Topic: MTGOX fits the pattern of insolvency [ARTICLE] (Read 1846 times)
Yes, a BTC level just high enough to keep people hanging on and posting endlessly about how things are slowly getting better and that Gox is turning around.
Gox has made enough in trading fees to offset the known seized funds, even accounting for very high legal expenses. And if the malleability thievery had caused high losses, it would be visible on the blockchain. The article is zero facts, all FUD.
Fact #1: MTGOX has halted withdrawals and has them halted despite Bitstamp halting them and resuming in a shorter time than Gox is taking.
Fact #2: No one but Gox would have the addresses to which said funds were stolen were sent to.
Fact #3: If they had all the bitcoins they could prove it very simply. But they have not.
Fact #4: Gox has a notorious reputation for saying something and not following through.
Fact #5: Mark was confronted in person by a customer and could not and would not answer his questions of whether or not Gox has all the bitcoins.
Fact #6: In every issue with MTGOX they always blame someone else.
Those are enough facts to show me that MTGOX is indeed not to be trusted. Likely they are insolvent.
If it walks like a duck and sounds like a duck...you know the rest.
Agreed ...you watch...to stop insolvency there will be some bullshit about get in a queue to withdraw BTC
SO they will allow only a trickle of btc out about 500btc a day ..same as the fiat bullshit
GOX are dead !!
Gox has made enough in trading fees to offset the known seized funds, even accounting for very high legal expenses. And if the malleability thievery had caused high losses, it would be visible on the blockchain. The article is zero facts, all FUD.
Fact #1: MTGOX has halted withdrawals and has them halted despite Bitstamp halting them and resuming in a shorter time than Gox is taking.
Fact #2: No one but Gox would have the addresses to which said funds were stolen were sent to.
Fact #3: If they had all the bitcoins they could prove it very simply. But they have not.
Fact #4: Gox has a notorious reputation for saying something and not following through.
Fact #5: Mark was confronted in person by a customer and could not and would not answer his questions of whether or not Gox has all the bitcoins.
Fact #6: In every issue with MTGOX they always blame someone else.
Those are enough facts to show me that MTGOX is indeed not to be trusted. Likely they are insolvent.
If it walks like a duck and sounds like a duck...you know the rest.
In addition to the above I must add
Fact #7 JPY Withdrawals (domestic within Japan) are now been delayed. https://bitcointalksearch.org/topic/m.5207137
Fact #8 MTGox added Money Polo back in December for deposits but not for withdrawals. Why just deposits? https://www.mtgox.com/press_release_20131219.html
Gox has made enough in trading fees to offset the known seized funds, even accounting for very high legal expenses. And if the malleability thievery had caused high losses, it would be visible on the blockchain. The article is zero facts, all FUD.
Fact #1: MTGOX has halted withdrawals and has them halted despite Bitstamp halting them and resuming in a shorter time than Gox is taking.
Fact #2: No one but Gox would have the addresses to which said funds were stolen were sent to.
Fact #3: If they had all the bitcoins they could prove it very simply. But they have not.
Fact #4: Gox has a notorious reputation for saying something and not following through.
Fact #5: Mark was confronted in person by a customer and could not and would not answer his questions of whether or not Gox has all the bitcoins.
Fact #6: In every issue with MTGOX they always blame someone else.
Those are enough facts to show me that MTGOX is indeed not to be trusted. Likely they are insolvent.
If it walks like a duck and sounds like a duck...you know the rest.
Gox has made enough in trading fees to offset the known seized funds, even accounting for very high legal expenses. And if the malleability thievery had caused high losses, it would be visible on the blockchain. The article is zero facts, all FUD.
yes i agree it fits the pattern in some ways but i cant for the life of me figure out how. Based on the gox owner is so rich in BTC unless he's lost them & gox exchange would still be very profitable even with the troubles.
edit: fulltilt we can take a little lesson from but the other poker sites were failing & small. fulltilt was also run by people who would blow money. karpeles doesnt seem to have expensive tastes
edit: fulltilt we can take a little lesson from but the other poker sites were failing & small. fulltilt was also run by people who would blow money. karpeles doesnt seem to have expensive tastes
Pretty interesting article. I think it's very likely that malicious customers took advantage of them although they havent exactly responded with transparency
I would even bet that MTGox is not insolvent and they are just simulating the market. Read my thread:
https://bitcointalksearch.org/topic/mark-karpales-is-defrauding-his-customer-you-should-suecharge-him-470685
I am keen to do some bets on it if someone is interested.
https://bitcointalksearch.org/topic/mark-karpales-is-defrauding-his-customer-you-should-suecharge-him-470685
I am keen to do some bets on it if someone is interested.
The author of the article is too nice.
