MtGox Phoenix Rises – Exchange May Become Solvent if Bitcoin Price Keeps Rising

It seems that the recent price hike may give MtGox creditors a chance to recoup their losses. Mark Karpeles is hoping to distribute the remaining 202,185 Bitcoins assuming they reach 100% or more of their claim value. This is positive news, because if MtGox doesn’t become solvent it is required by Japan law to liquidate all its assets into Yen.

MtGox filed for bankruptcy back in 2014 as a result of supposedly loosing 700,000 Bitcoins of users’ funds. Once the investigation into the missing coins started, 200,000 of those coins were mysteriously “found”. After the bankruptcy claims arrived it was clear that MtGox wasn’t solvent and their only assets were the 200,000 found coins, $10 million in the bank, and a few thousand bitcoins from hot wallets.

To add insult to injury, Coinlab filed a $75 million lawsuit only 8 months prior to MtGox’s bankruptcy declaration. That is another reason why MtGox creditors are being delayed their payment. On the one side, Coinlab is claiming that MtGox owest them $75 million, while on the other side MtGox claims that it is actually Coinlab that owes them $5 million.

Mark Karpeles has been quite vocal on reddit regarding this situation. He said:

I am monitoring the situation. We are still around 59.92% (74.29% if excluding CoinLab – but it can’t be excluded as lawsuit is still in progress). Remember to use JPY values for calculation, since USD is bound to not be exact.

According to very rough calculations, if MtGox’s networth is 202,185 bitcoins and $10 million usd, that means that at current prices ($1690), MtGox’s total net worth is $358 million. If that value represents roughly 60% of the total claim (including Coinlab), that means the total combined claim values put it right around $597 million. That means that Bitcoin’s price needs to reach $2900 before MtGox can comfortably liquidate all assets at the claim’s value.

While that may seem like a long shot, given the current rally, a 100% rise in price is not unrealistic. The bigger question is, what will happen once those coins will get distributed? Will the owners instantly dump them on the market, or will they hoard the coins?

Japan’s law states that if MtGox cannot become solvent they have to liquidate their assets, meaning they have to sell the coins. However, if the exchange becomes solvent, there is a possibility that the claims could be closed if creditors are reimbursed. This way, even if many rush to sell their coins, it would have a much less significant effect on the market rather than if that amount of coins was dumped in one go onto an exchange.

Unfortunately, even if MtGox reaches 100% value of its claim, Mark Karpeles said the exchange would never be able to reopen as MtGox. He said the reason for that is because the brand image would be destroyed and that the platform wouldn’t be able to compete with today’s exchanges.

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