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MtGox will, on occasion, consolidate its accounts into one Bitcoin address, which they did today. The size of its wallet, to say the least, is shocking. That's right; 2.3 million Bitcoins, or nearly a third of all Bitcoins ever mined.
Now, what can we surmise from this? Well, first of all, MtGox is a bigger player than any of us could have ever fathomed. Not only is it the largest Bitcoin Exchange, but it also the largest Bitcoin bank, absolutely crushing the number two bank, whomever that would be (maybe TradeHill?).
Second, if we look at the monthly volume at MtGox, it was only 1.2 million Bitcoins. That means that in the last month, a number of BTC traded hands that was only equal to half of the Bitcoins held by MtGox. Imagine if 10% of the Bitcoins held at MtGox moved in the same direction in one day! Theoretically, in an all-out sell-off, we could see a legitimate return to Bitcoins valued sub $1. To be fair, I don't see that ever happening, save for an announcement of a functioning Quantum Computer that can decrypt Bitcoin private keys, but we'll have much bigger problems than Bitcoin to worry about should that ever happen (you can kiss your online bank account goodbye as well).
Interestingly, the Bitcoins held at MtGox are likely held by investors. This tells us that the market is even more illiquid than previously suspected. An analogy could be drawn between these Bitcoin holders and a company's institutional investors, holding for the long run. If an important announcement were to be made, such as a major online retailer deciding to accept Bitcoin, we should expect Bitcoin's value to rocket to new highs within just a few days, or even hours. There simply wouldn't be that many Bitcoins available to be purchased.
Which direction will the Bitcoin roller-coaster go next? It's hard to say for sure, but you'd better hang on!
Posted in: MtGox
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