Mt. Gox: Announcement of Commencement of Bankruptcy Proceedings [pdf]
mtgox.com
mtgox.com
You won't receive any repayment until Feb 2015 at the earliest.
Important note: you must fill out a form claiming your debt in order to be considered for repayment in Feb 2015, i.e. as an Mt. Gox debtee, you are required to manually inform them (via their form) of how much money you're owed, otherwise you'll receive nothing. The form can't be filled out yet, because they haven't released it, but presumably they'll post it on mtgox.com sometime in the upcoming months, so make a mental note to keep your eyes open for it and fill it out whenever it's posted. If you haven't sent in the form by Nov 2014 then it sounds like you're guaranteed to get nothing.
It also seems fairly likely that you won't recover much of your money. That's just speculation on my part (and I would love to be wrong about it) but it seems like it's time to make peace with the idea that you probably won't be seeing >75% of your money ever again.
That said, Mt. Gox recently found 200,000 BTC that they had somehow lost track of: http://www.reuters.com/article/2014/03/21/us-bitcoin-mtgox-w...
... so those 200,000 BTC may be distributed among creditors. Since Mt. Gox's total bitcoin debt has been quoted at around 750,000 BTC, that would mean in an ideal world you'll eventually receive 26.6% of however many bitcoins you had at the time of Mt. Gox's shutdown.
But the world isn't ideal. It's unclear how such a repayment scheme would work in practice. For example, how will Mt. Gox repay debtees who are owed USD/EUR/AUD/etc, not bitcoin? E.g. let's say someone's Mt. Gox account balance was 3.25 BTC and $3,132. How would Mt. Gox's 200,000 BTC be fairly distributed in that situation? Would that $3,132 debt be converted into BTC debt? Or will Mt. Gox sell some of that 200k BTC in order to get US dollars, which are then repaid to that $3,132 debtee? And if all US/EUR/AUD/etc debts will be converted into BTC debts for purposes of repayment, what prices will they use for the actual conversion? (That is, how many BTC per how many dollars of debt?) Will they use current bitcoin market value for the conversion (which is currently $494/BTC) so that $3,132 would be equivalent to 6.34 BTC? Or will they use the value of bitcoin when Mt. Gox shut down operations?
What if they decide the best way to proceed is by selling off all 200k BTC for US/EUR/AUD/etc, which is then distributed among debtees? It's their decision; it seems like that scenario isn't impossible. You can imagine how a firesale of 200k bitcoins would completely annihilate BTC's market value. Of course, it's unlikely that whoever is in charge of Mt. Gox's assets would be that shortsighted, but given that bitcoin is completely new to most legal systems, who knows?
The point here is that your money's fate is up to someone else. Your money stopped being your money the moment you deposited it into Mt. Gox, or Coinbase, or any other third party. And now that Mt. Gox has collapsed and taken your money with it, it's probably best to accept that all of your money is 100% gone and never coming back, because that way when Feb 2015 rolls around you might be pleasantly surprised if Mt. Gox happens to repay you some small percentage of your holdings. (A pleasant surprise is much nicer than a sore disappointment, which is why I recommend pretending all your money is gone. Worst case: all your money is gone. Best case: some of it comes back to you via carrier pigeon. Actually, that would be the Awesome case.)
So let this be a lesson about the dangers of trusting a third party with your money, unless that third party is insured by a government in the event of disaster.
Liquidating 200k BTC would be quite a sight to behold. For example, there are only 18k BTC of orders on Bitstamp right now: http://bitcoincharts.com/markets/bitstampUSD_depth.html
... meaning, selling 200k BTC would blow through the entire order book eleven times over. I have no idea how the market would react to that. I'm sure bitcoin would survive it, just like it's survived every other disaster, but it will be quite the rollercoaster.
The reason I say the 200k BTC would be sold off if the repayments are all in USD is because, if I remember correctly, Mt. Gox had almost no cash when it shut down. Most of its cash had been seized by the US government long ago. So if Mt. Gox are going to repay anything of significance, then it seems like those 200k BTC will be sold off. What's the alternative? Those 200k BTC have to wind up somewhere. I know nothing of Japan's legal system, but the alternatives seem to be "either the government ends up keeping the coins, or the coins are redistributed to Mt. Gox debtees, or the coins are all sold off and the proceeds are distributed to Mt. Gox debtees."
Anyone have any theories about what will happen to the coins?
