Watching Mt. Gox Collapse from the Inside
FEBRUARY 28, 2014
Editors’ note: A few months back, we interviewed a full-time BTC trader, who still wishes to remain anonymous. In the wake of Mt. Gox’s collapse, we reached out for comment. Here’s what he had to say:
I did lose some BTC on the collapse, enough to sting, but it's something of a small price if it means Mt. Gox and Mark [Karpeles, CEO of Mt. Gox] are permanently out of the picture. It also seems the market has priced in the worst result, so it appears the community and markets are already moving on.
The situation is still developing and quickly, and it seems increasingly likely that Mark will suffer multiple lawsuits and potentially criminal charges. By some accounts Gox held over a billion in assets, and people with that sort of money don't exactly roll over without a fight.
From the few discussions I've had, there have been/still are over-the-counter deals being struck between hedge funds and large players to buy out "Gox coins" at 10 percent or 15 percent, etc.—i.e., if I have 1,000 bitcoins on Gox, people are willing to purchase it for 100 bitcoins. A site was made a couple weeks ago that allowed people to trade on this, which was great because it helped alleviate the collapse and I believe softened the price crash.
People were wiring money to Gox to buy up until they stopped trading; I don't imagine that being swept under the rug. There are ongoing rumors/speculation/etc. that people are interested in buying out the exchange, but it really depends on how much was lost: If Gox is out 750,000 bitcoin, no one is going to touch it, but if it's much less, then there is still the possibility—either way the situation probably will not be resolved for some time.
Fraud occurs whether or not there is a law to say it's illegal. I think what will be more important to see is how quickly market players adapt and change services to attract traders. When bad firms are allowed to fail, the pain can be immediate and severe, but it allows wounds to heal instead of having a prolonged uncertainty or a complex debt instrument weighing down the markets. Already, exchanges are looking into how to better broadcast their solvency; since the blockchain is a public ledger, it is easy enough to sign controlling addresses to show "proof" that an entity is in control of the bitcoins they've been entrusted with. The trickier issue currently is how to list liabilities (how many coins an exchange is supposed to have) without leaking too much personal information; for a more technical discussion you can start here.
The other thing to keep in mind is that a distributed network that is largely unregulated by governments does not necessarily imply a system that is chaotic and lawless. Enforceable contractual law is necessary for free markets to flourish, and I know we will see more sophisticated agreements form from out of this disaster, either insurance offers, multisignature bonds being held, or some other scheme. The power of a distributed network is in how decisions are made; there isn't one central point of failure wherein a government regulatory body either makes good regulatory law or doesn't. Instead many different actors create many different solutions which compete and serve different use-cases. When a thousand people all work independently on a solution, much better results are obtained. That's the theory anyway; let's see how it plays out. I'm betting bitcoin will continue to grow this year, see wider adoption, and likely reach new all-time highs.
Compare this recovery to the supposed 2008/2009 global downturn recovery. I suspect a dozen central bankers are a poor substitute for 10,000 innovators.