When I first read about FTX creditors getting more than expected because of the price of BTC going up, I immediately thought about Mt. Gox.
Many commentators have mentioned the smoke and mirrors in not getting repaid in kind but repaid in dollar values. Notably, though, no one (that I've read) has mentioned those two extra points by DZM: 1) BTC was lower in value at bankruptcy because of the FTX story just prior to bankruptcy and 2) the amount of circulating BTC was far less because FTX were trading vaporcoins thus price should be higher due to less trading supply.
1 may not apply so much to Mt Gox, as creditors are generally getting "in kind" reparations. 142K BTC out of 850K BTC. (Pretty similar ratio to the approx 25% FTX is getting. But of course, when Mt Gox was hit BTC was worth MUCH less than $16000, so more upside in the longer wait.)
"Founded in 2010, Mt. Gox was once the biggest Bitcoin exchange in the world, estimated to facilitate around 70% of all BTC transactions before its implosion. The exchange lost 850,000 BTC in a security breach in 2014, becoming one of the biggest crypto bankruptcies ever.
But what about 2? The fact that the amount of real BTC was faked? Note according to the previous article 70% of all trading was done on Mt Gox. So fake BTC is even more important there.
"Karpelès insists that he didn’t know the exchange had been bled dry until he checked the cold wallets in mid-February 2014, but there are flaws with this claim. Mt. Gox had started experiencing bitcoin withdrawal issues as far back as August 2013, which should have raised red flags. And yet Karpelès seems not to have considered Mt. Gox was underfunded, despite the exchange having been the victim of multiple hacks in its lifetime." https://www.coindesk.com/consensus-magazine/2024/02/28/mt-gox-what-we-still-dont-know-10-years-after-the-collapse/
I'm not sure if knowing if the BTC were gone actually matters or not to the inflating of price by making more BTC seemingly liquid. But clearly there was half a year of missing funds. How might that have impacted prices?
Again, we're talking in kind reparations. So the price of BTC at the moment that the BTC was recognized as gone might not matter /if/ the price effect goes away over time after the missing BTC is realized. But it could be the price effect doesn't normalize. It could be the BTC would be worth even more now, had the loss been known 6 months earlier.
I don't know, but I do think it's fascinating that the fake BTC that faked a glut of supply was artificially decreasing BTC price while the intentionally locked up FTT that faked a lack of supply was artificially increasing FTT price. Thus, Alameda using inflated FTT as collateral to borrow deflated BTC on FTX, is just doubly comical.
Anyway, all this is why reparations need to always be in kind unless it is a reparation of a financial instrument entwined with the entity that is providing reparation. E.g. If an investor has company stock, and the company does some malfeasance which caused the investor to lose that stock, then the investor probably shouldn't be given back now worthless stock in a bankrupt company. In all other cases, reparation in value as opposed to in kind is almost always BS.
Thank you! To be fair, there has been a lot of discussion of paper bitcoin, not just from FTX but also Celsius and etc.
Really interesting comp to Gox. I think someone very sophisticated could derive some insight about the paper bitcoin situation from that, though the conditions are so much different now it's hard to say for sure.
When I first read about FTX creditors getting more than expected because of the price of BTC going up, I immediately thought about Mt. Gox.
Many commentators have mentioned the smoke and mirrors in not getting repaid in kind but repaid in dollar values. Notably, though, no one (that I've read) has mentioned those two extra points by DZM: 1) BTC was lower in value at bankruptcy because of the FTX story just prior to bankruptcy and 2) the amount of circulating BTC was far less because FTX were trading vaporcoins thus price should be higher due to less trading supply.
1 may not apply so much to Mt Gox, as creditors are generally getting "in kind" reparations. 142K BTC out of 850K BTC. (Pretty similar ratio to the approx 25% FTX is getting. But of course, when Mt Gox was hit BTC was worth MUCH less than $16000, so more upside in the longer wait.)
"Founded in 2010, Mt. Gox was once the biggest Bitcoin exchange in the world, estimated to facilitate around 70% of all BTC transactions before its implosion. The exchange lost 850,000 BTC in a security breach in 2014, becoming one of the biggest crypto bankruptcies ever.
"Mt. Gox is expected to repay its creditors 142,000 Bitcoin and 143,000 in the forked cryptocurrency, Bitcoin Cash, in addition to 69 billion Japanese yen ($510 million) by October 2024." https://cointelegraph.com/news/mt-gox-confirm-bitcoin-addresses-repayment
But what about 2? The fact that the amount of real BTC was faked? Note according to the previous article 70% of all trading was done on Mt Gox. So fake BTC is even more important there.
"Karpelès insists that he didn’t know the exchange had been bled dry until he checked the cold wallets in mid-February 2014, but there are flaws with this claim. Mt. Gox had started experiencing bitcoin withdrawal issues as far back as August 2013, which should have raised red flags. And yet Karpelès seems not to have considered Mt. Gox was underfunded, despite the exchange having been the victim of multiple hacks in its lifetime." https://www.coindesk.com/consensus-magazine/2024/02/28/mt-gox-what-we-still-dont-know-10-years-after-the-collapse/
I'm not sure if knowing if the BTC were gone actually matters or not to the inflating of price by making more BTC seemingly liquid. But clearly there was half a year of missing funds. How might that have impacted prices?
Again, we're talking in kind reparations. So the price of BTC at the moment that the BTC was recognized as gone might not matter /if/ the price effect goes away over time after the missing BTC is realized. But it could be the price effect doesn't normalize. It could be the BTC would be worth even more now, had the loss been known 6 months earlier.
I don't know, but I do think it's fascinating that the fake BTC that faked a glut of supply was artificially decreasing BTC price while the intentionally locked up FTT that faked a lack of supply was artificially increasing FTT price. Thus, Alameda using inflated FTT as collateral to borrow deflated BTC on FTX, is just doubly comical.
Anyway, all this is why reparations need to always be in kind unless it is a reparation of a financial instrument entwined with the entity that is providing reparation. E.g. If an investor has company stock, and the company does some malfeasance which caused the investor to lose that stock, then the investor probably shouldn't be given back now worthless stock in a bankrupt company. In all other cases, reparation in value as opposed to in kind is almost always BS.
By the way, these are posts in themselves, you should start a substack!
Thank you! To be fair, there has been a lot of discussion of paper bitcoin, not just from FTX but also Celsius and etc.
Really interesting comp to Gox. I think someone very sophisticated could derive some insight about the paper bitcoin situation from that, though the conditions are so much different now it's hard to say for sure.