A bankruptcy case in Japan will conclude next month, with $6 billion (£4 billion) worth of bitcoins (BTC) potentially distributed to thousands of recipients around the world. The resolution of the bankruptcy case surrounding bitcoin exchange Mt. Gox could create a host of new bitcoin millionaires. This is because many of Mt. Gox’s 36,800 creditors, who have been waiting for repayment for nearly a decade, have payout claims totalling hundreds or thousands of bitcoins.
Based in Japan, Mt. Gox was once the world’s largest bitcoin exchange, handling 70% of all global transactions. The company filed for bankruptcy in 2014 after a series of hacks that saw 850,000 bitcoins disappear – nearly 2% of the total supply of bitcoin that will ever exist. However, 200,000 BTC have since been recovered and will be returned to creditors either at the 2014 fiat currency rate or as bitcoins, depending on whether a civil reorganization plan is passed.
With Bitcoin’s value increasing more than 100-fold since the 2014 bankruptcy, creditors prefer payouts in BTC. The exchange’s creditors are therefore hoping that a majority of yes votes approving this civil reorganization plan will be submitted to the Japanese court by the online deadline on October 8 and the in-person deadline on October 20.
The size of a potential $6 billion Bitcoin payout has prompted crypto analysts to warn of a potential market shock in which recipients dump their newly acquired Bitcoins en masse after regaining ownership of their coins.
“With thousands of Bitcoins and Bitcoin Cash set to enter the market via Mt. Gox, fears remain that the overall impact on price will be brutal as exchange holders liquidate their positions,” Konstantin Anissimov, CEO of CEX.IO, told Yahoo Finance.
His views are shared by Bitcoin pioneer Max Keiser: “The possibility of a Bitcoin dump related to Mt. Gox is currently putting pressure on the price.”
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After October 20, Nobuaki Kobayashi, the trustee of the Mt. Gox bankruptcy, will announce a timeline for paying creditors if the reorganization plan is approved. However, if the Japanese court’s plan is not approved, Mt. Gox CEO Mark Karpeles and the company’s shareholders will suddenly become extremely wealthy individuals. The alternative to the reorganization plan is to pay each creditor’s claims using the price of bitcoin at the time of the bankruptcy in 2014 – $450 per coin.
Karpeles and the other major shareholder Jed McCaleb, a crypto pioneer who developed the Ripple protocol, will receive the remaining surplus bitcoins after creditors are paid off at those low 2014 prices. This surplus is estimated at $5.1 billion in bitcoins based on today’s spot price figures.
Speaking to Yahoo! Finance, Karpeles explained what would happen if the reorganization plan failed, explaining that “the process would go back to the 2014 bankruptcy, meaning that excess funds would be paid out to shareholders, which include the bankrupt companies Tibanne (88%) and Jed McCaleb (12%).”
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The excess $5.1 billion in bitcoins would then be divided between Tibanne, the company that owns Mt. Gox and is headed by Karpeles and McCaleb.
In that case, however, Karpeles has a solution for creditors. He said he could “file a motion that Mt. Gox is no longer in bankruptcy and the distribution to creditors can be done directly from Mt. Gox” or “revive Mt. Gox not as an exchange but as 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 shared by Karpeles. “I don’t expect the civil reorganization to fail,” he said. The vote is the conclusion of a nearly decade-long legal battle in Japan over the refund of Mt. Gox’s recovered bitcoin assets. In that time, many creditors may have changed their email addresses and are unaware of the need to vote for the refund in bitcoins.
A minimum of 50% of votes is required for the proposal to pass. The coordinator of a creditor group called Mt. Gox Legal has urged all creditors to cast their vote before the October 8 deadline. He said: “Now we have a chance to finally get something out of the Mt. Gox debacle, and the way to do that is through the adoption of the civil recovery plan in the ongoing vote.”
A Mt. Gox creditor described how devastating it would be for the more than 30,000 creditors and how it would be a disgrace for the Japanese recovery process if the resolution were not passed, as the amount involved could be life-changing.
He added: “A majority of the funds would go to the Mt. Gox estate of Mark Karpeles, and some of the proceeds could go to the Japanese government. Both options are unacceptable and hopefully will not be implemented.”
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Mt. Gox’s legal coordinator explained how the Japanese government could seize ownership of unclaimed assets. “If the civil rehabilitation plan is passed and distribution occurs, all unclaimed claims will be converted into Japanese yen and transferred to an asset management facility of the Japanese court. Any unclaimed claims that remain in the facility after 10 years will be handed over to the Japanese government.”
The court ruling will not end the Mt. Gox saga. There are still 650,000 bitcoins in circulation and the trustee’s attention could be diverted to asset recovery efforts focused on the remaining amount.
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