I noticed from some brief experience with bitcoin trading that if people suspect a huge downward plunge is happening presently, then people with a lot of bitcoin will step in and start putting up "floors", i.e. a large buy order about $50 to $100 lower than the current price. So they might offer to buy 1,000 coins for $75 less than the current price, because they expect it to plunge.
However, when it actually does plunge, what happens is that the plunge eats into their buy order to the tune of about 50 BTC, and then they cancel that buy order and move it even lower. This makes sense because if there's downward pressure, you stand to earn even more if you adjust your "floor" as far down as possible in order to buy the cheapest coins.
So, if 200k coins are sold off all at once, it seems like most of the big players in the market will set a "floor" of about $50/BTC, then sit back and watch what happens. And since everyone else will be completely panicking at that point, a significant number of people will probably hit "sell at current market rate" in order to get out of their BTC position as quickly as possible. (I've seen it happen; sometimes huge orders of 1,000+ BTC are sold at current market rate, which plunges the price way down, and then the price ticks back up as the market adjusts. But 200k BTC is two orders of magnitude higher; it seems like that will smash the price all the way down to sub-$10.)
Hopefully whoever is in charge of Mt. Gox's assets will take a more nuanced approach to selling off 200k BTC than "put them on Bitstamp and sell at current market price."
Smart money says "A lawyer at a downtown Tokyo legal firm with sterling reputation informs the bankruptcy trustee of their desire to purchase certain assets of Mt. Gox. The lawyer demonstrates that they've been engaged by a consortium of foreign investors. The trustee looks diligently for other options to liquidate 200k BTC, finds that the Bitcoin ecosystem is a hive of scum and villainy, and says that he's willing to consider the consortium's offer. They offer $PICK_A_NUMBER, which represents a substantial discount to what many Bitcoiners believe the spot price of 200k BTC to be, but which is -- crucially -- actually available, in actual honest-to-the-Constitution yen, from someone who is almost certainly not a criminal enterprise. The bankruptcy trustee, satisfied that he has diligently explored the options, counteroffers with regards to the price. Terms are reached, a contract is hammered out in an afternoon, and payment is made via a wire transfer. Physical delivery of the Bitcoins is accomplished by the technical experts nominated by the buyers, in the company of the bankruptcy trustee and the representative director of the company. The bankruptcy trustee writes them a receipt and enters the transaction into the books of the company. The universe quivers in anticipation but then realizes 'Wait, much more interesting commerce happens in Tokyo every day.' The bankruptcy trustee then begins drafting a memo to stakeholders of the corporation on the likely amount of liquid assets which the corporation controls to satisfy claims made against it."
I will happily predict this is how it will play out:
1. Someone buys the BTC, like you said
2. Everyone on /r/bitcoin is horrified at the price, like you said.
3. Everyone on /r/bitcoin is pointed at your very comment right here, which is now months old, for the sober explanation that if the deal was so good, then they should have gotten there and put in a bid as well.
4. Commence the gnashing of teeth.
There are times when being reputable is a big win. Unwinding a cluster-fudge is one of them. They want to get through this mess as cleanly as possible.
If they were able to sell for $500 (choosing simple math here), that'd cover about 85% of coin balances (not that simple of course, as they still have to reconcile fiat accounts, as well as non-customer creditors)
This is a great point. I never did understand why so many bitcoiners were on the one hand extolling the virtues of this decentralised currency while at the same time storing staggeringly large amounts of it in a third party system that they didn't control.
The whole point of bitcoin was/is to eliminate the third party, Satoshi's original paper makes that abundantly clear.
None of this could possibly have happened if people had used bitcoin as intended.
But this also proves the point that the way it _is_ intended is way too cumbersome for everyday use.
Convenience will always trump security, ask anyone who ever tried to enforce any sort of security, only to find every password written down on sticky note on the users' monitor.
Is it necessarily cumbersome or just happens to be like that at the moment?
My intuitive feeling is that it can't be inherently cumbersome; that _must_ be an addressable problem.
Keeping Bitcoin requires you to be really good at both storing a specific string of bits, and also keeping that string of bits secret. Even for a really skilled sysadmin, trusting your life's savings to your own ability to secure and back up a single string doesn't strike me as very wise - compromise or misplacement of digital secrets is almost inevitable.
This is one of the best & simplest arguments I've heard against bitcoin-as-a-mainstream-phenomenon for a long time.
