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Why is everyone talking about MT Gox repayments? What can we learn from this story?
Hi friends,
I’m sure like us you spend a lot of time thinking about Bitcoin. It’s hard not to with the endless supply of wild news stories in the industry each week. And this week you might have noticed that the current ‘big news’ is that failed Bitcoin exchange Mt Gox is now starting to make Bitcoin repayments to its users after ten long years.
If you’re not familiar with the story, Mt Gox was once the biggest Bitcoin exchange in the industry. But like countless other custodians it eventually failed dramatically after a hack drained 850,000 BTC of user funds rendering them insolvent. Yes, you read that correctly, not $850,000 but 850,000 whole Bitcoins that today would be valued at an eye watering $33bn!
So, this week, let’s take a closer look at the story that’s currently on everyone’s lips and see what we might be able to learn from it…
Not all the funds held by Mt Gox were taken in the heist and users found themselves becoming creditors in a major insolvency case. Legal agreements would need to be made about what to do with any remaining meat left on the carcass. The result was an excruciating decade long process that gave insolvency practitioners and lawyers ample time to gorge themselves on exorbitant fees. All the while, users found themselves powerless and forced to wait patiently to see what funds, if any, they might receive back.
What we learned this week is that out of the 850,000 Bitcoin held by users at Mt Gox, around 130,000 coins worth over $7bn will now begin to be redistributed back to them as a result of the insolvency case. Whilst this is certainly better than nothing, consider that in Bitcoin terms this is an enormous drawdown of over 84% of these user’s original stacks! Ouch!
It now looks like this story is finally reaching its long-drawn-out conclusion and these creditors are close to seeing what is left of their funds returned to them. Just this Friday we saw a transaction from a Mt Gox cold wallet moving a whopping 47,228 Bitcoin to a new address. That’s a $2.7bn transaction! The funds are already on the move…
And that’s pretty much all you really need to know in little over 350 words.
The question is, if it’s a fairly simple story, then why has this news got everyone in such a furore? And why is it likely to remain a hot topic for a few more weeks yet?
Well of course, learning that the Mt Gox creditors will get some of their Bitcoin back is great news and is certainly worthy of interest. But the real reason this story is going to be circulating for at least a few weeks is because there is an interesting wrinkle in it.
You see whilst the Mt Gox creditors are going to have to swallow an 84% drawdown on their total Bitcoin stack, the BTC they are reunited with will have increased in value dramatically over the past ten years. This is interesting because despite losing huge chunks of their stack nominally, these creditors have arguably benefited from being forced to HODL the remainder of their coins for ten years during the insolvency process. The creditors may only be receiving circa 16% of the Bitcoin they originally bought, but that 16% has increased invalue by over 50x since!
So, the question currently on everybody’s lips is…. What will these creditors do next? Will they now understand the power of Hodling hard money and continue to do so? Or will they sell and cash out because of their enormous gains in dollar terms?
And that’s where we get to the crux of why this news is getting so much attention. In painfully predictable fashion the Mt Gox news will continue to circulate simply because everybody wants to know… “What will this mean for the Bitcoin price?” In the coming days and weeks, we will witness a flood of content where people debate whether or not the creditors will sell their coins and the potential price impact if they do. Analysts will try to track ‘Gox transactions’ and inevitably there will be no end of speculative price predictions from influencers.
We hope you’ll be pleased to know that we won’t be jumping on that band wagon. We don’t find short-term price fluctuations measured in a failing fiat currency particularly interesting. Trying to predict the short-term price of Bitcoin is folly and no conclusions drawn should ever make any material difference to your approach to it.
The Bitcoin Way operates on a ‘Bitcoin standard’ because we have no desire now or in the future to exchange our hard money for evaporating paper coupons. Bitcoin is not a speculative asset, it’s actually just very good money. We are not speculating by accumulating Bitcoin, we are just exchanging our labour for a superior monetary asset and saving in it.
We would argue that this is a very conservative approach to treasury management and a very simple one too. While fiat board rooms debate where they should allocate capital when sitting on ‘too much depreciating cash’, we have the luxury of simply focusing on our work and adding to our Bitcoin treasury.
The point is, the more you move toward a Bitcoin standard the less you’ll find yourself concerned about its value in dollars.
So,with that in mind, let’s ignore the price predictions and noise about the Mt Gox case and instead look to see if we can extract some more tangible value from the story. Rather than trying to figure out if the Mt Gox creditors will hold or sell, here are 4 lessons we hope they have learned from their ordeal….
