The "Mentougou" Bitcoin Exchange, which filed for bankruptcy eight years ago, is now worth trillions?

In early 2013, Peter Vesenes was working on a deal in his Seattle office to acquire the North American client business of Mt. Gox, then the world’s largest bitcoin exchange, when his phone rang.
“Believe it or not, we had caller ID back then,” Visones said in an interview. “My caller ID said, SEC Enforcement. And I was like, Oh, my God!”

The team working on the trades had already had trouble viewing its books, and now U.S. securities regulators wanted to ask him if he had heard of the Tokyo-based exchange. The Securities and Exchange Commission was conducting an enforcement action and wanted him to testify in the case.

“As soon as I heard that Gox was being targeted by the SEC’s enforcement arm, I was pretty sure the trade was dead,” Visonnes said. Photo by André François McKenzie on Unsplash

He was right. The deal fell through, and Mt. Gox collapsed in scandal. It soon went bankrupt, leaving behind a horde of creditors around the world.

Eight years later, earlier this month, the bankruptcy proceedings for Mt. Gox, which put the exchange and its users in bankruptcy after the 2014 market crash, took a major step forward. An agreement brokered in part by Visonnes was announced that allows creditors to recover some of their funds before the case is decided.

Many of the bitcoins lost or stolen from Mt. Gox have been found, and Japanese bankruptcy trustee Nobuaki Kobayashi is working to repay creditors. CoinLab, co-founded by Visones, is working with MGIFLP, a subsidiary of Fortress Investments, to allow creditors to consider up to 90% of the remaining bitcoins for bankruptcy transactions.

Not all of the bitcoins held by Mt. Gox when it went bankrupt are recoverable. A CoinLab spokesperson said that for every digital token locked up in the bankruptcy, only 0.23 coins were available for distribution. Claims against Mt. Gox’s bitcoins are far greater than the amount of cryptocurrency held by the trust.

CoinLab files $16 billion bankruptcy claim against Mt. Gox.

However, as Bitcoin hit an all-time high of $41,981 on January 8, Mt. Gox’s history seems even more important, as the loss of more than 850,000 Bitcoins in 2014 was perhaps the closest Bitcoin came to death.

It all started with Magic: The Gathering, a card game that had gone online and provided a way for users to exchange cards over the internet. In 2007, Jed McCaleb, the developer of the file-sharing network eDonkey, bought the domain name of Magic the Gathering Online Exchange (Mt. Gox for short).

McCaleb’s attention turned to Bitcoin a few years later, after its creation in 2009. He realized that the method of buying and selling wasn’t very good, and decided to convert Mt. Gox into one of the first digital asset exchanges.

In 2010, Visonnes approached McCaleb about joining the effort to make Mt. Gox the world’s largest bitcoin marketplace.

After closing eDonkey, McCaleb moved to Costa Rica to surf and raise a family. Although Visonni wanted to do business with McCaleb, he also wanted to meet him in person first.

"I took probably the most expensive flight of my life" to Costa Rica, Visones said, a flight that cost him 1,500 bitcoins, which at current bitcoin prices would be worth about $47.8 million.

After sleeping on a mattress at McCaleb’s house, the two men ultimately couldn’t come to a consensus on Mt. Gox, so Visones hitchhiked 200 miles back to the airport.

In 2011, McCaleb sold Mt. Gox to a Frenchman named Mark Karpeles. “He was going to give me half of the first six months’ revenue, and I was going to keep 12 percent,” McCaleb said in an interview.

McCaleb no longer owns any shares in Mt. Gox.

In the U.S., Visones still believed Mt. Gox was a once-in-a-lifetime investment. He co-founded CoinLab in 2012 and counted early Bitcoin pioneers Roger Ver and Barry Silbert as investors. Ver actually lived down the street from Mt. Gox in Tokyo, Visones said, and in the summer of 2012, CoinLab struck a deal to buy Mt. Gox outright from Karpeles for about $10 million.

“We were ready,” he said. Then, “I was left out.”

The deal evolved into CoinLab taking over operations for Mt. Gox clients in the United States, Canada and Mexico, but Visones said his team didn’t have the proper access to the ledgers to make sure everything was going as planned at the exchange.

At the time, he said, Mt. Gox handled 80% of the world’s bitcoin transactions. CoinLab sued Mt. Gox for violating its terms soon after the deal was announced in 2013. About a year later, the loss or theft of 850,000 bitcoins held on Mt. Gox was disclosed.

In 2019, the Tokyo District Court found Karpeles guilty of tampering with financial records and sentenced him to two and a half years of probation, which he will not serve unless he violates the law again within four years.

“It could have been a trillion-dollar company,” Visones said. “It’s very sad.”

Visones said CoinLab's current $16 billion claim against Mt. Gox is based on how much the company believes their share would be worth if Mt. Gox was managed properly.

The CoinLab lawsuit, filed in 2013, continues to this day. Part of the reason the case lasted years is that it involves international jurisdiction. It took Visones six months to prosecute Karpeles, having to use the judicial and extrajudicial documents provided by the Hague Convention on International Law Enforcement. It then took another year to arrange for the deposition, he said.

Visonnes, who first bought bitcoin on Mt. Gox for about 5 cents, has not been disappointed with the digital currency.

He said: "The impact of cryptocurrency is still underestimated. It is still not fairly appreciated for how revolutionary it is."

He said there is room for many blockchain applications and that he still values ​​Bitcoin because it has better privacy protection than other blockchains such as Ethereum, XRP or Polkadot.

He is currently working on a project to embed Bitcoin into bank notes and other blockchain-based ideas. (The Paper)