So any setup I would consider safe enough to hold mode than 10 thousand dollars worth of coin is one that is no simpler than an enterprise level security system. It's enormous overhead for any individual. And given how BTC is designed, it's absolutely impossible to delegate most of this work to a third party without opening yourself to more risk.
It's a bit like having your money under a mattress, with the difference being that someone can automate hacking into houses to search under the mattress.
And that doesn't even get into issues like accidents: You also need a backup plan on what to do if you die, or go into a coma. Does anyone get to recover your coins, or are they stuck forever in limbo? It's yet another thing you might want to deal with.
In the regular financial system, all of this stuff is handled for you. If you roll your own, you have to manually build all of this yourself, find who to trust with what... and every single protection you build is also a new attack vector. It sounds rather unsolvable to me.
I am sailing into waters I am not at all familiar with here, but I think the currently-underused multisig/escrow features might offer a solution here. But this really is the limit of my knowledge on bitcoin now.
Feel free to contact someone who actually practices bankruptcy law in Japan for a more authoritative answer, but I'd bet a dollar against a yen that they do exactly this. I would further bet that it would be a good time to be in Tokyo and capable of convincing a member of the Japanese establishment that one was willing and able to pay a substantial sum of yen, held at a reputable Japanese bank and having absolutely crystal clear provenance to a reputable business, for the impaired assets. The successful candidate will also exude the ability to complete complex high-value transactions in a manner befitting A Business Run By Responsible Adults (TM).
Their priority will be immediate liquidation of assets. They will simply not be concerned about maximising the return and certainly not concerned with preserving the bitcoin economy. It will be about getting USD (or JPY) as soon as possible. I would think. Not an expert but this seems reasonable.
It's the same reason you can buy cheap office equipment when a company goes into administration. They could get more if they spent more time selling it, but their objective is to liquidise, pay off debts and move on.
On the other hand, is it clear that suddenly releasing 200k bitcoins would be catastrophic? I remember similar mass selloffs in the past which did cause dips but only short term (the decline in BTC value over the last 6 months is surely not the result of a few isolated large-scale selloffs!?). Not sure about the volumes involved in the past though. They were derided as irresponsible IIRC. But bitcoin survives, more or less.
> unless that third party is insured by a government in the event of disaster.
"Insurance by government" does not help those who save money. Dollar lost 98% of value over the century. It did not help those in Cyprus last year who got their deposits locked up indefinitely within the island. And it will not help EU depositors if ECB starts using Cyprus case as they suggested in last year's paper. According to your own words, "your money belongs to someone else" and those guys will be able to take it from you should they need it before you run to an ATM.
Also: all those bail-outs and QE? Those are effective taxes that instead of changing number of units on your account, make your share of money supply (and therefore purchasing power) smaller while someone else's share gets bigger. Primarily, of some big bankers or investor groups. (Example: did you notice how businesses struggle to stay up, or how prices rise, especially in the places close to money distribution centers: e.g. NYC, SF, London, Paris?)
So I would say, considering all of the above, "FDIC insurance" (or alike) is more like a red herring. Your bank will never fail and take all your money outright because it allows the entire system of banks to steal from you steadily in a more obscure manner. Anyone who brings up security of "FDIC insurance" either does not see the whole picture or is taking part in the fraud.
I'd say more: by locking your money in the savings account (in return for few %) you guarantee your bank protection from bank run. If suddenly it turns out your bank is being bailed-in (your deposit is partly taken by central bank), or dollar goes down, they have all legal reasons to deny you access to your cash. Also, they can reliably use that cash for tons of loans (based on fractional reserve, of course) since you are not going to remove that cash from your balance any time soon.
These little favors: "FDIC insurance", "interest payments" are all pieces of a theater to make you either blind or a part of the scheme (but you will lose nonetheless).
My point is largely that if the charitable argument still makes your point, it makes the situation look even worse than the favorable number and rhetoric against the system that you are using. Government policy towards inflation is partly a result of a desire to have people put their money to work, exactly in things like savings accounts, so it makes sense to account for those benefits, even in a criticism.
I would suspect that the last in line would be the standard account holders and given the large debt that MtGox has, I suspect no funds will be left over to go to the standard account holders.
Here are general classes of debt that is usually repaid before unsecured debt (the standard account holders):
http://en.wikipedia.org/wiki/Senior_debt http://en.wikipedia.org/wiki/Subordinated_debt http://en.wikipedia.org/wiki/Secured_debt