Mt. Gox Is Finished & Bitcoin Is Stronger Than Ever

[Editor's Note: The following post is by TDV Head Researcher, Justin O'Connell]

Mt. Gox is dead. There is not much a chance they will be able to overcome the press of the past four months and re-establish themselves as a trustworthy bitcoin wallet and exchange. And they haven’t even gone bankrupt yet.

For that reason, bitcoin is now stronger than ever. Although mainstream press outlets may give you a different, false idea.

The writing has been on the wall. 2013 was a scandal-laden year for Mt. Gox, as the feds seized $5 million from its bank accounts, a $75 million lawsuit with a former partner manifested, and its US banks accounts were closed resulting in the company’s inability to get funds to US customers. 

Mt. Gox played a big role in the growth of bitcoin. Even when the price of bitcoin was merely $13, Mt. Gox was a trusted brand among online wallets.

Mt. Gox worked hard to build up goodwill in the community: in 2011, after the exchange was hacked, Karpeles made good and fulfilled obligations.

But things started going awry in May, 2013, as federal agencies seized $2.9 million, shutting down a Wells Fargo bank account belonging to a Mt. Gox subsidiary.

This account was integral to paying Mt. Gox’s US customers. Things turned for even worse when, one month later, the US government seized another $2.1 million from a second bank account. Thereafter, Mt. Gox suspended US money transfers. Some transfers started coming in from European banks like Deutsche Bank. 

In mid-2013, according to Karpeles, Mt. Gox was receiving somewhere between $5 million and $20 million incoming transfers daily, and paying out between $300,000 and $1 million. This he told Reuters while perched atop a blue exercise ball without explanation.

The feds justified the account seizures by stating Mt. Gox did not disclose that it was in the money transmission business. Up until the middle of 2013, Karpeles was all over bitcoin forums, posting under Magical Tux, which he also used as his Twitter and GitHub handles. Around this time, his presence faded.

Many complained about the image Karpeles fostered. The bitcoin community can’t have “the CEO of the most important business in bitcoin sitting on top of a bouncy ball talking about world-changing ideas,” says Roger Ver, known inside bitcoin circles as Bitcoin Jesus. Personally, what another person chooses to sit atop is only a passing observation. But, considering Karpeles’ company’s ongoing woes, a different picture comes into view.

‘Because it’s such a difficult time for us, we can’t talk to journalists without first talking to our lawyers’

— Mt. Gox

Mt. Gox suffered from the same plight of bitcoin businesses throughout the world. Governments have conflicting bitcoin regulation and, furthermore, the 24-7 nature of internet business, coupled with bitcoin volatility, is an exhausting exercise in hard-work. Clearly, US regulators are the busy-bodies of the world. (not only in bitcoin terms…)

‘A lot of the early bitcoiners are 19-year-old kids, still living at home with their parents, and they don’t have any business experience’

— Roger Ver

Regardless, by 2013, anyone who was tuned-into the bitcoin world knew that Mt. Gox was not the place to buy.

“Anybody who has enough information about what’s going on in the bitcoin world, you would not buy your bitcoins on Mt. Gox,” Ver said.

2014 NO BETTER

And now we bear witness to Mt. Gox’s death throes. It has stated it would temporarily prevent customers from removing their bitcoins from its online bitcoin exchange. Now, it is the cheapest place in the world to buy the digital currency. As Max Keiser has said, this can mean only one thing: Mt. Gox has no bitcoins.

Indeed, many believe Mt. Gox is about to go bankrupt.

There are basically no buy orders on Mt. Gox. Only sell orders. The sell orders are bets that it will be easier to retrieve US dollars now than bitcoins or US dollars later. Bitcoin prices are a bargain at Mt. Gox only for those willing to take the bet that Mt. Gox will deliver. Roger Ver has, but he is swimming against supply/demand. Investors at Mt. Gox are speaking to the tune of overwhelming sell orders for Gox. Mt. Gox is believed to be insolvent. 

On other exchanges, bitcoin prices have only been dragged down a bit, still well above their March-April 2013 prices, when new records were first set. It’s not that there isn’t confidence in bitcoin. Rather, there is no confidence in Gox.

“I was advised that if I thought Gox was insolvent, it is better to have a fiat claim against them than a bitcoin claim, which no legal standing,” says one Gox investor.

Gox claims that it keeps most of its funds in offline cold wallets. This would mean, after recent Mt. Gox hacks, that most of the funds were safe. Still, at The End Of The Monetary System As We Know It (TEOTMSAWKI) US Bankruptcy courts are likely to favor dollar liabilities over bitcoin liabilities.

What is the lesson to be learned?

Bitcoin’s strength is its decentralization. This can be applied to the personal finance of bitcoin. The more control you have over the whereabouts of your bitcoin, the more secure they are.

This means becoming your own bank. 

The more this notion is supported, understood and acted upon, the stronger the bitcoin ecosystem will become. (regulations aside) This is why the downfall of Mt. Gox betokens a stronger bitcoin in the future. 

The Dollar Vigilante is preparing a Bitcoin Report, written by Jeff Berwick and myself, to help people understand the future of finance, trade and freedom. Subscribers will receive the report for no additional costs. Secure your copy today.