Are Fears of a Mt Gox BTC Liquidation FUD or something more?

By I-HODL | A Crypto Journey | 25 Aug 2022


In June 2011, Bitcoin had crashed momentarily to trade on at least one exchange for $0.01 before jumping back to $13. Don't believe me? Well, I've got receipts. And a lot of what happened more than ten years ago can have implications for the world of crypto today. Let's get into this story.

Crypto exchange Mt Gox was started in 2010 by American entrepreneur Jed McCaleb who later played a key role in the development of XRP and then moved on to found Stellar (XLM), right? Just for context. 

Anyways, it was incredibly popular in the crypto community at the time until around June 19, 2011 when, according to reports, the price of Bitcoin on the exchange fell to an all time low, albeit momentarily. FUD  spread across markets and there were persons whose reactions were pretty similar to what we saw during the Terra UST/LUNA crash earlier this year. The reason? Well, the exchange had been hacked.

Someone had broken into Mt. Gox's database, accessed user names, email addresses, etc, and then had used the credentials of at least one account to buy a large number of bitcoin, selling it and causing the market to flash-crash, so sending the price down to $0.01 cent per bitcoin and then buying the crypto back and withdrawing it. Price jumped back to $13 per Bitcoin. Oh, to have known about crypto then, right? Anyways, they thought that was it. Ha!

Later, the community learned that the hackers had stolen somewhere near $8.75 million in crypto. And this was not the end of the Mt. Gox saga.

On or around February 2014, reports circulated that the exchange, described by Time as the most popular exchange in the world in 2014, was in financial trouble. A corporate document was leaked suggesting that approximately 750,000 Bitcoins had been stolen (6% of all available Bitcoins at the time) due to a sustained hack that had gone unnoticed by the company for several years since 2011, costing approximately  $460 million at the time. Heavy on the at the time, my friends, because that Bitcoin at this time is worth billions, right? But I digress.

After initially freezing wallet withdrawals, the company filed for bankruptcy, a move which, according to Reuters, affected more than 24,000 customers. And there's a really great picture of a guy I believe to be Mt Gox customer,  Kolin Burges, who, when Mt. Gox froze Bitcoin withdrawals, flew all the way to Tokyo from London to keep vigil outside the exchange's headquarters holding up a sign which read. "Mt Gox where is our money?" The picture was taken  by Reuter's photographer, Toru Hanai. I'd love to share it, but I don't have the copyright permission to use the pic, so I'll just have to give you my lil artistic impression, all right? Here goes.

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I know, I know, I missed my calling. I should have been an artist, right? Cuz this is like a dead ringer. I should be all up in the metaverse having NFT showings in my digital art gallery. I'm sure y'all would support me, right?

Yeah.

But anyways, so what is the relevance of this decade old story today? Well, see, all the funds at Mt Gox held had been  frozen as a result of its bankruptcy filing in 2014, right? By 2018, the value of those funds had soared tremendously. Then fast forward to 2021, and you'd get what I'm saying. Even though Bitcoin's value has fallen since its all time high last year, it's still a helluva lot more than $13 or $1,500 which is what I think it traded for right before its closure. And so, today, we get news that Mt Gox is getting ready to pay its creditors. Last month, in July, 2022, Mt Gox's trustee, notified former customers that the exchange would begin to make repayments in accordance with its bankruptcy rehabilitation plan. Those payouts begin at the end of August. 

As stated by the trustee: "The Rehabilitation Trustee plans to set the Assignment, etc. Restriction Reference Period from approximately the end of August this year until all or part of the repayments made as initial repayments is completed for safe and secure Repayments."

And so, for the creditors, yay them!  For the rest of us? Well, dang, now what could that mean for the price of Bitcoin in particular, crypto in general, with all that Bitcoin potentially flooding the market? There are diverging views on this issue.

On the one hand, some are saying the liquidation would cause Bitcoins to flood the markets as users cash in on the gains of their 10+ year investment. That's on the one hand, and if this happens then it will definitely put a lot of pressure on the price of Bitcoin. It could mean then that we'll probably see lows we haven't anticipated in this market. So that's gonna be interesting if that happens for sure.

On the other hand though, there's the argument that a lot of hedge funds have already bought up quite a bit of the Bitcoin held by individual users. In 2017, for example, there were articles of hedge funds in the US and Japan reaching out to those individual Bitcoin holders and offering them deals to take on their interest in the Mt Gox debacle for an immediate payout in cash, right?

Now, if you took that deal in 2017, I guess you'd have probably already cursed yourself out ten times over, but if that happened, it's also going to mean that a lot of hedge funds and institutions will be the ones receiving the payout, and in that case, there would be less expectation that the hedge funds would flood the market. 

And so, my friends, which scenario do you think is most likely in the days ahead? I'd love to hear your views.

I'm off again in search of another story. Until we meet next time, please remember to be safe. Please do your research when engaging in any transaction online. If you're investing any today, only spend what you are prepared to lose. You know the spiel. Okay guys, arrivederci. We'll chat soon.

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I-HODL
I-HODL

Your friendly, neighborhood crypto enthusiast.


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