Mt. Gox, once the largest exchange for Bitcoin trading, filed for bankruptcy protection in Japan on February 28th. The exchange owed $63.6 million after losing almost 750,000 of its customers’ bitcoins and 100,000 of its own to fraud.
Mt. Gox also filed for US Chapter 15 bankruptcy protection on March 10th to temporarily halt US legal actions. This week, Mt. Gox announced that it will give up its plan to rebuild under bankruptcy protection and filed for liquidation. Mt. Gox has experienced numerous difficulties during its bankruptcy phase, including the difficulty of holding meetings with its 127,000 creditors located around the world and the lack of realistic remodeling plans for the company.
The major difference between filing for bankruptcy protection and liquidation is that bankruptcy involves a reorganization of a debtor’s business affairs and assets to give them a fresh start; liquidation means that a trustee will take over the company’s assets, which will then be sold to pay off its creditors with the remaining assets distributed to shareholders. For creditors, a switch from bankruptcy to liquidation usually means that they will recover less of their investments. The only hope Bitcoin creditors have now is for someone to buy out the exchange, which would then allow creditors to receive part of any future earnings.
Mt. Gox seems to be shying away from the public. CEO Mark Karpeles has rejected a subpoena from the US Department of Treasury’s Financial Crimes Enforcement Network based on the premise that it “did not specify topics of discussion.” It seems that Mt. Gox and Karpeles fear that he would be detained if he traveled to the US, either for connections to fraud allegations during Mt. Gox’s collapse or for the exchange’s possible connections to the infamous Silk Road. Right now, Mt. Gox seems to be entering into deeper and deeper trouble. Avoiding the public may not be the best path for the exchange.
The downfall of Mt. Gox indicates that the future of Bitcoin and other cryptocurrencies may have to turn in another direction. Bitcoin’s anonymity and public transactions make it a plausible currency. It differs from other forms of exchange in that it is unconnected to any currency or government. Its value is backed by nothing more than a community of users that had given it value. The problem with this is that people mistrust computer codes a lot more than any government. Ironically, in order for Bitcoin and other cryptocurrencies to receive widespread usage, the creators will have to abandon their objective of autonomy and embrace the government in order to obtain the public’s trust.
