Users of the collapsed bitcoin exchange Mt. Gox have been demanding the return of their funds for 10 years, and the company will begin returning them to users from early July.
Kiyoshi Ota | Bloomberg | Getty Images
Mount Gox, Japan Bitcoin The exchange, which collapsed after a massive hack a decade ago, is finally set to pay back its creditors, whose patience is being handsomely rewarded.
As much as 950,000 bitcoins were lost in the 2011 hack, when the cryptocurrency was trading at a fraction of its current value. About 140,000 of those coins were recovered, meaning roughly $9 billion worth of bitcoin will be returned to its owners in today’s terms.
One of the plaintiffs is Illinois native Gregory Green. Shortly after the exchange filed for bankruptcy in February 2014, Green filed for bankruptcy. A class action lawsuit was filed Gox and its former CEO. At the time, Green said his frozen account contained $25,000 worth of Bitcoin, but did not disclose the exact number of coins in his wallet.
At the time, Bitcoin was trading at around $600. Today, it’s worth more than $60,000. That means that at current prices, Green’s lost assets would amount to roughly $2.5 million, a 10,000% gain. However, it’s unclear how much Green will receive in the compensation, which is expected to start being paid out in July.
John Glover, chief investment officer at crypto lending firm Ledn, said creditors are poised to reap historic rewards.
“A lot of people are obviously going to cash out and celebrate the fact that the assets that were stuck in the Mt. Gox bankruptcy were the best investment they ever made,” Glover told CNBC.
What was Mt. Gox?
Mt. Gox was an online marketplace where people could buy and sell Bitcoin using a variety of currencies. At its height, the platform was the world’s largest spot Bitcoin exchange, claiming to handle around 80% of all global dollar transactions in Bitcoin.
The company, whose name was an acronym for “Magic: The Gathering Online Exchange,” closed in February 2014 after a series of robberies.
Mt. Gox claimed that the Bitcoin disappearance was due to a bug in the cryptocurrency framework: users received incomplete transaction messages when they accessed the exchange, but in reality, hackers may have illegally moved the coins from their accounts, Mt. Gox said.
On Monday, a court-appointed trustee overseeing the exchange’s bankruptcy proceedings Said Dividends to the company’s roughly 20,000 creditors will begin next month and will be paid in a mix of bitcoin and bitcoin cash, an earlier spinoff of the original cryptocurrency.
Alex Thorne, head of research at cryptocurrency manager Galaxy Digital, said in a note last month that the majority of creditors he spoke to said they would accept payment in kind, meaning in cryptocurrencies rather than fiat currency, and that they would likely keep the majority of their assets.
He said many of the top holders claiming assets at Mt. Gox are well known in the bitcoin world, including early bitcoin investor Roger Ver, Blockstream co-founders Adam Back and Greg Maxwell, and former Bitcoin Foundation executive director Bruce Fenton.
Some people “take the money and run”
Based on conversations with institutional investors who plan to pay dividends, “we do not anticipate any significant selling from this group,” Thorne wrote.
But Mr Glover, the former Barclays managing director, said there could still be significant selling among creditors who have the chance to lock in big profits after waiting for years.
“Obviously, some people are going to choose to just take the money and run,” Glover said.
Analysts at JPMorgan Chase said a possible large-scale sale by Mt. Gox’s creditors creates “downside risk” next month but that it would be short-lived.
“Assuming most of the liquidation by Mt. Gox creditors occurs in July, [this] “Cryptocurrency prices are on track to come under further pressure in July before beginning to recover from August onwards,” the analysts wrote.
It’s possible that many of Mt. Gox’s bitcoin investors have already cashed out. In the decade since the exchange filed for bankruptcy, a secondary market has sprung up for people wanting to liquidate the bankruptcy. It’s the true believers who are holding on, Thorne said.
“Thousands of creditors have waited a decade for payment and resisted aggressive claims submissions during that time, which shows they want their coins back,” Thorne said. He expects selling pressure to be limited, but acknowledged that a sale of even 10% of circulating bitcoin “would have an impact on the market.”
Certain taxes may impede sales.
Luke Nolan, an Ethereum researcher at digital asset management firm CoinShares, said a big reason Mt. Gox creditors chose to repay in kind has to do with tax implications. JPMorgan also said in a Monday note that people are more likely to receive payment in cryptocurrency “for tax reasons or because they believe liquidating now would negate the potential for further price appreciation in the future.”
Glover said there is a way to take advantage of Bitcoin’s massive appreciation in value and still avoid huge capital gains taxes.
“People in jurisdictions with capital gains taxes may choose to hold their positions to avoid this large tax,” Glover said. “Instead, they can borrow dollars against their bitcoin and cash out without selling the bitcoin.”
