After a decade-long ordeal, the Mt.Gox incident is finally coming to a close. In the early hours of May 28th, the Mt.Gox wallet, which had been dormant for five years since the bankruptcy announcement, suddenly saw some activity. It transferred 141,685 bitcoins to an unknown address, amounting to a staggering $9 billion at market prices. Market sources speculate that this is a preliminary step for the Mt.Gox creditors’ reimbursement. As a result, the price of BTC dropped 3% and fell below $68,000.
Looking back at the Mt.Gox incident, it can be considered one of the most infamous events in the history of cryptocurrencies. It brought an end to the bullish market in 2013 and caused significant damage. Mt.Gox, headquartered in Tokyo, Japan, was established in 2010 by Jed McCaleb and later acquired by French developer and Bitcoin enthusiast Mark Karpeles in 2011. It became the leading Bitcoin exchange platform during a time when such platforms were scarce. At its peak, Mt.Gox held a 70% market share in Bitcoin trading.
However, on February 7, 2014, Mt.Gox suddenly announced the suspension of all Bitcoin withdrawals. Initially, the platform cited the need to review its currency flow process, which did not raise much attention from users. But 17 days later, the exchange not only halted all trading but also became inaccessible. This abnormal behavior sparked panic in the market.
Leaked internal company documents revealed the shocking truth that Mt.Gox had been hacked, resulting in the theft of 744,408 bitcoins belonging to Mt.Gox customers and an additional 100,000 bitcoins owned by the company itself. The total amount stolen reached 840,000 bitcoins, worth around $450 million at the time. This large-scale attack was not the first, as Mt.Gox had already experienced several hacks since 2011. Furthermore, even before 2011, Mt.Gox had lost 80,000 bitcoins. However, due to the rapid rise in the price of Bitcoin, the company managed to conceal the losses. Ultimately, this three-year-long theft led to the downfall of the company.
On February 28th, 2014, Mt.Gox filed for bankruptcy in Japan, followed by a bankruptcy protection filing in the United States two weeks later. The incident had a profound impact on the cryptocurrency market, causing the price of Bitcoin to plummet from $951 to $309, a two-thirds decline. The Bitcoin market once again faced a crisis of trust, and many users embarked on a difficult journey to seek compensation.
To this day, the details of the Mt.Gox hack remain unclear. There are various theories, including self-embezzlement, external intrusion, or collusion between insiders and outsiders. However, the core issue is that a significant amount of the stolen bitcoins has yet to be recovered. Former Mt.Gox CEO Karpeles was charged with fraud and embezzlement in early 2015. Before going to jail, he admitted to finding 200,000 missing bitcoins and storing them in a cold wallet. However, when the wallet was traced, it was discovered that the bitcoins had been split among 100 different wallets through a series of transactions.
In 2019, Mt.Gox managed to recover 141,000 bitcoins, which were ruled by the court to be handed over to a trustee for distribution to the creditors. The trustee, Nobuaki Kobayashi, coordinated the distribution timeline. According to Mt.Gox’s balance sheet in 2019, the debtor held approximately 142,000 BTC, 143,000 BCH, and 69 billion yen (approximately $510 million at the time).
By 2019, the price of Bitcoin had risen to nearly $10,000, and the creditors became more sensitive to the distribution timeline and plan. The reimbursement process was further delayed. In 2022, Mt.Gox announced that its Bitcoin reimbursement program had been accepted by the court, and the specific distribution method was disclosed in 2023.
This year, in January, creditors disclosed emails stating that they had registered their payment addresses, and Mt.Gox would unlock 140,000 bitcoins in the next two months for payment to the creditors.
Finally, the long-awaited reimbursement process is coming to an end, which should be good news. However, the market has reacted with panic to this news.
The question arises: Does the reimbursement of 140,000 bitcoins imply significant selling pressure? This sudden panic caused the price of Bitcoin to plummet below $68,000.
However, a realistic analysis suggests that a massive price drop is highly unlikely. Firstly, while 140,000 bitcoins may seem like a substantial amount, the current institutional-dominated Bitcoin market can absorb it. For example, Grayscale, as the largest short-seller of Bitcoin, sold an average of 7,000 bitcoins per working day before April. In January, during intense selling, the daily sales volume even reached 10,000 bitcoins and continued for two weeks. So far, Grayscale has sold a total of 332,000 bitcoins, resulting in a net outflow of $17.746 billion. However, the price of Bitcoin has steadily risen from $40,000 to $67,000.
