The Mt.Gox Crash


In 2014, the biggest Bitcoin market at the time, Mt.Gox, reached its bankruptcy in a big crash. This fact should help remind us that even market giants can end up dissappearing. After the bankruptcy, many people questioned if governmental support would follow, but it does not look like that will happen. It is still not clear if the market regulations were sufficient to safeguard investors. Also, there is still a debate on wether governmental support for the affected parties is appropriate.

The crash of Mt.Gox, which had its headquarters in Tokyo, derived from several factors. Even though it was a giant market, it suffered from a combination of negligent management and insufficient security measures. Its director and majority shareholder was the programmer Mark Karpeles. He obviously got carried away by the huge expansion of this crypto market and as a managing director did not pay sufficient attention to crucial matters or did not try to sort them out. This is evident from the statements of the employees of Mt. Gox.

How did Mt.Gox’s crash happen?

Mt.Gox was praised by its users for its ease of use and excellent service. However, at some point in 2013, its users started noticing delays in cashing out their BTC for US dollars. Mt. Gox then announced to its customers that it would stop paying dollars for two weeks; but it justified this by stating that the volume of transactions was so large that it had surpassed their technical infrastructure and they needed to improve it. Dollar payouts gradually returned, but the delays of these payments became more and more frequent. Then, Mt. Gox justified this with the fact that payouts had accumulated and therefore, would take some time, but the situation did not improve. On the contrary – the delays were getting longer and often payouts would plainly not be performed. People could not take their Bitcoins out the market.

An American magazine reported that the delays faced by Mt.Gox users were caused by the freezing of their assets due to regulatory problems. Then, a strange reason for the delays was revealed by an employee of Mt. Gox under the screen name MagicalTux: the company could only send ten payments a day! The explanation was that the Japanese bank that Mt. Gox used placed that limit, and since they could not find a new American partner, they were unable to send the payments.

Some users even stated that customer support advised them that for a 5% commission, their payouts could reach the front of the queue. Otherwise, they had to wait several months for their transactions.

The hack

After these regulatory problems that caused delays in user payouts, another issue arose at the beginning of 2014. This problem was that 850 000 BTC were missing from the exchange because hackers had been draining the funds from their hot wallets. This assets, at the time, amounted to over USD 470 million. The whole cryptocurrency market felt the shockwave of this news.

Mark Karpenteles was accused of misappropriation and there is almost no chance that Mt. Gox will resume its operation. For more information, click here: