Mt. Gox saga continues – Trustee accused of dumping BTC

  • By Tom Cleveland

  • February 15, 2019
  • 1:42 am BST

Mt. Gox, a name that will forever live in infamy in the crypto world, is in the news again. Once the largest crypto exchange, Mt. Gox was breached to the tune of $473 million worth of Bitcoins in late February of 2014. The Tokyo-based firm has been in bankruptcy proceedings since that fateful event, while the trustee has attempted to resolve an account holder restitution plan. The trustee has control over the exchange’s BTC/BCH reserves that were not stolen and has committed to sell them in a way that would not disrupt the pricing of coins in the market. A new report says otherwise.

GoxDox, a publication dedicated to supporting the victims of the Mt. Gox tragedy, has released a series of bank statement copies that purport that Nobuaki Kobayashi, the trustee of the ill-fated Mt. Gox Bitcoin exchange, had dumped Bitcoins on the market through an arrangement with BitPoint, a startup crypto exchange. The bank records detail less than a dozen deposits from the last week of February of last year through June that total $330 million. Per GoxDox: “Unless BitPoint is being really generous, we’d wager the reason they are depositing billions [of] JPY into the trustee’s bank account is that they were hired to sell the MtGox Estate’s BTC/BCH.”

Earlier, but undocumented, speculation was that the dumping had occurred in May, but the new evidence suggests that the event primarily happened as early as February of 2018. If correct, the large sell orders could have caused a material drop in BTC prices from $11,900 to $9,500 over the period in question, substantiating rumors that the trustee had decided to “go rogue”, regardless of the consequences.

Blaming the fall in crypto prices on the action of this one trustee might be a bit of a stretch. Yes, liquidity in crypto exchange markets is thin, the reason why volatility is the hallmark of cryptocurrencies and why they have earned the reputation as the most volatile asset class in history. The asymptotic rise in Bitcoin prices in 2017 was clearly unsustainable. Any number of reasons have been suggested as a trigger that may have ignited the eventual sell-off that has come to be known as “Crypto Winter”, but pointing to one single action as the culprit at this late date seems far-fetched.

As you might expect, the report went viral. Industry executives have always advised the trustee to hold a private auction of the Bitcoin reserves or handle them separately over an OTC desk, where market liquidity would not be impacted. In its conclusion, GoxDox reiterated industry warnings: “An auction of the MtGox Estate’s BTC/BCH would have resulted in less damage to the value of its remaining assets, not to mention the entire crypto market.  It’s a shame the trustee and BitPoint didn’t see that.”

Jesse Powell, the outspoken chief executive of Kraken, a San Francisco-based exchange, had commented directly to the trustee on social media that his firm was prepared to hold an auction or use over-the-counter transactions to convert the coins to fiat. He urged the estate not to sell the coins directly in the market. After the GoxDox report, Powell blasted away on Twitter, agreeing that market prices were impacted, and, more importantly, insiders could have profited handsomely from this knowledge. He called for “investigations into who took out massive shorts ahead of this dumping.”

At the end of the day, the trustee has not done anything illegal. He may have broken a commitment, and BitPoint may have been negligent by not using its internal OTC desk for the transactions, but these actions are meant to serve the forgotten parties in this fiasco – the Mt. Gox account holders that are still awaiting resolution of their respective balances. Hopefully, the trustee’s plan for creditor repayment will proceed on schedule.