Did a Mt. Gox Trustee Cause the Bitcoin Crash in 2018?
Mt. Gox, the now-defunct cryptocurrency exchange has reportedly liquidated ~$312 Million worth of Bitcoin (BTC). These events occurred from February 2018 up until June 2018, with the funds moving through BitPoint, a Japanese cryptocurrency exchange. GoxDox, an organization made to assist the Mt. Gox creditors, recently got involved.
New Information about Mt. Gox
GoxDox published a photo of a bank account statement. It shows the alleged transactions sent from the BitPoint exchange to the Mt. Gox trustee run by Nobuaki Kobayashi on February 5, 2019.
If this report by GoxDox is, in fact, accurate; then this trustee did whatever was necessary to disregard Kraken CEO Jesse Powell’s suggestions. Jesse explicitly told this trustee to refrain from selling any of the company’s Bitcoin (BTC) assets.
He also said that if absolutely necessary; then this trustee must liquidate any remaining Bitcoin assets on an over-the-counter (OTC) cryptocurrency trading platform. This would be the best way to minimize any impact it could have on Bitcoin’s valuation.
Thus, it’s entirely possible that both the trustee and anyone else dealing with this Mt. Gox case didn’t know what to do when presented these circumstances. As a result, they prematurely liquidated a vast portion of the organization’s assets in order to move forward with their declaration of bankruptcy.
Did This Cause the Bitcoin Price Crash?
GoxDox claims that the Mt. Gox trustee initially began selling the cryptocurrency exchange’s Bitcoin assets during early 2018. From early February up to June, the trustee sold tens of millions of dollars in bitcoin per week. Researchers claim that frequent wire transfers supposedly came from BitPoint’s bank account, and sent to that of the Mt. Gox trustee. This is a clear indication of the trustee’s intent to obscure these transactions in the event of BitPoint seeing a security breach.
As a result, it’s possible the trustee was planning for public backlash in the event he got caught selling BTC. The reason for this is when someone sells large amounts of Bitcoin, the price of BTC is at a significant risk of falling.
It seems fair to conclude that the reason for sending frequent wires was to prevent counterparty risk. A hack at BitPoint could expose the MtGox Estate to a loss and the trustee didn’t want to get Goxxed. It follows that the trustee would have instructed BitPoint to wire JPY [Japanese yen] over as soon as he had it. This way, MtGox Estate assets wouldn’t be exposed to any hacking incident at BitPoint.
Based on the information sourced by GoxDox, the trustee received 3,822,436,400 Yen on May 2, 2018. From that point onward, on intervals of 1 – 4 days the trustee continued to receive tens of millions of dollars from BitPoint.
Bitcoin from 2018 to 2019
Pay attention to the image above. During the month of February 2018, the trustee began selling BTC assets on a pubic cryptocurrency exchange. Jesse Powell, CEO of Kraken; affirmed that the company (that was hired to track Mt. Gox’s lost coins) advised the trustee not to dump millions of dollars worth of Bitcoin (BTC) into the market. They state:
We were explicit about not dumping a large amount of coins on the market. Unfortunately, it looks like the trustee made their own decision or was taking advice from elsewhere — maybe whatever exchange they dumped those coins on. We had zero knowledge of these sales happening until it was announced at the recent creditors’ meeting.
Be that as it may, the correction of the cryptocurrency market during January 2018 could have been entirely unaffected by the Mt. Gox situation. Though, it isn’t hard evidence due to the lack of info present in the leaked bank statement. Thus, some analysts suggest that when the CME Bitcoin Futures market opened is when the price crashed.
In light of this, the San Francisco Federal Reserve claims; that the time in which the price of Bitcoin began to decline aligns with the initial release of the CME Bitcoin Futures market.
The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. It is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset
Bubble coming to an end?
Many people claim that the short-term bubble of Bitcoin’s price during 2017 around this time was not caused by any specific factors.
However, from February onward, many traders believe that the random liquidation of a large number of bitcoin assets had a significant impact on the short-term trend of BTC.
Consequently, the trustee went under heavy scrutiny from industry experts, including GoxDox researchers. GoxDox state that the Mt. Gox creditors must demand an explanation from the trustee in order to clarify the reason for the dismissal of the advice given by Kraken.
Simple possession of a crypto license is not suitable criteria for selecting an expert. A non-expert judge’s approval does not equate to a sound plan. Reliance on an appeal to authority is never a substitute for good judgment.
