Mt Gox: The Potential Black Swan Conspiracy Theory

 

     Mt. Gox was a bitcoin exchange based on Shibuya, Tokyo, Japan. When it launched in 2010, it was handling over 70% of all bitcoin transactions worldwide by early 2014, when it abruptly ceased operations amid revelations of its involvement in the loss/theft of hundreds of thousands of bitcoins, then worth hundreds of millions in U.S dollars.

     It was founded by a programmer named Jed Mc Caleb on the 18th July 2010. He decided that the bitcoin community at the time needed an exchange for trading bitcoin and regular currencies. So Mt. Gox launched on the said date with its exchange and price quoting service  deploying on the spare mtgox.com domain name. 

      In March 2011, Mc Caleb sold the site to French developer Mark Kapeles who was living in Japan because he felt that the site needed someone to really bring out its true potential. Then on the 13 June 2011, the Mt, Gox bitcoin exchange reported that about 25000 BTC (US$400,000 at the time) robbed from 478 accounts. Then on the 19 June, a bunch of manipulative trades dropped the bitcoin price to a cent ($1) on the Mt. Gox exchange. The hacker fraudulently used intel from a Mt. Gox auditor's compromised computer to transfer a large number of bitcoins illegally to himself. Accounts with the equivalent of more than $8,750,000 were affected. To prove that Mt. Gox still had control, 424,242 bitcoins were migrated from a frozen storage to a MT. Gox address and this was announced and executed in Block 132749. 

      In October 2011, about two dozen transactions appeared in the blockchain (Block 150951) that sent a total of 2,609 bitcoins to invalid addresses. As no private key could ever be assigned to them, these bitcoins were in effect lost. Although the standard client could check for such an error and reject the transactions, nodes on a network would not exposing a weakness in the protocol.

      On the 28 February 2014, Mt. Gox filed in Tokyo for a form of bankruptcy protection from creditors called miniji saisei (for civil rehabilitation) to allow courts to seek a buyer reporting that it had liabilities of about 6.5 billion yen($65 million at the time) and 3.84 billion yen in assets.

      The company said it had lost almost 750000 of its customer's bitcoins and around 100000 of its own bitcoins, totalling around 7% of all bitcoins and worth around $473 million near the time of the filing. Mt. Gox released a statement saying " The company believes that there is a high possibility that the bitcoins were stolen, "blamed hackers and began a search for the missing bitcoins." Chief Executive officer Karpeles said technical issues opened up the way for fraudulent withdrawals. Mt. Gox also faced lawsuits from its customers.

      On 9 March 2014, Mt. Gox filed for bankruptcy protection in the U.S to halt U.S legal  action temporarily by traders who alleged the bitcoin exchange position was a fraud. On 20 March 2014, Mt. Gox reported on its website that it found 199,999 bitcoins - worth around $116 million in an old digital wallet used prior to June 2011. That reduced the total figure of bitcoins lost to 650,000 from the original 850,000. 

      In April 2015, a Tokyo security company WizSec came up with evidence asserting that all the missing bitcoins were stolen straight out of Mt. Gox's hot wallet beginning in late 2011.

      On 14 April, Mt. Gox lawyer said that Karpeles would not appear for a deposition in a Dallas court or head a subpoena by FinCEN. On 16 April 2014, Mt. Gox gave up its plan to rebuild under bankruptcy protection and asked a Tokyo court to allow it to be liquidated. In a 6 January 2015 interview, Kraken bitcoin exchange CEO Jesse Powell discussed being appointed by the bankruptcy trustee to assist in processing claims by the 12700 creditors of Mt. Gox. 

      CEO Karpeles was arrested in August 2015 by Japanese police and charged with fraud and embezzlement and manipulating the MT. Gox computer system to increase the balance in an account - this charge was not related to the missing 650,000 bitcoins. After he was interrogated, Japanese prosecutors accused him of misappropriating 315 million yen($2.6 million) in bitcoin deposited into their trading accounts by investors at Mt. Gox and moving it to an account he controlled approximately six months before Mt. Gox failed in early 2014.

       By May 2016, creditors of Mt. Gox had claimed they lost $2.4 trillion when Mt. Gox went bankrupt, which they asked be paid to them. The Japanese trustee overseeing the bankruptcy said that over $91 million in assets had been tracked down to distribute to claimants, despite Mt.Gox having asserted in the weeks before it went bankrupt that it had more than $500 million in assets. The trustee's interim legal and accounting costs through that data to be ultimately paid by creditors were $5.5 million. In March 2018, the trustee Koboyashi said that enough BTC had  been sold to cover the claims of creditors. 

      On 14 March 2019, the Tokyo District court found Karpeles guilty of falsifying data to inflate Mt. Gox's holding by $33.5 million for which he was sentenced to 30 months in prison, suspended for four years, meaning he will serve no time unless he commits additional offences over the next four years. The court acquitted Karpeles on a number of other charges including embezzlement and aggravated breach of trust, based on its belief that Karpeles had acted without ill intent. Nonetheless, the verdict said he inflicted massive harm to the trust of his users and there was no excuse for him to abuse his status and authority to perform clever criminal acts. Karpeles issued a statement saying he was "happy to be judged not guilty" on the more serious charges and was discussing how to proceed with his lawyer regarding his conviction on the falsifying data charges.

      On 15 January 2021, Bloomberg News reported CoinLab Inc. had made an agreement with Nobuaki Kobuyashi, the trustee of the Mt. Gox bankruptcy and the Mt. Gox Investment Fund LP(MGIFLP) a unit of Fortress Investment Group. As much as 90% of the remaining bitcoin tied up in bankruptcy proceedings would be offered to creditors. At the creditors meeting on 20 October 2021, it was announced that the Civil Rehabilitation Plan was accepted by 99% of the creditors representing 83% of the total amount of voting rights and that billions of dollars in bitcoin would be provided as compensation. The plan was officially approved on 16 November 2021. As of 6 July 2022, Japanese trustee of Mt. Gox is holding close to 142,000 bitcoins. 

       Bitcoin is facing a selling threat in the future as users of defunct exchange Mt. Gox prepare to get their BTC back. In a fresh correspondence dated July 6, attorney Noubaki Koboyashi appointed trustee in the Mt, Gox rehabilitation process, compared that he was "preparing to make repayments to account holders". Over eight years after Mt. Gox imploded, it appears that those who lost money are about to receive bitcoin. Check out this video guys:

 

      The price of bitcoin then was just a fraction of what it is now or a little more. Many enthusiasts suspect that recipients and users of the exchange could engage in massive sell-offs of BTC which could definitely deflate the price of bitcoin. The good news for now is that there is no official date for the repayments to begin. But we do know the repayments are about to be made. Three recipients have the opportunity of receiving outstanding funds as an Early Lump Sum Repayment in bitcoin(BTC) or altcoin bitcoin cash(BCH). The deadline for this will be set by the Rehabilitation trustee with the permission of the court. The plan was confirmed on October of last year. So far only 150000 BTC out of the initial 850000 BTC lost by Mt. Gox's decline has been recovered. So what do you think guys? Could the repayment scheme by Mt. Gox lead to a potential selloff. Lemme know in the comments below. Peace