Mt Gox casts shadow over bitcoin

As Tesla’s bitcoin purchase pushed the cryptocurrency’s price to fresh records, its mined value has surpassed $US892bn ($1.15 trillion).

This is little over one third of the $US2.04 trillion value of all the US notes in circulation.

The record high of $US48,297 hit this week on Tesla’s $US1.5bn purchase is more than 10 times bitcoin’s value in March last year and shows it is on a roll.

Not only is Tesla prepared to take future payments in bitcoin, CoinDesk reports that MasterCard plans to give merchants the option to receive payments in cryptocurrency.

Meanwhile, this year is shaping as a big one for cryptocurrencies generally, with Amazon reportedly developing its own digital currency.

However, there is some unfinished business for bitcoin involving a murky event in its history that left thousands out of pocket. Some fear it will have a dampening effect on the bitcoin price when the reckoning occurs. That time is drawing closer.

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It involves the collapse in 2014 of bitcoin’s biggest exchange — Mt Gox in Japan, which handled more than 70 per cent of currency transfers but was forced into bankruptcy. It claimed it had lost hundreds of thousands of bitcoins due to a hacking event.

Mt Gox was built as an unpretentious website by programmer Jed McCaleb in 2006 and sold to French PHP developer Mark Karpeles in 2011.

When bitcoin launched in 2010, users could use their home computers to mine the coins, which initially were worth a fraction of a cent. When Mt Gox filed for bankruptcy protection in 2014, the price had risen to above $US800 before the collapse.

Mt Gox claimed to lose 850,000 bitcoins. At the $US800 price, that’s about $US680m of bitcoin. At this week’s price, it’s roughly $US53bn worth of currency.

It’s been a long, drawn-out battle for the more than 20,000 victims, with a major stumbling block appearing to be the now defunct US exchange CoinLab, which represents North American investors. It has a reported $US16bn claim against Mt Gox.

However, in January, after years of little progress, a special agreement was announced between CoinLab, trustee of the Mt Gox bankruptcy Nobuaki Kobayashi, and MGIFLP — a unit of Fortress Investment Group, which has bought claims from some investors — for creditors to accept a payment ahead of a formal bankruptcy settlement.

Victims can register until the end of March and the payment would be agreed before the final settlement between the major parties.

After the 2014 collapse, it was hard to see how creditors would get their money back, but a couple of factors have changed this. First, some 200,000 bitcoins were discovered in an old bitcoin wallet. CoinDesk lists separate assets of 141,600 other bitcoins and 142,800 in bitcoin cash.

Secondly, the rise in bitcoin’s price over the years means the victims will receive more dollars back than they put into bitcoin even under a plan to recompense them about 21 per cent of the value of every bitcoin lost.

“Yes they will definitely be ahead in dollar value,” says Barney Tan, associate professor of business information systems at the University of Sydney Business School. He said victims would receive 21 per cent of their claim as valued at the start of civil rehabilitation, when coins were worth a little over $US8000 — 21 per cent of $US8000 is about $US1700 a coin.

Mark Karpeles, former chief executive officer of Mt. Gox, speaks at a news conference in Tokyo. Photographer: Akio Kon/Bloomberg

He said that was triple bitcoin’s value at the time Mt Gox collapsed, which was under $US500.

However, he said not all investors were aboard. “A poll on Reddit shows about a 45-55 per cent split between the yeas and the nays,” Tan says. “I believe this to be an accurate reflection of the general sentiment.

“Those that will [accept the offer] may be fatigued by the proceedings, or they may be looking at the opportunity costs of having their money locked up indefinitely. They may also believe that the value of the final payment will not be significantly higher, or ­potentially even lower, than what is currently on offer.

“On the other hand, those that won’t [accept the offer] may be thinking that the final payment may amount to much more than the 21 per cent on offer. There is a vocal minority who believe that Mt Gox’s missing coins may eventually be found.

“It is also important to note that the investors are not getting back 21 per cent of the coins at the present value. They’re getting 21 per cent of their claim as valued at the start of civil rehabilitation, which is just a little over $US8000 per coin.”

If most take up the offer, some fear that 150,000 bitcoins being dumped onto the market will hit bitcoin’s price, especially if the recipients sell en masse. There’s only 18.5 million bitcoins in existence, with an estimated 4 million missing in lost wallets or wallets with lost passwords. So 150,000 coins is about 1 per cent of existing bitcoins.

Tan said bitcoin’s price could be affected if the bitcoins all dropped at once, but that may not happen. “Yes, if the bitcoins are sold on the market quickly and all at once, the price will definitely take a huge hit,” he said.

“But I don’t see that happening, and neither do many industry insiders, for a number of reasons.

“First, the amount sold will depend on how many investors opt for early payment. The 150,000 bitcoins will not be dumped all at once. Second, the trustee is not stupid. If anything, a controlled sell-off of the bitcoins is more likely. Third, confidence in the value of bitcoin remains high.”

Nigel Green, chief executive and founder of financial advisory deVere Group, also sees bitcoin weathering this storm. “Should 150,000 bitcoins flood the market quickly, this can be expected to impact the price,” he said. “However, it is also likely that it will generate even more interest from retail investors around the world, meaning any potential dip in price from this event would be capped and short-lived due to other investors continuing to pile in.”

Meanwhile, some cryptocurrency investors are still mining currency using their computers rather than purchasing it. These days, you’d need to have extremely expensive equipment and live next to a power station to mine bitcoin specifically.

Some recently have taken to using renewable energy. reported that Christian Ander, the founder of Stockholm’s Btcx exchange, has found it more profitable to mine cryptocurrencies with the excess power produced by his solar energy installation, rather than sell that power to the grid where a glut of excess power could cause network instability issues.

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