Still a cool box either way, and I’m sure you’ll be able to salvage it. If it were up to me, I’d wrap the outside and bottom of the box with packing tape and try to backfill the defect with epoxy. Sand it down with a belt sander after and then buff it out.
I know in Walnut every social media maker seems to do black, but on a lighter wood I kind of like clear. I think it’s neat to still be able to look at the defect and feels like it’s preserving a part of the wood’s story. Maybe I’m weird.
So what did you end up doing? I missed this post somehow but would have given my 2 cents of try to accent the knot. For some reason I really like the way it looks. Improvisation to issues is sometimes part of the fun of woodworking (?) Maybe (?). But then again, my favorite projects are using pallet wood to make nice furniture. Rough, not perfect surfaces create a uniques that only wood can provide.
I decided to leave the defect in. The inside of the box was secure to items would not fall out. I applied 2 coats of Watco Danish Oil Natural. I may add another coat or two after it dries for a while.