How a bitcoin court case in Japan may create crypto millionaires

·5-min read
Bitcoin: Mt Gox protest
A protester holds a placard during a demonstration against Mt. Gox in 2014. Photo:Toru Hanai/Reuters

A bankruptcy case in Japan will conclude next month where $6bn (£4bn) worth of bitcoin (BTC) could be distributed to thousands of recipients across the globe. The resolution of the Mt. Gox bitcoin exchange insolvency case could create a multitude of new bitcoin millionaires. This is because many of the 36,800 Mt. Gox creditors, who have been waiting almost a decade for reimbursement, have pay-out claims in the hundreds or the thousands of bitcoin.

Mt. Gox is based in Japan and was once the world’s largest bitcoin exchange handling 70% of global transactions. The company filed for bankruptcy after a series of hacks in 2014 that saw 850,000 bitcoin disappear – nearly 2% of the total amount of bitcoin that will ever exist. However, 200,000 BTC have since been recovered and will be returned to the creditors at either 2014 fiat currency prices or as bitcoin, depending on whether a civil rehabilitation plan is passed. 

Since bitcoin has soared in value by more than 100 times since the 2014 bankruptcy, the creditors favour payouts in BTC. So, the exchange’s creditors are hoping that a majority of yes votes, agreeing with this civil rehabilitation plan, are filed at the Japanese court by the online deadline of 8 October, and the in-person deadline of 20 October.

The magnitude of a possible $6bn bitcoin payout has led crypto-analysts to warn of a possible market shock where recipients dump their newly acquired bitcoin en masse after taking back ownership of their coins. 

“With thousands of bitcoin and bitcoin cash billed to enter into the market through Mt. Gox, there remain fears that the overall impact on price will be brutal when the exchange’s holders liquidate their positions," Konstantin Anissimov, executive director at CEX.IO, told Yahoo Finance. 

His views are echoed by bitcoin pioneer Max Keiser. “The possibility of a Mt. Gox related bitcoin dump is weighing on the price right now.”

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After 20 October there will be an announcement from Nobuaki Kobayashi, the trustee to the Mt. Gox bankruptcy, on a timeline for paying creditors if the civil rehabilitation plan is accepted. However, if the Japanese court’s plan is not passed, then chief executive of Mt. Gox Mark Karpeles and the company’s shareholders will suddenly become extremely wealthy individuals. The alternative to the civil rehabilitation plan is to settle each creditor’s claim using the price of bitcoin at the time of bankruptcy in 2014 – $450 per coin. 

Tokyo district court
Mt. Gox CEO Mark Karpeles, second from left, attends a news conference at the Tokyo District Court in Japan, on 28 February. Photo: Yuya Shino/Reuters

This will see Karpeles, and the other main shareholder Jed McCaleb, a crypto pioneer who developed the Ripple protocol, receive the remaining surplus bitcoin after creditors have been paid off at these low 2014 prices. This surplus has been estimated to amount to $5.1bn in bitcoin using today's spot price figures. 

Speaking to Yahoo! Finance, Karpeles illustrated what would happen if the civil rehabilitation plan fails, stating that “the process will return to the 2014 bankruptcy which means that excess funds will be paid to shareholders, which includes the bankrupt entity Tibanne (88%) and Jed McCaleb (12%)”.

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The excess $5.1bn in bitcoin would then be shared between Tibanne, the company that owns Mt. Gox headed by Karpeles and McCaleb. 

However, Karpeles has a solution for creditors if this is the eventuality. He said that he could “file for Mt. Gox to not be in bankruptcy anymore and perform distribution to creditors directly from Mt. Gox” or “revive Mt. Gox not as an exchange, but something else that could benefit creditors”.

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Many Mt. Gox creditors are confident that there will be a majority of yes votes. This view is echoed by Karpeles. “I do not expect the civil rehabilitation to fail,” he said. The vote is the conclusion of nearly a decade of legal wrangling in Japan over reimbursement of the recovered Mt. Gox bitcoin assets. In that time, many creditors may have changed email addresses and remain unaware of the need to vote to become reimbursed in bitcoin. 

A minimum threshold of 50% of votes is required in order for the proposal to pass. The coordinator of a creditor group called Mt. Gox Legal has implored all creditors to cast their vote before the 8 October deadline. He said: "The chance to finally recover something from the Mt. Gox debacle is now, and the way is to approve the civil rehabilitation plan in the ongoing vote." 

Mt Gox protest bitcoin
A cryptocurrency trader holds a placard to protest against Mt. Gox in front of the building where it operated. Photo: Toru Hanai/Reuters

One Mt. Gox creditor described how “it would be devastating to the 30,000 plus creditors and an indictment of the Japanese civil rehabilitation process if it does not pass, as the amount of money could be life-changing”. 

He added: "A majority of the funds would go to the Mt. Gox estate, Mark Karpeles, and some of the proceeds may go to the Japanese government. Both of these options are unacceptable and hopefully will not happen.”

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The Mt. Gox Legal coordinator explained how the Japanese government could seize ownership of unclaimed assets. “If the civil rehabilitation plan passes and distributions are made, any claim that remains unclaimed will be converted to Japanese yen and placed in an asset holding facility provided by the Japanese court. Any unclaimed claims remaining in the facility after 10 years will be given to the Japanese government.”

The court verdict will not end Mt. Gox saga. There are still 650,000 bitcoin at large and the trustee’s attention could be brought to asset recovery efforts focussed on the remaining amount. 

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