The Disaster That Almost Ended Bitcoin (Mt. Gox Finally Explained)

Coin Cloud
3 min readMar 19, 2019


(image via CoinDesk)

In January 2009, Bitcoin became fully operational with an ever-growing following. At the centre of this vast following was Mt. Gox, at the time the most popular Bitcoin Exchange site — responsible for almost 80% of all the exchange operations in the Bitcoin network.

Mt. Gox had become accustomed to frequent hacks, glitches, and shutdowns. Suddenly, the exchange disappeared. What happened to Mt. Gox and the stolen Bitcoin?

A software hacker named Jeb McCaleb founded Mt. Gox, short for “Magic: The Gathering Online Exchange,” as an online marketplace for trading game cards for the game Magic: The Gathering. He would later turn the website into a Bitcoin exchange, where people could exchange cash for Bitcoin. As Mt. Gox started to take-off, McCaleb sold the site to Mark Karpeles, who would come to build Mt. Gox into the world’s largest Bitcoin exchange. McCaleb, under the sale agreement, retained an admin level user account.

However, Mt. Gox CEO Mark Karpeles’s implementation of bizarre internal practices led to the firm’s eventual downfall and the overall market downturn. In February 2014, Mt. Gox filed for bankruptcy protection in Japan, saying it has lost Bitcoins belonging to customers and the company, an amount valued at close to half a billion dollars at the time.

The Mt. Gox $460 million disaster’s real trouble started in the summer of 2013 when Mt. Gox exchange suspended all withdrawals. It was later revealed that the admin-level account given to McCaleb was compromised, leaving the attacker to use individual accounts to fraudulently buy large amounts of Bitcoin in an automated fashion.

Over 250,000 BTC was acquired in the exchange. This activity by the bot (nicknamed Willy) had a significant effect on the price of Bitcoin.

A total of 24,750 Mt. Gox claims were successfully approved. Mt. Gox bankruptcy was initiated in 2017 just as Bitcoin was valued at $2,000. Despite this, the trustee priced the Bitcoins at their 2014 price value of $484, upsetting many Mt. Gox Bitcoin customers and creditors, since the Bitcoin price was then many times the 2014 price.

Many have been speculating that the Mt. Gox trustee’s irresponsible selling is responsible for the Market crash in February 2018, as well as the price drop from Bitcoin’s all-time high.

The reason for this conclusion is the fact that the trustee has been dealing with relatively large sums of Bitcoin. These transactions add up to over $30 million executed by the Mt. Gox trustee from the Mt. Gox cold storage Bitcoin wallets, which is directly linked to the significant decline in Bitcoin prices.

This effect opens up the possibility that this could be a plan to manipulate the market rather than a fraudulent scheme to acquire Bitcoin. Another speculation has been that this was a plan executed by Mt. Gox to replenish the shortage of Bitcoins, by using their exchange to acquire BTC, trading the deficit in BTC for USD shortage.

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