Uncertainty has followed last year’s soaring values and unprecedented demand in the aftermath of MtGox demise, with BTC values falling below $400 for the first time since last November. Would reviving MtGox be a very risky business?
It is common practice in most industry sectors for large, stable companies which operate within a particular business segment to purchase bankrupt entities for a token fee as a means of furthering their own ventures, acquiring more facilities or skilled staff for minimal initial outlay.
In the virtual and often unpredictable world of crypto currency, such transactions have begun to take place, with somewhat different parameters.
Ill-fated bitcoin exchange MtGox has become a subject of potential acquisition, for the price of one Bitcoin (approximately $400), by a consortium of investors which include former actor Brook Pierce who nowadays invests in technological innovations.
Reuters reported on Friday last week that this particular group of investors intends to bring the defunct virtual currency exchange back into operation, and reserve 50% of all transaction fees in order to provide restitutions to customers which lost their money in its demise, and to pay back other creditors over time.
Creditors, who have been stuck in limbo since their accounts were frozen, would have the option of receiving a prorated payment from the 200,000 recovered bitcoins, an estimated 20% recovery value on their claims, or receiving the equivalent amount in equity in the new exchange.
Currently this is a mere proposal which would likely require some measure of approval by the Japanese bankruptcy court, in which it may be that the low valuation of the proposed transaction could be a sticking point.
The Wall Street Journal reported last week that sources which were familiar with the plan had stated that the group of investors is justifying the low price because of the lack of information regarding MtGox’s 550,000 missing Bitcoins, which are currently worth approximately $220 million.
(Chart Source: Bitstamp display of BTC prices over six month period)
As a result of the impossibility of placing a specific value on the lost coins, the prospective investors consider that the exchange can only be bought for a very low token value as the risk of paying back the respective owners of these particular Bitcoins without an actual valuation could result in very high liability.
Overall, despite the very low purchase price, the purchase of MtGox and re-instatement would represent a bold move for its potential new owners, as not only does the exchange have substantial unserviceable debts, but also the restitution of these plus future profits would have to be generated from a highly unstable currency without backing or regulatory oversight, and with values which vary tremendously over very short time periods.
With values of the virtual currency down to such low levels after last year’s bonanza which was created by events such as Argentina’s ever-tightening capital control measures, China’s attempts to ban any bitcoin transactions and Cyprus’ banking crisis just to name a few, those who saw Bitcoin as their savior from national constraints have had their confidence blunted by the disappearance of Bitfloor, seizure by the US government of Silk Road, and the demise of MtGox, all of which served to underline the harsh reality that unregulated peer-to-peer currencies which operate outside the central banking system are not for the feint-hearted.