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The Mt. Gox bitcoin hack may finally come to a settlement…

The Mt. Gox bitcoin hack may finally come to a settlement…
August 21, 2023

Investors who are new to the world of digital assets may take it for granted that there are numerous exchanges and platforms out there that enable us to easily buy cryptocurrencies like bitcoin, ether, and many others. But in the early days, that wasn’t the case.  If we go back to 2013, Mt. Gox, based in Japan, was by far the largest digital asset exchange in the world. At its peak, Mt. Gox handled 70% of all bitcoin transactions worldwide. But Mt. Gox used subpar cybersecurity and threat management protocols, and the exchange was hacked early in 2014. Mt. Gox announced that roughly 850,000 bitcoins had been stolen – all belonging to its customers. At the time, the bitcoins stolen were worth $450 million. 

From there, Mt. Gox froze all remaining assets – the bitcoins it had left – and the exchange filed for bankruptcy in February 2014. That set into motion a chain of lawsuits designed to help Mt. Gox customers recover at least a portion of their funds. Mt. Gox was insolvent – it didn’t have enough bitcoins to make customers whole.But it did have some funds that could be returned to customers.  However, Japan’s legal system is slow and rigid. This devolved into a huge legal battle that’s still ongoing today. 

But something interesting happened. The price of bitcoin skyrocketed. By the time a civil rehabilitation suit was filed in 2018, the value of the bitcoins Mt. Gox still had was enough to warrant reimbursement payments to customers. That suit pegged the price of bitcoin at $7,000 and pushed to have all Mt. Gox customers proportionately reimbursed.

Per the terms, each customer would receive a base payment of 200,000 yen – about $1,800 – toward their claim. Then they could choose to receive about 21% of their original claim in bitcoin and yen, or they could hold out. By holding out, they could potentially receive a higher reimbursement percentage. But it isn’t guaranteed.  

Well, due to Japan’s slow-moving legal system, that choice is just now coming up to a vote for those Mt. Gox customers participating in the lawsuit. The deadline to vote is October 8. Yet the price of bitcoin has skyrocketed past the $7,000 peg that the civil rehabilitation suit stipulated.  

As I write, bitcoin trades around $36,900, which means it’s up nearly 5x from where it was in 2018. That means anyone voting to take the payout now will receive only a fraction of what they would receive if the suit was based on today’s price.  So do they take what they can get now? Or do they hold out and try to get more, knowing that bitcoin’s price will continue to fluctuate?  The vote will be determined by a simple 51% majority. If 51% vote to take the payout, the Mt. Gox case will be settled for good. If 51% choose to hold out, the case will march on into the future.  

Either way, we’ll check back in on Mt. Gox later this year. And we can be thankful for the fantastic, secure digital asset exchanges that we have at our disposal today.

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