🟪 A Crypto Christmas Miracle

A Crypto Christmas Miracle 

Call it a crypto Christmas miracle.

In the past day, some of the creditors of the long-since-failed crypto exchange Mt. Gox received what even a year ago might have been considered an all-too-distant boon: repayment.  

Mt. Gox’s troubles date back to 2014 — or 2011 if you go all the way back to the first of a string of hacks — when the troubled exchange collapsed amid a swirl of allegations about fraud, mismanagement and funding shortfalls. 

The latter proved true, to the tune of hundreds of thousands of bitcoins, setting over a nearly decade-long battle in the courts that ultimately saw Mt. Gox enter a corporate rehabilitation process.

2023 proved to be the magic year, with the Mt. Gox trustee’s recent announcements that, despite a repayment deadline delay until next year, some cash payments would indeed be handed out before the end of the year. 

Mt. Gox trustee Nobuaki Kobayashi certainly cut it close, but here we are, the weekend of Christmas, with a somewhat-bumpy first round of payments. 

As I wrote earlier this year in an op-ed on what I believe to be FTX and SBF’s inescapable shadow, Mt. Gox’s significance is massive. 

It was Mt. Gox’s downfall that laid the foundation for today’s crypto regulatory regime. 

New York’s BitLicense, Japan’s virtual money rules — these frameworks and more sprang from the collective “WTF” that erupted once the world learned that there was this weird internet money and a place where millions of dollars of it had traded sight unseen. 

This week’s cash payouts, however small — those who’ve opted to receive their sums in crypto are still waiting — mark a milestone, not only for this particular crypto-themed legal process, but the industry as well.

Remember: Back in 2014, the space was very different.

The economy was much smaller. Bitcoin was trading just above $600 at the time Mt. Gox declared bankruptcy in March 2014. 

And that was after bitcoin reached what felt at the time like an eye-popping all-time high of $1,127. 

In those days, Mt. Gox was the place to trade bitcoin, accounting for what some estimated to be 70 to 80% of bitcoin’s total trade back then. 

Mt. Gox’s impact was deeply felt at the time. Imagine if, when FTX fell apart, it was the only real exchange of consequence at the time. No Binance, Coinbase or other bourse to absorb the activity — or, rather, the body blow. 

Yeah. Mt. Gox collapsing was crazy. The is-this-really-happening-what-does-it-all-mean kind of crazy.

The fallout stirred up the kind of industry drama that presaged the Crypto Twitter wars of the present. Who knew what, who got their money out, who didn’t, that sort of thing. 

As the “crypto winter” of 2014-2015 followed, it often seemed that the whole ecosystem was on the verge of being snuffed out.

The failure of Mt. Gox was like a heart attack of the crypto body. You could measure “crypto time” between before and after Mt. Gox’s collapse. 

As a young crypto journalist (I’d really only been on the job for a matter of weeks), watching these events play out — in the courts, on Reddit, in the halls of power as regulators grappled with the fallout — was a surreal experience. 

But then things quieted down. Got real quiet. 

Thus the long, tortured process of sorting through the debris began in Japan. Former CEO Mark Karpeles was accused of crimes, and was ultimately acquitted on most of the charges against him, albeit one guilty finding and a suspended sentence for alleged data falsification. 

I think any of the old crypto hands around today would offer different reasons for why Mt. Gox’s downfall mattered so much. I’ll put a few up for consideration.

First, it was — for better or for worse — the hello-world moment for Bitcoin in the eyes of regulators and policymakers. 

Not that governments were unaware of Bitcoin; former Bitcoin code shepherd Gavin Andresen famously gave a Bitcoin presentation at the headquarters of the CIA in 2011.

But the Mt. Gox fiasco was the sort of abrupt, holy sh*t introduction that a nascent technology and industry maybe would’ve wanted to avoid. 

“Hundreds of millions of dollars of bitcoin stolen,” blared the headlines. Here was this new, scary thing. 

Second, Mt. Gox’s downfall accelerated the regulations to which crypto exchanges must now adhere around the world. 

Against the backdrop of anti-money laundering and terror financing regulations imposed in the wake of 9/11, this whole “virtual currency” thing seemed like a nightmare in waiting.

New York’s BitLicense regime was an early entrant in response. 

The key gist: If you held crypto for your customers, you had to register. Data, risk compliance, investor disclosures, the works. 

The policies like the BitLicense and others meant one thing, it was that the whole “crypto Wild West” thing was — at least aspirationally, a thing of the past.

Obviously, that didn’t really work out. Years later, we’re once again wading through the implosion of once-mighty crypto platforms. 

Did we learn nothing from Mt. Gox?

You could argue that we didn’t — but at the risk of offering an excuse, I think the last year in crypto has largely been defined by our human capacity to eat risk and chance failure in pursuit of something great. 

Maybe “great” is a big pile of coins, for some at least. 

Lastly, this week’s disbursements, however small, signify that eye-watering legal processes do eventually, torturously, come to an end.

For those staring at the morass that is FTX’s bankruptcy, the Mt. Gox outcome might serve as a droplet of hope. 

If the long-awaiting customers of the once-mighty Gox can get some measure of return, maybe you can, too.

– Michael McSweeney

We're Watching

In today's episode of Empire Santi and Jason reflect on crypto's 2023 landscape and beyond. They revisit their 2023 predictions and the best products, founders, stars, and companies from the year. They also share their perspectives on their best and worst investments of the year. The episode further delves into sectors to watch and concludes with a debate on the most overhyped sectors of 2024 offering a critical look at market expectations versus reality. We hope you have happy holidays!

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