Mt. Gox, the Japanese Bitcoin The stock exchange, which went bankrupt a decade ago after a serious hacker attack, is now finally about to repay its creditors, who’re being generously rewarded for his or her patience.
Up to 950,000 bitcoins were lost within the 2011 hack, at a time when the cryptocurrency was trading for under a fraction of its current value. About 140,000 of those coins were recovered, an amount that, at today's rates, means about $9 billion value of bitcoins can be returned to their owners.
Among the plaintiffs is Gregory Greene from Illinois. Shortly after the stock exchange filed for bankruptcy in February 2014, filed a category motion lawsuit against Mt. Gox and its former CEO. Greene said on the time that his frozen account contained $25,000 value of bitcoins, but didn’t disclose what number of coins were in his wallet.
Bitcoin was trading for about $600 on the time. Today, it's value over $60,000. That means Greene's lost stash can be value about $2.5 million at current prices, a ten,000 percent gain. But it's unclear how much he'll receive within the payouts, that are expected to are available in July.
John Glover, chief investment officer of crypto lending firm Ledn, said creditors are in for a historic windfall.
“Many will clearly monetize their assets and be happy that their wealth after the collapse of Mt. Gox was the best investment they ever made,” Glover told CNBC.
What was Mt. Gox?
Mt. Gox was a web-based marketplace where people could buy or sell bitcoins in various currencies. At the peak of its success, the platform was the biggest spot bitcoin exchange on the earth, claiming to process around 80% of all global dollar transactions against bitcoin.
The company, whose acronym consists of the name “Magic: The Gathering Online Exchange,” was closed in February 2014 after a series of robberies.
Mt. Gox blamed a bug within the cryptocurrency's framework for the disappearance of the bitcoins. While users received messages about incomplete transactions when accessing the exchange, in point of fact the coins could have been illegally withdrawn from their accounts by hackers, Mt. Gox said.
On Monday, the court-appointed trustee overseeing the stock exchange’s insolvency proceedings said Payments to the corporate's roughly 20,000 creditors would begin next month. The payouts can be made in a mixture of Bitcoin and Bitcoin Cash, an early offshoot of the unique cryptocurrency.
Alex Thorn, head of research at crypto asset management firm Galaxy Digital, said in a note last month that the overwhelming majority of creditors he has spoken to will accept payment in kind, in cryptocurrency somewhat than fiat money. They may even largely keep the assets.
Many of the highest holders with claims to Mt. Gox assets are well-known within the bitcoin world, he said. They include early bitcoin investor Roger Ver, Blockstream co-founders Adam Back and Greg Maxwell, and Bruce Fenton, former executive director of the Bitcoin Foundation.
Some will “take the money and run away”
Based on discussions with institutional investors who must receive payouts, “we do not believe there will be any significant selling in this group,” Thorn wrote.
However, Glover, who previously served as managing director at Barclays, said there was still prone to be significant selling by creditors who now have the chance to reap massive gains after years of waiting.
“Some will clearly choose to take the money and walk away,” Glover said.
Analysts at JPMorgan Chase said the potential for enormous selling by Mt. Gox creditors next month represents a “downside risk” but one which can be short-lived.
“Assuming most of the Mt. Gox creditor liquidations take place in July, [this] creates a pattern where crypto prices will continue to come under pressure in July but will pick up again from August onwards,” the analysts wrote.
There's also the chance that a variety of bitcoin investors on Mt. Gox have already spent their money. In the last decade because the exchange's bankruptcy, a secondary market has emerged for those trying to liquidate their bankruptcy claims. Those who’ve held out are the true believers, Thorn said.
“Thousands of these creditors have waited 10 years for their payouts and have resisted compelling and aggressive offers during that time, which suggests they want their coins back,” Thorn said. He expects limited selling pressure, but acknowledged that selling just 10 percent of the distributed bitcoins “will have an impact on the market.”
Certain tax consequences may hinder the sale.
Luke Nolan, Ethereum research fellow at digital asset management firm CoinShares, said a key reason Mt. Gox creditors have opted for repayment in kind is the tax implications. And JPMorgan said in a note Monday that individuals tend to just accept their payout in cryptocurrencies “either for tax reasons or because they think an immediate liquidation would wipe out potential further price appreciation in the future.”
Glover said there are methods to avoid high capital gains taxes and still take advantage of Bitcoin's huge rise in value.
“Those in jurisdictions with capital gains tax may choose to hold their positions to avoid this huge tax bill,” Glover said, “and instead use their bitcoins as collateral to borrow dollars, thus monetizing the bitcoins without having to sell them.”
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