Gox seems incapable of doing anything to avoid negative press. More likely they re-sent because they didn't recognize the problem.
This is a pretty good description of something called a Ponzi scheme.
Quote
It appears that Mt. Gox has long known of, and suffered from, transaction malleability. As explained in this Coindesk post, if a user claimed not to have received their bitcoin (either truthfully or maliciously), Gox was likely to have re-sent the funds to avoid negative press as a result.
Gox seems incapable of doing anything to avoid negative press. More likely they re-sent because they didn't recognize the problem.
Quote
This process of fronting money – either in the hopes of recovering the initial transactions or to maintain positive perceptions – is a vicious cycle that depends on deposits outpacing withdrawals to be sustainable. Once that balance reverts, it’s an effective bank run, and the operator will eventually not have enough deposits to cover user balances.
This is a pretty good description of something called a Ponzi scheme.
To the floor!
http://www.coindesk.com/mt-gox-may-headed-bankruptcy/
Quote
Why Mt. Gox May Be Headed for Bankruptcy
Ezra Galston (@ezramogee) | Published on February 17, 2014 at 16:10 GMT | Analysis, Bitcoin Gambling, Exchanges, Mt. Gox
inShare
2Share25
Ezra Galston is currently a venture capitalist at Chicago Ventures and the former director of marketing for CardRunners Gaming.
It has been a tough week for bitcoin: a freeze on withdrawals at Mt. Gox due to transaction malleability, multiple DDoS attacks across the exchanges, and a consequent plunge in price.
In my view, however, Gox should be everyone’s biggest focus. While their price spreads and cash-out delays have plagued the site for more than six months, I believe their current situation and recent statements belie transparency and suggest insolvency. Namely, that their business model and recent past raise a number of red flags that make comparing the company to now-bankrupt online gambling operators highly relevant.
Three weeks ago, I took to Re/code to describe how the evolution of online poker is likely to be correlated and instructive to bitcoin’s development. In it, I wrote: “I believe we could see a major exchange go under, especially if regulations and wire transfers become more complex, or if the cost of acquiring customers becomes more competitive.”
I have seen this story play out nearly a dozen times before during my tenure as an executive in the online poker world and, in this article, I want to set out why I think Mt. Gox is in big trouble.
Fund seizures
Mt. Gox had nearly $5 million in funds seized from its bank accounts in 2013. It’s unclear whether these were operating funds or customer deposits. This is highly reminiscent of seizures in the online gambling world, which deeply affected operators’ solvency.
These fund seizures, such as $115 Million from Full Tilt Poker, or $33 Million in a 2009 DOJ Seizure, were initially smoothed over by their operators. Players were typically reimbursed and withdrawals were honored.
What outsiders hadn’t realized at the time was the strain this placed on individual operators. In order to keep the business running, operators had to remove the ring-fence that protected customer deposits and borrow from customer balances to support operations.
While everyone believed that the poker sites were making billions, their overheads due to staffing and marketing was significant. More importantly, each new seizure forced the operators to move downstream to less and less reputable transaction processors and banks. These processors charged heavier fees because of the heightened risk, and often absconded with deposits, because, well, they could.
We see this with Mt. Gox as well: the company lost its relationship with reputable processors, such as Dwolla, and has never managed to integrate with Skrill or Neteller.
Phantom deposits
It appears that Mt. Gox has long known of, and suffered from, transaction malleability. As explained in this Coindesk post, if a user claimed not to have received their bitcoin (either truthfully or maliciously), Gox was likely to have re-sent the funds to avoid negative press as a result.
This process of fronting money – either in the hopes of recovering the initial transactions or to maintain positive perceptions – is a vicious cycle that depends on deposits outpacing withdrawals to be sustainable. Once that balance reverts, it’s an effective bank run, and the operator will eventually not have enough deposits to cover user balances.
It is highly analogous to the working capital model that caused the insolvency of Full Tilt Poker, once a billion-dollar industry leader. In their case, the black market ACH (automated clearing house) processors they had contracted to transfer player funds from bank account to virtual wallet struggled to convince banks to process those transactions.
Full Tilt, wanting to maintain a dominant image and not lose player liquidity to competitors, chose to credit attempted (but failed) withdrawals to player accounts, hoping to recoup those transactions as their processors improved. This backlog of ‘phantom’ deposits ultimately reached $130 million. Executives later admitted that it started small and spiraled out of control.
Although I have not seen any indication as to the scale of Gox’s equivalent phantom transactions, the ramifications are considerable – especially if malicious customers exploited the issue to their advantage.
Excuses, excuses…
Mt. Gox’s public statements have been only partially accurate, initially blaming bank/processor delays in June 2013, and now admitting a systemic technical issue. This evolution of excuses mirrors those of gambling operators who were quick to blame a difficultly in transaction processing before admitting internal issues.
