes the MtGox Crisis Strategy Draft is at least mostly or approximately true. It has been corroborated relatively well: it predicted a few events, and appears to be being confirmed. Here is a link to a Fox Business article on some remarks by Karpeles, where he says that the draft is “mostly legit”.
There are six entities that signed a group announcement ahead of time and published it. They are notated at the bottom of the Coinbase statement. I’ll lay them out individually.
- BTC China
Why did they know about this long enough ahead of time to communicate among themselves enough to release a statement? Because they were contacted in advance. Someone–possibly one of those companies–wanted to get someone in on the MtGox action by having them work closely with those exchanges.
Those entities all have one thing in common: they are places to source Bitcoin. The first four are exchanges, Circle is a large holder of Bitcoin, and Blockchain has a huge amount as well.
They have another thing in common: they’re all institutions that have put a lot of time into appearing legitimate, and a lot to gain from increased legitimacy for Bitcoin. If you had to pick the four most legitimate exchanges, those would be them. Add to it one of the most respected organizations in Bitcoin, Blockchain.info, and the largest Bitcoin investment group Circle. It’s a who’s who of “places we want to show the government are a part of Bitcoin.” They’re all better off if Bitcoin gains legitimacy. They can profit from it, as it were. This gives them an incentive to fix the MtGox situation.
They have a third thing in common: they pooled together to bail out MtGox. The Strategy document specifically mentions that whoever takes over MtGox will want to begin by sourcing a large amount of BTC, and speculates it could be 200k coins. They mention in the strategy that they intend to do so as profitably as possible. How would you do that? Well, it’s pretty much impossible to do that publicly. The market would go berserk at the mention of that much money getting pumped into Bitcoin. You’d have to be covert about it. You’d want to do it through exchanges, but that’s hard to do. They’re too illiquid. So you’d do two things: source Bitcoins from major holders and buy them on exchanges. Luckily, right above is a list of major holders, and they run a bunch of exchanges–so you can solve that. You bring in a hedge fund or other investor, and tell them you want to bail MtGox out and sell the company to them. This seems like it might pretty much have happened. Here’s a link to a relatively reliable-looking source that says Fortress is doing it.
Then you do everything you need to in order to make the deal favorable for them. Why not just buy it themselves? Well, they could, or they could just retain some ownership in it. However, they might not want to be seen as manipulating the market for their own benefit, and instead be seen as charitable. Like a government bailout, except voluntarily from a few individuals or entities.
Why would they do this? It adds legitimacy to all of the Bitcoin world, and they’re huge, profitable Bitcoin companies. How could they do it? What if the investor wouldn’t have to pay fees when using the exchange? Then it would work. They can manipulate the spread up and down endlessly with walls, slowly working the price up and buying as it goes up, then crashing it down and repeating. And each trade is profitable–they are putting enough money in to always push trades favorable and there are no fees. They might even buy for a day, then back off for a period and let the price decline significantly without them.
However, the exchanges, who are interested in adding legitimacy to Bitcoin, don’t want to see that happen. They want a steady and sustained rise, likely a price bottom, and also for it to be done quickly so they can announce the plan to rehabilitate MtGox. The contract between the exchanges and the fund might include clauses like these:
- Min/Max Volume Acquired per time frame
- Minimum allowable price
- Required completion date
It would also definitely include a non-disclosure agreement. The hedge fund is making money by getting to do this before it’s announced, and is expecting to gain significantly from the increase in BTC value. As a result of all of this, you get what is going on currently: a long, sustained raise powered by tons of small walls.
If this is the case, its announcement will be huge and unparalleled news. Some of the best possible. A rescued MtGox and a huge trove of Bitcoin getting bought by Wall Street? It might even be enough to break 4-digits, given time.
I expect we’ll hear about the details as soon as they complete their buying process. And that announcement will almost certainly bring along with it a huge price rise.