Mt. Gox was the largest cryptocurrency exchange in the world at one point. In the early days of crypto, when companies like Binance and Coinbase were still upstarts looking to find their place in the industry, Mt. Gox was an already-established giant.
However, an unfortunate hack crippled the exchange and left its customers stranded. Years later, a resolution to the case could now halt Bitcoin's momentum.
A Giant Falls
This month, Mt. Gox’s dissolution trustee Nobuaki Kobayashi announced that all stakeholders had reached a final and binding resolution to the exchange’s compensation issue. According to a Bloomberg report, the plan, initially filed at the Tokyo District Court in February, is now ready to go into full effect - Kobayashi explaining that he will be in touch over the modalities of the case.
As stated earlier, Mt. Gox was a crypto industry giant back in the day. It was founded in 2010 by Mark Karpeles and Jed McCaleb, the latter of whom would go on to also establish Ripple Labs. At its peak, Mt. Gox reportedly handled up to 70 percent of all Bitcoin transactions around the world. However, even at that time, Mt. Gox was already in trouble.
In June 2011, Mt. Gox’s first hack came into place. Hackers managed to access the company auditor’s computer and changed the price of bitcoin to just a cent. From there, they began buying Bitcoin at this price, getting about 2,000 BTC. The hackers gained an additional 650 BTC from customers who purchased but never received any coins in return.
Mt. Gox had tightened its security, but it was too late. For years, the hackers continued to skim money from the exchange and its customers.
Even worse, Mt. Gox had internal issues. Karpeles was allegedly committing fraud and controlled a significant part of the company’s code. Bugs could languish in Mt. Gox’s code for weeks without being touched - further allowing the hackers to keep profiting.
The Money’s Coming: Creditors
When Mt. Gox filed for bankruptcy in 2014, the exchange was said to have lost about 850,000 BTC to these hackers over three years. Using a rate of $55,000 per Bitcoin, the company’s losses would total about $46.75 billion today.
Lawsuits started rolling in as soon as the company announced it was filing for bankruptcy. Customers who'd lost money to the hackers immediately started requesting their funds, holding both Mt. Gox and Karpeles accountable for their losses.
After much back and forth, the Mt. Gox dissolution case eventually showed signs of conclusion. In October, Kobayashi announced that around 90 percent of those customers who'd suffered losses in the Mt. Gox dissolution had approved a distribution plan for compensation.
Japanese courts initially approved a petition for Mt. Gox to begin civil rehabilitation for its creditors in June 2018. However, the deadline was continually extended until December 2020, when the Tokyo District Court accepted the current rehabilitation draft. Now that the draft is final, customers are anticipating their pay soon.
Bitcoin Investors, Beware
It is worth noting that the payout will be pennies on the dollar. Reports suggest that Mt. Gox only has 150,000 BTC to compensate users with - less than a fifth of the total amount stolen from the exchange. Regardless, given how much time and energy was spent prosecuting the case and urging Mt. Gox to take accountability, most creditors will be glad to get something.
For now, it’s unclear how this mass payout could affect Bitcoin’s price. 150,000 BTC isn’t small by any stretch, and the amount of Bitcoin flooding the market will most likely cause a price drop.
Earlier this year, the industry’s largest asset management firm, Grayscale Investments, caused a bit of a drop in Bitcoin’s price after it paid 16,000 BTC to investors following a mandatory lockup period. It was especially bad at the time since Bitcoin had dropped significantly.
When the Grayscale liquidation hit, Bitcoin’s price dropped below $30,000. The market eventually recovered, but such an occurrence may not bode well for Bitcoin moving forward.