Furthermore, even if there is reimbursement and selling, it will not happen all at once. According to an announcement on the Mt.Gox official website in 2023, the reimbursement plan for creditors includes a basic payment and a proportional payment. The basic payment allows each creditor to claim up to 200,000 yen in Japanese yen, while the proportional payment offers two flexible options: an “early lump sum payment” or “interim payment and final payment.” The lump sum payment only allows partial compensation, and the amount exceeding 200,000 yen can be chosen by the creditor in a combination of BTC, BCH, and yen or paid in fiat currency. Opting for the interim and final payment will result in a higher compensation amount but may take several years. The payment options also include cash and cryptocurrencies.
Overall, Mt.Gox has considered the dangers of concentrated selling and adopted a distributed reimbursement approach. The former CEO of Mt.Gox also clarified that the bitcoins would not be immediately sold.
Moreover, even in the case of concentrated reimbursement, the selling pressure would be much less than the total amount of bitcoins. Due to the prolonged nature of the Mt.Gox incident, many creditors had already sold their claims to funds. Therefore, institutional investors make up the majority of the creditors. According to last year’s data, only 226 claimants owned over 50% of Mt.Gox claims. In the current bullish market, both institutions and retail investors are unlikely to sell their bitcoins easily.
However, does this mean there will be no impact at all? Not necessarily. In the current illiquid market, panic sentiment can quickly lead to price drops. The reimbursement deadline is set for October 31, 2024, and until then, continuous selling pressure will exist, causing a decline in market sentiment. However, in the long run, it will not result in a significant downturn as imagined.
In comparison to the Mt.Gox incident, politics may be the more crucial and long-term topic concerning cryptocurrencies.
Recently, both Biden and Trump have made moves regarding cryptocurrency. Trump announced his intention to ensure that cryptocurrency is created in the United States and expressed his support for the release of Julian Assange and the founder of Silk Road. On the other hand, news emerged that President Biden’s re-election campaign team plans to attract support from cryptocurrency voters by promoting innovation.
In the close competition between parties, cryptocurrency voters may have a more significant role than ever before. According to the latest survey by Grayscale of 1,768 adults planning to participate in the election, voter interest in Bitcoin has significantly increased (41% vs. 34% in November 2023) due to geopolitical tensions, inflation, and risks associated with the US dollar. One-third of the voters (32%) stated that since the beginning of this year, they have become more interested in learning about cryptocurrency investments or have actually invested in cryptocurrencies. The survey results also showed that support for cryptocurrencies is not significantly biased towards any particular political party.
In this tug-of-war, cryptocurrencies have emerged as the winners. Cathie Wood, the CEO of ARK Invest, explicitly stated in an interview that the approval of an Ethereum ETF was due to cryptocurrencies becoming an election issue. The Deputy Secretary of the US Treasury also made rare comments regarding privacy mixers, stating that they do not intend to ban mixers but aim to increase transparency and find a balance between privacy and national security.
Currently, all market institutions are closely watching the progress of the FIT21 bill. If passed, it will signify a further relaxation of US cryptocurrency regulations. As long as no issuer or affiliate controls 20% or more of a cryptocurrency, it will be considered a commodity and exempted from securities restrictions by the SEC, ushering in a new era in the cryptocurrency field. Lynn Martin, President of the New York Stock Exchange, also stated at the Consensus conference that if regulations become clearer, NYSE will consider opening cryptocurrency trading. If this happens, the barrier to purchasing cryptocurrencies will be significantly lowered.
However, SEC Chairman Gary Gensler, who has always taken a tough stance, is dissatisfied with this situation. He has openly stated on multiple occasions that the bill has significant issues. Nevertheless, the phrase “the weaker party cannot twist the stronger” has become a reality. Although, based on current information, SEC chairpersons have fixed terms and are not solely determined by the President, it is highly likely that the current SEC chairman will serve a full term until February 2025. However, from the current situation, regardless of which party takes office, the relaxation of US regulations on cryptocurrencies has become an foreseeable fact.
Currently, cryptocurrency lobbying organizations are still working hard. Ripple recently donated $25 million to the cryptocurrency super political action committee Fairshake, bringing the total amount of donations to nearly $100 million before the November elections.
Whether $100 million can influence the situation remains to be seen. Interestingly, institutions were once dismissive of retail investors and held a condescending attitude towards them. However, in the end, it was the so-called retail investors who, through their collective efforts, became a decisive force in determining the direction of cryptocurrencies. This can be seen as another form of decentralization victory.
