Square Swoops in to Save the Day Before Mt. Gox Showdown

KEY TAKEAWAYS 

  • A popular Twitter channel incorrectly reported a transfer from the “Mt. Gox cold wallet”, which may have exacerbated the deflation of the DeFi markets
  • Square investing 1% of its total assets in Bitcoin buoyed the market. If U.S. non-financial firms all follow suit, the market could experience a huge inflow of $465 billion
  • Crypto markets bounced back immediately after Square’s announcement, but the recovery is short-termed. Medium-term trend will depend on Mt. Gox announcement and the results of the U.S. election

On Oct. 8 at around 9AM UTC, the Twitter account Whale Alert (@whale_alert) announced that 95 BTC had been transferred from the Mt. Gox cold storage wallet to an unknown wallet. The DeFi asset market, which has seen significant loss in value across major assets in recent weeks, experienced a sharp dip immediately after the Tweet went live. BTC and ETH however, remained resilient. 

The DeFi sector hinges primarily on the price of BTC and the utility of ETH. Any major price decline of these two coins could potentially extinguish any hype around DeFi, and possibly even crush the entire sector. 

Source: Whale Alert

However, when we dug a little deeper, we noticed that Whale Alert made a blunder. The DiscusFish/F2Pool/MtGox/FreeBitco.in is not the address for the Mt. Gox cold wallet, but is in fact an address related to the mining pool, F2Pool. 

Source: Blockchain.com

This isn’t the first time that Whale Alert has made such a mistake. On March 31, 2020, the account reported an outflow from the alleged Mt. Gox cold storage, which also turned out to be an address related to the mining pool F2Pool. 

The downward market trend was immediately reversed upon the announcement of Square’s unusually large BTC purchase. On Oct. 7, Square — the U.S. fintech — revealed that it had purchased 4,709 BTC at an aggregate price of $50 million, amounting to around 1% of the company’s total assets. This purchase mimics the steps taken by MicroStrategy, making Square the second U.S.-listed company to invest heavily in Bitcoin. 

Square has been a leader in the cryptocurrency space since 2018, after its Cash App enabled its clients to buy and sell bitcoins. In Q2 2020 alone, Cash App facilitated the trading of 95,672 BTC, with the annualized trading volume close to 7% that of Coinbase. Jack Dorsey, CEO of both Square and Twitter, has long been a vocal advocate of cryptocurrency. He brands Bitcoin as the most likely asset to become the “Internet’s native currency.” 

In a press release, Square cited reasons such as “economic empowerment” and “a way to participate in a global monetary system” to justify its intrepid move. These two are among the key reasons why many have invested in Bitcoin to secure their own financial future in the wake of increasing economic uncertainties.

The total assets of non-financial U.S. companies stands at around $46.5 trillion. If they emulate Square’s strategy and collectively allocate 1% of their total assets in Bitcoin, the crypto market will see a significant inflow of liquidity amounting to $465 billion, which is 1.03 times larger than the current total market capitalization of Bitcoin.  

Excited by Square’s investment and the prospect of greater cash inflow, BTC’s price increased by around 3%, while the DeFi index rose above the current short-term downward trend line. Square’s announcement has indeed buoyed the crypto market in the short term. However, the crypto market still lingers in weak territory. The medium-term trend will be heavily dependent on the results of the U.S. election and the final showdown of the Mt. Gox rehabilitation plan.  

Source: TradingView