Eurolinx was a popular poker site from 2006 to 2008. However, in 2009, withdrawals began slowing considerably. Initially, it claimed:
“The situation is only temporary because we have had an unusually high number of withdrawals that, in combination with increased security checks, have caused a backlog and delays throughout the system.”
Weeks later they admitted: “Most of the delays occurred due to payment processor issues we experienced in May and June. The problem has now been fixed, however, we have some withdrawal backlog to deal with.” And, months later, they filed for bankruptcy – leaving players millions of dollars the poorer – and ultimately admitting that they gambled player deposits in the stock market and lost, big time.
FullTiltPoker enjoyed market dominance from late 2006 until their DOJ indictment in April 2011. Soon after being banned from servicing US players, the DOJ gave them permission to repay all depositors, but they failed to do so.
On May 15th, FTP claimed: “Full Tilt Poker faced numerous challenges and hurdles to ensuring the smooth operation of its international business and the orderly return of US player funds. We are absolutely committed to making sure that US players are refunded as soon as possible. We apologize for the delay and the fact that we underestimated the time it would take to work through these issues.”
On May 30th, they repeated:
“We still do not have a specific timeframe for [paying back players]. There has been, and remains, no bigger priority than getting US players paid as soon as possible, and we have been working around the clock to get this done.”
However, at this point, they admitted solvency issues for the first time, saying: “We are raising capital to ensure that the US players are paid out in full as quickly as possible.” The company admitted total insolvency three months later, on August 31st.
In these cases and more, the operators cited seemingly legitimate reasons for process delays. All were rooted in industry truths – difficulty of bank processing or technical complications of implementing a mass refund – but were ultimately covers for deeper issues.
Most worrisome is that in the weeks prior to nearly every major online poker bankruptcy, the operators marketed deposit bonuses and perks – a last attempt to buy solvency and time.
This was true in the case of Full Tilt Poker and Eurolinx, as well as Ultimate Bet, Absolute Poker, GoalWin Poker, Poker in Venice and more. Mt. Gox did the same – offering discounted trading fees as recently as December 19th – a curious move for an operator clearly aware they were facing transactional hurdles.
Tell-tale pattern
I am hopeful, along with the wider Bitcoin community, that Mt. Gox can overcome its difficulties and rebuild consumer confidence.
As Mt. Gox has struggled with both bitcoin and fiat withdrawals, it should be noted that, in a public ledger cryptocurrency, it is possible to certify the solvency of reserves with digital signatures showing the location of all deposits – although no exchange currently utilizes this feature of bitcoin.
While that would solve questions surrounding bitcoin solvency, it would leave fiat concerns unresolved. That said, my experience over the past decade has shown that insolvency tends to follow a pattern, that Mt. Gox clearly fits, and I feel the company is likely to fail unless outside capital comes to the rescue.
Ezra Galston (@ezramogee) | Published on February 17, 2014 at 16:10 GMT | Analysis, Bitcoin Gambling, Exchanges, Mt. Gox
inShare
2Share25
Ezra Galston is currently a venture capitalist at Chicago Ventures and the former director of marketing for CardRunners Gaming.
It has been a tough week for bitcoin: a freeze on withdrawals at Mt. Gox due to transaction malleability, multiple DDoS attacks across the exchanges, and a consequent plunge in price.
In my view, however, Gox should be everyone’s biggest focus. While their price spreads and cash-out delays have plagued the site for more than six months, I believe their current situation and recent statements belie transparency and suggest insolvency. Namely, that their business model and recent past raise a number of red flags that make comparing the company to now-bankrupt online gambling operators highly relevant.
Three weeks ago, I took to Re/code to describe how the evolution of online poker is likely to be correlated and instructive to bitcoin’s development. In it, I wrote: “I believe we could see a major exchange go under, especially if regulations and wire transfers become more complex, or if the cost of acquiring customers becomes more competitive.”
I have seen this story play out nearly a dozen times before during my tenure as an executive in the online poker world and, in this article, I want to set out why I think Mt. Gox is in big trouble.
Fund seizures
Mt. Gox had nearly $5 million in funds seized from its bank accounts in 2013. It’s unclear whether these were operating funds or customer deposits. This is highly reminiscent of seizures in the online gambling world, which deeply affected operators’ solvency.
These fund seizures, such as $115 Million from Full Tilt Poker, or $33 Million in a 2009 DOJ Seizure, were initially smoothed over by their operators. Players were typically reimbursed and withdrawals were honored.
What outsiders hadn’t realized at the time was the strain this placed on individual operators. In order to keep the business running, operators had to remove the ring-fence that protected customer deposits and borrow from customer balances to support operations.
