While the multiple ongoing crypto crises — the Terra Labs collapse, multiple insolvencies, Celsius freeze, Ripple securities litigation to name but a few — continue to make headlines, another dark chapter in Bitcoin’s brief history bears reexamining.
In 2013, when the humble Bitcoin was priced at a mere few hundred dollars, Japan-based exchange Mt Gox held something of a monopoly in the burgeoning centralised exchange scene.
At its peak, Mt Gox was handling over 70% of all global Bitcoin trades before suddenly going offline in February the following year.
On February 28, Mt Gox officially filed for bankruptcy, the reason?
A malicious hack led to 850,000 Bitcoin being syphoned from the platform, 750,000 of which belonged to customers and 100,000 to Mt Gox.
At the time, the value of the attack was some US$480mln and precipitated a 36% fall in the price of Bitcoin.
It was perhaps the first major disaster to hit the cryptocurrency scene.
A post mortem of the attack detailed a melange of multimillion-dollar lawsuits against CEO Mark Karpelès, Homeland Security investigations into money transfer violations, and accusations of severe mismanagement.
History repeating
Definite parallels can be gleaned between the events of 2014 and today.
A then-unprecedented Bitcoin bull run was well underway in the lead up to Mt Gox’s collapse.
On November 27 2013, Bitcoin surpassed the US$1,000 barrier for the first time, before hitting an all-time high of US$1,151 on December 4- a 600% month-on-month increase
But by April, 70% had been knocked off and Bitcoin remained below US$500 for the following two years.
“Is this Bitcoin's Lehman moment?” asked Wall Street Journal in 2014; a question being widely echoed amid the current crisis.
As familiar as that all sounds, the parallels to today go even further.
Probs at @MtGox underscore fact that thoughtful regulation could play impt role in protecting consumers with funds at virtual currency firms
— Ben Lawsky (@BenLawsky) February 25, 2014
Mt Gox’s collapse sparked a debate on crypto regulation concerning many of the same points still being argued today.
What happened to Mr. Karpelès?
Raised in France before moving to Japan in 2009, Mark Karpelès purchased Mt Gox from Jed McCaleb in 2011, who initially used the mtgox.com domain as a Magic: The Gathering card game site.
A colourful figure in the early days of the crypto wild west, Karpelès stumbled into a fortune after Mt Gox became the world-leading Bitcoin exchange in 2013.
His fortunes soon reversed amid the Mt Gox collapse, numerous investigations, lawsuits and prison time.
Karpelès was even accused by Ross Ulbricht, who is currently serving a life sentence for operating the notorious Silk Road website under the Dread Pirate Roberts pseudonym, of being the true mastermind behind the darknet marketplace.
This is probably going to be disappointing for you, but I am not and have never been Dread Pirate Roberts.
— Mark Karpelès (@MagicalTux) January 16, 2015
Karpelès denied any involvement, but was arrested by Japanese police in September 2015 under embezzlement charges relating to Mt Gox.
In March 2019, Karpelès was found guilty of tampering with records, but managed to avoid any further jail time.
Today, Karpelès is leveraging his experience with Mt Gox to advise on crypto-related businesses through his UNGOX ratings agency.
As for Mt Gox customers, they are due to be partially reimbursed under a US$3bln repayment programme from August 2022.