Where does Mt. Gox Go From Here?
Cryptocurrency investor and Co-Founder of Blockchain Capital recently uncovered his ambitious plan to revive Mt. Gox, and pay all the creditors of the exchange. Despite the exchange being said to have around $1.2 billion worth of bitcoin; the liquidation of over $300 million worth of Bitcoin makes it hard to tell precisely how much BTC the cryptocurrency exchange currently has.
But it’s not possible (in the situation of Mt. Gox at least) to repay all of the creditors by liquidating the company’s BTC assets. Thus, Brock Pierce, a man claiming to have bought Mt. Gox for 2 BTC in 2014 from Jed McCaleb and mark Karpeles recently decided to reopen the exchange and pay all creditors using the equity of the company.
The first step in doing this had Pierce condemning the work of the Mt. Gox trustee, preventing him from liquidating anymore of the company’s holdings with his new authority over the company. According to GoxRising’s official statement, a British Virgin Islands-based company established to oversee Mt. Gox:
Acknowledging that the Mt. Gox trustee had done a laudable job of managing an unwieldy estate, the group suggested that the inherent limitations on the trustee’s discretionary powers as a fiduciary, prevented him from maximizing creditor returns going forward.
During the North American Bitcoin Conference (TNABC), Brock Pierce expanded on his points, stating that the company intends to revive Mt. Gox via a unified Civil Rehabilitation Plan. There is a law in Japan that forces lenders of any company to change the terms of a loan. Thus, in the upcoming months, the company is due to pay out $1.2 Billion worth of BTC to creditors as quickly as possible, then begin to continue operations.
A $16 Billion Hurdle
Technically, Mt. Gox is currently able to distribute all $1.2 Billion in bitcoin holdings within the next two months, then rush the whole process of obtaining a license from Japan’s Financial Services Agency in order to continue operations as a regulated cryptocurrency exchange.
However, the blockchain incubator CoinLab has reportedly filed a $16 Billion claim against Mt. Gox, claiming they breached a contract with the company. Prior to this, CoinLab filed a $75 million lawsuit until just 2 weeks ago when they bumped it up to $16 billion.
Even with a compromise, if these claims see court approval, a significant portion of Mt. Gox’s bitcoin’s holdings could be lost. Jesse Powell, Kraken Ceo expressed his disappointment in CoinLab following the filing of the complaint.
I’m disappointed to hear that this lawsuit is responsible for holding up payouts, and that any judgment for CoinLab would be treated on par with the depositor victims. I think people are having a hard time getting their heads around the $75m+ claim; given that common perception is that CoinLab never performed and owes $5m+ back to MtGox. If the deal had been carried out; it might be CoinLab on the hook for the shortfall of client deposits.
The main problem with this lawsuit is that it’s not against the exchange itself. Instead, the lawsuit is against the creditors of Mt. Gox.
This lawsuit today is not CoinLab vs. Mt. Gox, but CoinLab vs. the MtGox customers, now [current] creditors, who have done nothing to deserve being involved in this,
Thus, if this lawsuit powers on, it will be the creditors with Mt. Gox’s $1.2 Billion bitcoin holdings that will have to settle the lawsuit for $16 billion.
Could This Mt. Gox Revival Affect the Price of Bitcoin?
In the event that the $16 billion lawsuit filed by CoinLab is the only hurdle in the way of settling the creditors’ funds, it’s entirely possible that the creditors will receive their portion of the Mt. Gox bitcoin assets by the latter half of 2019.
In these situations, the distribution of funds primarily depends on the result of a court hearing or the settlement of this lawsuit. The outcome of the case could affect the number of Bitcoin assets that the creditors get back.
It’s in the hands of the individual / retail traders to do what they want with their bitcoins after this case is settled. Thus, there is a possibility that the creditors could sell their new Bitcoin holdings on the open exchange market, which could have a similar effect to what we saw in February last year.
However, it’s highly unlikely that the creditors would do such a thing. Dumping their newly obtained BTC assets on the open exchange market in the short term would do no good for the value of these assets. Especially during a period in which BTC is showing resilience in it’s new ‘low price valuation’ being down by over 80% since it’s ATH.
What do you think about Mt. Gox coming back? Do you think it will affect the price of Bitcoin in the future? Let us know your thoughts in the comments below!