While everyone believed that the poker sites were making billions, their overheads due to staffing and marketing was significant. More importantly, each new seizure forced the operators to move downstream to less and less reputable transaction processors and banks. These processors charged heavier fees because of the heightened risk, and often absconded with deposits, because, well, they could.
We see this with Mt. Gox as well: the company lost its relationship with reputable processors, such as Dwolla, and has never managed to integrate with Skrill or Neteller.
Phantom deposits
It appears that Mt. Gox has long known of, and suffered from, transaction malleability. As explained in this Coindesk post, if a user claimed not to have received their bitcoin (either truthfully or maliciously), Gox was likely to have re-sent the funds to avoid negative press as a result.
This process of fronting money – either in the hopes of recovering the initial transactions or to maintain positive perceptions – is a vicious cycle that depends on deposits outpacing withdrawals to be sustainable. Once that balance reverts, it’s an effective bank run, and the operator will eventually not have enough deposits to cover user balances.
It is highly analogous to the working capital model that caused the insolvency of Full Tilt Poker, once a billion-dollar industry leader. In their case, the black market ACH (automated clearing house) processors they had contracted to transfer player funds from bank account to virtual wallet struggled to convince banks to process those transactions.
Full Tilt, wanting to maintain a dominant image and not lose player liquidity to competitors, chose to credit attempted (but failed) withdrawals to player accounts, hoping to recoup those transactions as their processors improved. This backlog of ‘phantom’ deposits ultimately reached $130 million. Executives later admitted that it started small and spiraled out of control.
Although I have not seen any indication as to the scale of Gox’s equivalent phantom transactions, the ramifications are considerable – especially if malicious customers exploited the issue to their advantage.
Excuses, excuses…
Mt. Gox’s public statements have been only partially accurate, initially blaming bank/processor delays in June 2013, and now admitting a systemic technical issue. This evolution of excuses mirrors those of gambling operators who were quick to blame a difficultly in transaction processing before admitting internal issues.
Eurolinx was a popular poker site from 2006 to 2008. However, in 2009, withdrawals began slowing considerably. Initially, it claimed:
“The situation is only temporary because we have had an unusually high number of withdrawals that, in combination with increased security checks, have caused a backlog and delays throughout the system.”
Weeks later they admitted: “Most of the delays occurred due to payment processor issues we experienced in May and June. The problem has now been fixed, however, we have some withdrawal backlog to deal with.” And, months later, they filed for bankruptcy – leaving players millions of dollars the poorer – and ultimately admitting that they gambled player deposits in the stock market and lost, big time.
FullTiltPoker enjoyed market dominance from late 2006 until their DOJ indictment in April 2011. Soon after being banned from servicing US players, the DOJ gave them permission to repay all depositors, but they failed to do so.
On May 15th, FTP claimed: “Full Tilt Poker faced numerous challenges and hurdles to ensuring the smooth operation of its international business and the orderly return of US player funds. We are absolutely committed to making sure that US players are refunded as soon as possible. We apologize for the delay and the fact that we underestimated the time it would take to work through these issues.”
On May 30th, they repeated:
“We still do not have a specific timeframe for [paying back players]. There has been, and remains, no bigger priority than getting US players paid as soon as possible, and we have been working around the clock to get this done.”
However, at this point, they admitted solvency issues for the first time, saying: “We are raising capital to ensure that the US players are paid out in full as quickly as possible.” The company admitted total insolvency three months later, on August 31st.
In these cases and more, the operators cited seemingly legitimate reasons for process delays. All were rooted in industry truths – difficulty of bank processing or technical complications of implementing a mass refund – but were ultimately covers for deeper issues.
Most worrisome is that in the weeks prior to nearly every major online poker bankruptcy, the operators marketed deposit bonuses and perks – a last attempt to buy solvency and time.
This was true in the case of Full Tilt Poker and Eurolinx, as well as Ultimate Bet, Absolute Poker, GoalWin Poker, Poker in Venice and more. Mt. Gox did the same – offering discounted trading fees as recently as December 19th – a curious move for an operator clearly aware they were facing transactional hurdles.
Tell-tale pattern
I am hopeful, along with the wider Bitcoin community, that Mt. Gox can overcome its difficulties and rebuild consumer confidence.
As Mt. Gox has struggled with both bitcoin and fiat withdrawals, it should be noted that, in a public ledger cryptocurrency, it is possible to certify the solvency of reserves with digital signatures showing the location of all deposits – although no exchange currently utilizes this feature of bitcoin.
While that would solve questions surrounding bitcoin solvency, it would leave fiat concerns unresolved. That said, my experience over the past decade has shown that insolvency tends to follow a pattern, that Mt. Gox clearly fits, and I feel the company is likely to fail unless outside capital comes to the rescue.
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