5/23 ANDY HOFFMAN (CryptoGoldCentral.com): The Mt Gox Lawsuit – Will it, or Will it Not, Remain Bitcoin-Negative?
Over a 29-year career in financial markets, I have seen essentially everything. From the creation of derivatives, HFT algorithms, and outright “plunge protection teams”; to unfathomable frauds – like Enron, Worldcom, Valeant, and Tesla; and of course, “paper” gold and silver markets.
However, the Mt Gox bankruptcy proceedings take the cake – given the irony of Bitcoin being paralyzed by the same, malignant entity in both life and death. In reality, it’s much worse than that – given the unfathomably inequitable Japanese bankruptcy laws; and the ignominy of who will benefit from them. However, when the facts are scrutinized, and the amounts analyzed, it’s difficult to see a scenario where the situation is not resolved bullishly by year-end, all else equal.
The below article describes the morass in great detail, but leaves many questions unanswered – of what will come of the remaining 137,000 Bitcoin in the Mt Gox Trustee’s cold wallets…that is, assuming the 24,000 he withdrew on April 25th and May 10th have indeed been sold. Which, given the subsequent price plunges, is my guess as to what has occurred.
https://www.reuters.com/investigates/special-report/bitcoin-gox/
Of the roughly 850,000 Bitcoins hacked in early 2014, belonging to 24,000 customers, 202,185 were recovered from various Mt Gox wallets – and held in escrow as of the February 2014 bankruptcy date.
Class action proceedings took time to develop - but have finally, four years later, advanced significantly. Apparently, 5,000 coins were liquidated sometime last year – which was not widely reported. However, when 35,000 were withdrawn from the Trustee’s wallets between December 17th and February 6th, the Bitcoin price plunged from its all-time high of nearly $20,000, to a three-month low of $6,000. Yes, the first of these withdrawals actually occurred the day of the market top…and the last, the market bottom.
At the time, the Trustee claimed to no longer need to sell any more Bitcoin - as all lawsuit-related costs were supposedly paid for; at least, before the next scheduled hearing in September; after which, further liquidations could be mandated.
Irrespective, he withdrew another 16,000 Bitcoins from the Mt Gox wallets April 25th – and 8,000 more, May 10th…mere hours before a violent plunge commenced, from $9,400 to $8,200 two days later; and perhaps, today’s $7,600, as there is no way of determining how much has been sold. Which calls to question WHY the sales have been done so recklessly…as normally, non-fundamental sales of large, illiquid blocks are typically executed OTC.
To wit, the below article from last summer – before the Mt Gox Trustee sales commenced; in which Mike Komaransky of Cumberland Mining – one of the world’s largest Bitcoin OTC traders, is interviewed…
The commodities trading giant DRW has offered to help the trustee liquidate its holdings, through its Bitcoin trading unit, Cumberland Mining. Komaransky is still waiting for the Mt. Gox’s Trustee to reply to his offer to liquidate its stash of Bitcoins. “Let’s say they go through with it…we have people waiting in the wings, saying ‘please contact us if you have a large seller.'” Komaransky says his firm does millions of dollars’ worth of over-the-counter placements of Bitcoin daily.
This is how such sales are handled in traditional financial markets – and in Bitcoin, would likely have resulted in far higher prices, and investor sentiment…than today. To that end, the removal of a large “overhang” – in this case, 1% of all outstanding Bitcoin; particularly, when sold for non-fundamental reasons - like a court-mandated liquidation to settle a class-action lawsuit; is as price-bullish of an event as you’ll find. However, for some unknown reason, this method was eschewed, in lieu of the polar opposite method - of indiscriminate dumping on illiquid exchanges - with no warning beforehand, or notification afterwards. This is the principal reason, in my view, for the current price weakness. That, and the uncertainty of what comes next.
Even more ignominious is that Japanese bankruptcy law values investor claims at just $483 – i.e., the price Bitcoin was trading at in April 2014, when the liquidation proceedings commenced. Worse yet, after the lawyers take their cut, the remainder of assets is deemed to revert to “shareholders” – in this case, the owners of Mt Gox…of which, CEO Mark Karpeles holds 88% of the stock. So, despite having been responsible for the exchange’s collapse – by fraud, or incompetence – Karpeles is in line to receive perhaps 100,000 Bitcoin, to give a broad estimate.
That said, the fate of those 100,000 Bitcoin, or so, is also in question. Let’s say, for instance, that that is the amount that will be left to him, after liquidation to pay all Mt Gox class action claimants. That would mean that just 37,000 remain to be liquidated, worth a measly $350 million or so; or perhaps, even less.
That would leave just 100,000 – worth just $750 million - but would Karpeles ever get to touch them? Likely not. Assuming his ongoing embezzlement trial doesn’t land him in jail - potentially, delaying the fate of the 100,000 Bitcoin further into the future; he may be sued in other forums, by other parties – including his former business partner, that owns the other 12% of Mt Gox. That said, Karpeles said he would seek “civil rehabilitation” proceedings, that would prevent further liquidations; or potentially, to try and re-open Mt Gox itself. Either way, it’s difficult to see how the majority of the remaining 137,000 Bitcoin will need to be liquidated at all – certainly, not any time soon.
So, while many questions still remain – of the amount, and timing, of future liquidations; as well as the potential impact on the market; it would seem, in sum total, that the majority of such liquidations have already occurred…and that even more than expected are forthcoming, they may be many years down the road.
Not to mention, the fact that at some point, the market will start to “discount” the end of this episode – potentially in September, when the next creditor meeting occurs…or perhaps, sometime shortly before or afterwards.
What confuses me is why all the altcoins seem to fall by the same percentage. If the trustee is selling BTC and BCH why are all the others falling as well and seemingly by the same percentage? The whole thing is starting to feel rigged. Either that or the market is dominated by FIAT minded traders like Tone Vays who only see crypto as a vehicle to obtain more government FIAT and buy a lambo with it.