Most Bitcoin veterans are likely all too familiar with the tale of woe, but many newcomers to cryptocurrency aren’t as intimately acquainted with the Mt. Gox story. While vague warnings about the fiasco crop up on cryptocurrency message boards and in blog posts, many of these references to Mt. Gox assume that everybody knows the background. Particularly as more and more new investors begin to dive into Bitcoin, this isn’t always the case. To understand the present, it is important to understand the past and establish a historical context. This is as true in crypto as it is for any other economic, technological, or social paradigm. How we got to where we are can help us develop informed ideas about what happens next and what the future might look like.
Mt. Gox 101
The Mt. Gox hack of 2014 was one of the most significant events in Bitcoin’s history. While the markets eventually recovered, the incident forced some serious issues to the forefront of discourse surrounding cryptocurrency. Today, the impact of the Mt. Gox collapse is still being felt, although opinions vary as to what extent. What exactly happened in 2014 and why is it still relevant today?
Launched in Tokyo in 2010, Mt. Gox quickly became the world’s largest Bitcoin exchange. By 2013, it was handling over 70% of all Bitcoin transactions on a global scale. Unfortunately, as activity on the site grew rapidly, behind the scenes an alleged hacker was slowly draining funds from Mt. Gox. Managing to go undetected for some time, the malicious actor successfully stole roughly 750,000 customer bitcoins from the exchange, as well as 100,000 bitcoins belonging to the exchange. This was worth upwards of $450 million at the time. In 2014, upon discovering the security breach, the exchange promptly halted services and filed for bankruptcy protection from creditors.
A saga of legal battles continues to this day, the majority of the missing funds remain at large, and theories abound as to what really happened and who is to blame. Adding to the drama of the Mt. Gox fiasco are many layers of dubious circumstances, including those surrounding its CEO Mark Karpelès, and a long list of unresolved grievances. Perhaps second only to the true identity of creator Satoshi Nakamoto, what really happened with the missing Mt. Gox funds remains one of Bitcoin’s greatest unsolved mysteries. New details continue to emerge into today, and Mt. Gox’s impact on Bitcoin markets likewise has ripple effects that extend into the present, and possibly the future.
The Aftermath: Then and Now
Immediately following the collapse of Mt. Gox in February 2014, the price of Bitcoin sharply declined by 36%. Recovery was slow, but people obviously kept buying Bitcoin despite the risk and volatility. Eventually, the incident became old news, serving as a cautionary tale to emphasise the importance of using secure exchanges and taking precautions to protect your funds and accounts. In the background, however, Mt. Gox never really went away.
Investigations are still ongoing concerning who stole the funds and where they went. In March 2018, news surfaced concerning a UK shell company with links to the missing funds. Last June, Greek police arrested Alexander Vinnik, operator of Russia’s then-largest Bitcoin exchange, on charges of laundering several billion dollars worth of Bitcoin over a period of years. Allegations have emerged connecting Vinnik with the hacked Mt. Gox funds, although the case is still under investigation by authorities.
Since the loss of funds, the customers who were victims of the hack have been waiting for compensation. In the meantime, the remaining funds held by Mt. Gox at the time of its bankruptcy filing have been held by a trustee charged with managing the bankruptcy proceedings. The amount due, like many things concerning Mt. Gox, has been a subject of debate. As the New York Times reported in May 2016, “The Japanese trustee overseeing the case said on Wednesday that only $91 million in assets has been tracked down to distribute to claimants — a small portion of the more than $500 million in assets that Mt. Gox claimed it had in the weeks before it went bankrupt in February 2014…” The article also noted that, “Japanese government officials have still given few indications of what they think happened to the missing money.”
Sell High?
Mt. Gox has, for obvious reasons, become somewhat synonymous with malfeasance and disaster within the Bitcoin community. For anyone who lived through the 2014 crash instigated by the now infamous hack, it seemed almost unbelievable when allegations began to emerge that residual drama from Mt. Gox may have sparked the more recent crash from Bitcoin’s all-time highs in Dec, 2017 – January, 2018.
The trustee charged with managing the Mt. Gox bankruptcy did indeed, it appears, play a role. As Bloomberg reported in March, “The Tokyo attorney and bankruptcy trustee for the now-defunct Mt. Gox exchange disclosed on Wednesday that he sold about $400 million of Bitcoin and Bitcoin Cash since late September.” The impetus for these sales was, according to the trustee, to raise money to pay back Mt. Gox customers.
Significantly, on February 5th, 18,000 BTC were moved from wallets associated with the Mt. Gox trustee. “That day saw steep declines across all cryptocurrency markets, pushing prices down roughly 50% from their 2018 highs,” according to CoinDesk. “Traders are concerned that such large sales of bitcoin from the Mt Gox trustees are negatively affecting the price of the asset,” noted Business Insider. Selling such a large sum all at once at market prices on a public exchange is a big deal. If you’ve heard the term “whale” applied to major players in the market, this is a great example of why: in the sea, when a whale surfaces and slaps its tail on the water, the splash is forceful and visibly massive. Similarly, when a Bitcoin whale moves huge sums of money around, the impact can be felt throughout the entire market.
Come At Me, Bro
As the Bitcoin market appears to be recovering steadily since the crash in early 2018, those with an eye on the Mt. Gox situation have reason to remain vigilant. Despite liquidating a significant sum, the Mt. Gox trustee still has, “another approximately $1.9 billion, which he says he plans to offload soon…”. If, when, and how this sizeable chunk will be sold is yet another mystery to add to the seemingly interminable legacy of Mt. Gox. Whatever the chances of Mt. Gox coming back to haunt us once again, however, history has shown us time after time that Bitcoin tends to prevail. Each obstacle, disaster, crash, “death”, or malicious actor thrown at Bitcoin over the years it has survived, proving again and again that it is a remarkably adaptable, strong, and resilient asset.