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Defunct crypto exchange Mt. Gox will begin distributing bitcoin repayments to creditors next month. These creditors are expected to sell part of their bitcoin receivables, initially pressuring the market but potentially recovering from August onwards, according to JPMorgan analysts.

Gemini Earn creditors recently likely liquidated part of their crypto assets received, JPMorgan analysts led by Nikolaos Panigirtzoglou said in a report on Wednesday. "Going forward, a similar downside risk looms in July with Mt. Gox creditors," they said.

Last month, creditors of crypto exchange Gemini's Earn product received $2.18 billion of their digital assets in kind. Specifically, they received 97% of these crypto assets on May 29 and the remaining 3% on June 20. The JPMorgan analysts said that, looking at the negative crypto price action since May 29, "it is fair to assume that some of Gemini creditors, which are mostly retail customers, have taken at least partial profits in recent weeks, as the bitcoin price has more than tripled since these digital assets were suspended on Nov. 16, 2022."

This assumption is supported by the minimal decrease in JPMorgan's bitcoin futures position indicator based on CME futures, suggesting that it's mainly retail customers, rather than institutional investors, who have been selling off crypto holdings in recent weeks, the analysts added.

Mt. Gox creditors are set to receive 142,000 bitcoins from July to October worth around $9 billion in today's prices. Although there is an October deadline, the JPMorgan analysts believe that most of the repayments will take place during July. "Assuming most of the liquidations by Mt. Gox creditors take place in July, [that] creates a trajectory where crypto prices come under further pressure in July, but start rebounding from August onwards," the analysts said.

Bankrupt crypto exchange FTX's creditors are also expected to receive their repayments in the next few months, but those repayments will be in cash, as opposed to in-kind repayments to Gemini and Mt. Gox creditors.

FTX's cash repayments, estimated at around $14 billion-$16 billion, are expected shortly after the final approval of its wind-down plan on October 7, the JPMorgan analysts said. Those repayments from FTX could support crypto markets, with crypto-native creditors likely reinvesting funds into assets, according to the analysts.

"While payments in kind create the risk of liquidations as some creditors decide to take profit, payments in cash create a positive flow impulse as the most crypto native creditors may decide to reinvest their cash into crypto assets," the analysts said. "The problem for crypto markets is that there is likely a gap of around three months between potential Mt. Gox creditor liquidations in July and FTX creditor reinvestments in October/November."

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JPMorgan says Mt. Gox creditors likely to sell part of bitcoin receivables next month - The Block