- The defunct Bitcoin exchange Mt. Gox will soon begin returning cryptocurrencies totaling around $9 billion to thousands of users.
- The payout comes more than a decade after the exchange went bankrupt following a cyber theft of up to 950,000 bitcoins.
- Bitcoin is now trading for over $60,000, up more than 10,000% since Mt. Gox went bankrupt.
Mt. Gox, the Japanese Bitcoin exchange that went bankrupt a decade ago after a major hack, is finally close to paying off its creditors, who will be handsomely rewarded for their patience.
Up to 950,000 bitcoins were lost in the 2011 hack, at a time when the cryptocurrency was trading for only a fraction of its current value. About 140,000 of these coins were recovered, an amount that, at today’s rates, means about $9 billion worth of bitcoins will be returned to their owners.
The plaintiffs include Gregory Greene of Illinois. Shortly after the exchange filed for bankruptcy in February 2014, Greene filed a class action lawsuit against Mt. Gox and its former CEO. Greene said at the time that his frozen account contained $25,000 worth of bitcoins, but did not disclose how many coins were in his wallet.
Bitcoin was trading for about $600 at the time. Today, it’s worth over $60,000. That means Greene’s lost stash would be worth about $2.5 million at current prices, a 10,000 percent gain. But it’s unclear how much he’ll receive in the payouts, which are expected to come in July.
John Glover, chief investment officer of crypto lending company 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 an online marketplace where people could buy or sell bitcoins in various currencies. At the height of its success, the platform was the largest spot bitcoin exchange in the world, claiming to process around 80% of all global dollar transactions against bitcoin.
The company, whose acronym is composed of the name “Magic: The Gathering Online Exchange,” was closed in February 2014 after a series of robberies.
Mt. Gox blamed a bug in the cryptocurrency’s framework for the disappearance of the bitcoins. While users received messages about incomplete transactions when accessing the exchange, in reality the coins may have been illegally withdrawn from their accounts by hackers, Mt. Gox said.
On Monday, the court-appointed trustee overseeing the exchange’s bankruptcy proceedings said payouts to the company’s roughly 20,000 creditors would begin next month. The payouts will be made in a mix of bitcoin and Bitcoin Cash, an early offshoot of the original cryptocurrency.
Alex Thorn, head of research at crypto asset management firm Galaxy Digital, said in a note last month that the vast majority of creditors he has spoken to will accept payment in kind, in cryptocurrency rather than fiat money. They will also largely keep the assets.
Many of the top holders with claims to Mt. Gox assets are well-known in 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 need to 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 likely to be significant selling by creditors who now have the opportunity 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 massive selling by Mt. Gox creditors next month represents a “downside risk” but one that will be short-lived.
“Assuming that most liquidations by Mt. Gox creditors occur in July, this creates a pattern where crypto prices continue to come under pressure in July but recover starting in August,” the analysts wrote.
There’s also the possibility that a number of bitcoin investors on Mt. Gox have already spent their money. In the decade since the exchange’s bankruptcy, a secondary market has emerged for those looking to liquidate their bankruptcy claims. Those who have 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 people tend to 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 ways to avoid high capital gains taxes and still profit from 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.”