Of course the obvious take away from this saga is that it’s never a good idea to leave your Bitcoin with a 3rd party custodian. On the surface it may seem that the creditors’ story finished with a happy ending. But bear in mind that it was just dumb luck that resulted in these users getting any funds back at all. When the exchange was hacked it could have easily resulted in total loss.
It’s also worth bearing in mind that should any of these users have needed access to these funds during the past ten years, let’s say to pay for essential medical care for example, then they would have had no access to their money to cover the costs. They had lost full control over their wealth and with it, a lot of autonomy over their own lives. Freedom money can’t set you free if you don’t control it yourself.
Beyond just these concerns, it should also be noted that the Mt Gox hackers made off with more than just user funds when they hacked the exchange. They also made off with user’s KYC data. The reality for a lot of the Mt Gox creditors is that their personal information will now be circulating the dark web on lists that have identified them as ‘bitcoiners’. Their ordeal with Mt Gox didn’t just cost them monetarily, it also cost them their privacy.
It's great news that Mt Gox creditors get to see some of their Bitcoin stack returned to them. And whilst bitter sweet it can’t be a bad thing that being prevented from accessing or selling their remaining coins forced them to hold through a market that saw a 50x increase in price.
But beyond the relief of seeing a substantial chunk of purchasing power returned to them, we hope that Mt Gox creditors have learned a valuable lesson in opportunity cost. By leaving their Bitcoin on an exchange they saw an 84% drawdown on the size of their stack regardless of the $ value of anything they received back after the insolvency case.
Let’sdo some rough maths to put that in perspective:
In 2014 just before the Mt Gox hack Bitcoin was trading at close to $1,000 per coin. So, let’s imagine that one of these creditors had bought 5 Bitcoin at $1k for a total cost of $5k. After the insolvency agreement they will now receive 16% of this stack back. 16% of 5 Bitcoin equates to 0.8 BTC being returned. The value of that 0.8 BTC being returned at today’s prices is the equivalent of $45k.
Having only invested $5k ten years ago this is a pretty handsome return! That is of course until you consider the opportunity cost….
Had this user instead held their coins securely in self-custody they would have kept all 5 coins instead of just 0.8. At today’s prices that would equate to $281,190. So, the total opportunity cost of trusting a custodian, despite getting some of the funds back, would have been a whopping $236,000!
If these creditors have learned their lesson, they should now be acutely aware that entrusting their Bitcoin to a 3rd party is far too risky to ever consider again. We hope that they and anyone paying attention draws the conclusion that when it comes to Bitcoin, taking Self-Custody is the only viable option.
Self-custody of course comes it with its own risks. Many people have succumbed to having an inadequate setup or by making simple mistakes. Some people even end up creating solutions so complex they end up locking themselves out of their own Bitcoin stack. That’s why it’s also imperative that when you do take self-custody of your Bitcoin that you get the appropriate training and get it right first time!
Finally it should be obvious that the ONLY reason the Mt Gox saga has resurfaced as a major news story is because of Bitcoin’s performance vs every other asset on the planet over the last decade. If Bitcoin’s value hadn’t increased 50x over that period, then the value of the creditor’s repayments wouldn’t be significant, and nobody would be paying much attention.
This should serve as a timely reminder that Bitcoin isn’t a ‘get rich quick’ scheme. It’s a ‘get wealthy slowly’ scheme. Holding a superior monetary asset over long periods of time will inevitably increase your purchasing power. It’s akin to a savings account with an incredibly generous savings rate. Store and accumulate wealth in Bitcoin and over a reasonable time frame your financial position should improve markedly. That’s why A Bitcoiner’s Time Horizon is Centuries, Not Decades.
So don’t sweat the short-term price swings and in ten years you could be enjoying huge gains just like the Mt Gox creditors. The only difference being that YOU will have done it in secure self-custody and will have kept ALL of your Bitcoin!
We hope the stories we share with you encourage you to see that taking self-custody of your Bitcoin is the only sure-fire way to protect and grow your wealth. It does take more effort and consideration than simply leaving your Bitcoin on an exchange, but as we can see from the story of Mt Gox, the convenience is never worth the cost.
We also understand that everyone is at a different stage of their Bitcoin journey. Sure, we run our entire business and lives on a Bitcoin standard, but we know that not everybody is ready to go as far as that just yet, and that’s OK too. You see regardless of what stage of the journey you’re on, we want to impress upon you that making sure you secure your Bitcoin properly is the first and most important step if you want your journeyto be a smooth and pleasurable one!
And if you need some guidance and training on that? That’s why we’re here. Our job is to train you to become self-sufficient, secure, and comfortable when managing your wealth. We are here to give you the tools you’ll need to secure your financial freedom.
There’s never a better time to invest in your skills. Book A Call today and let’s get training!
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