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unitron writes:
"Via Twitter, Cmdr Taco passes this along
'A crazy theory, MtGox had its btc seized by us govt during Silk Road investigation, but gag order prevents disclosure'
The actual article, by Chris Pacia (who links to and credits PuffyHerb on Reddit for most of the thinking behind it), is here:
http://chrispacia.wordpress.com/2014/02/28/this-is -what-most-likely-happened-to-mtgox/"
[Ed's Note: The paragraph above is pretty much how it was received. I leave it up to the readers to draw their own conclusions on the plausibility or otherwise of this report and the linked article. It is, by its very nature, speculative but worthy of further discussion nonetheless.]
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A Theory - MtGox Was Mugged by Uncle Sam
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Future looks spotty. You will spill soup in late evening.
(Score: 5, Insightful) by mth on Monday March 03 2014, @05:39PM
Whatever happened, the official story is one of the least likely theories. It's highly unlikely transaction malleability exploitation could have been going on for a long time undetected, especially since it seems they had a cold wallet. Also several people claim to have warned them about the problem long before the first reports of it being exploited. If they saw exploits happening at a huge scale, they would have fixed the problem sooner, stopped trades sooner or have been more careful in re-executing failed transactions.
Normally an exchange should be resilient against a bank run, since they don't lend money: the amount of money they owe to customers should be equal to the amount of money they have stored. For some reason, MtGox seems to be unable to access most of that stored money. It is unclear whether the money is still there and they are unable or not allowed to access it or whether the money was moved.
The evidence that the US government has seized or frozen that money is rather thin. It would surprise me if they'd freeze the majority of MtGox's funds, rather than just a few accounts related to the Silk Road investigation. MtGox itself is probably also under investigation, but in that case it is unlikely there would be a gag order to prevent them from talking about the investigation: they wouldn't be able to tell themselves something they don't know yet.
Most of the evidence presented in TFA is interpretation of things Karpeles said or is rumored to have said. Both the interpretation and the message itself could be incorrect. Even if there is a gag order, the only proper statement would be "I cannot say anything at this time", not trying to blame the problems on transaction malleability. So I think statements from Karpeles/MtGox don't carry much credibility.
(Score: 3, Informative) by Non Sequor on Tuesday March 04 2014, @01:06AM
I am an actuary but most of my knowledge of finance comes from textbooks rather than direct experience, so take it with a grain of salt.
From the descriptions I've heard they were likely acting as a market maker in addition to operating the exchange. An exchange facilitates trades and a market maker is a party who is willling to always take the other end of a transaction (for a quoted price).
If I want to buy bitcoins with dollars, a market maker will sell me those bitcoins.
If I want to sell bitcoins for dollars, a market maker will buy those bitcoins.
An exchange makes money off of fees charged for trades and a market maker makes money by buying things at lower rates than they sell them for.
Market makers have to have enough dollars and (in this case) bitcoins on hand to be ready to take whatever transactions come their way. They also need to protect themselves against price changes so that they don't lose money due to changes in the value of their inventory (typically this is done in traditional market making by trading in offsetting options contracts).
Given the stories about the dollar withdrawal limits and the withdrawal delays on MtGox, I suspect they never really had access to enough dollars to be a viable market maker and their capacity to process dollar withdrawals may have been limited by their trade requests in the other direction coming in. In that situation, they can experience a run in that if they have a large disparity between dollar cashouts and dollar buyins, then their ability to process the cashouts would freeze up.
Write your congressman. Tell him he sucks.
(Score: 2) by mth on Tuesday March 04 2014, @06:54PM
If they participated in trades with their own money, acting as a market maker would still have no impact on being able to pay out the user accounts. If they traded with their customers' money, it is possible that trade losses would reduce coverage for user accounts below 100%. (I don't know the correct bookkeeping terminology, but I hope it's clear what I mean.)
At some point MtGox controlled such a large portion of the bitcoin exchange market that they would have been able to steer the price by injecting their own trades. Later their share diminished and they would no longer have had the opportunity to do that.
So while it is of course still speculation, your theory at least makes sense.
One thing that is mentioned in various different analyses is that they may have been running without insufficient funds to pay out all customers for quite some time, but they were able to cover it up because more money was coming in all the time. Only when people started pulling their money out they collapsed. In other words, the root cause may well be unrelated to recent events.
I'm curious what the bankruptcy investigation will turn up.
(Score: 1) by Non Sequor on Tuesday March 04 2014, @11:29PM
I think we're on close to the same page.
To be clear, I doubt they would have paid trades with any kind of money they are holding for a customer (trade completed but not withdrawn) but I believe paying a 100 bitcoin seller with the inflow from a 100 bitcoin buyer is, in itself, kosher. I'd expect nonkosher actions would have run them into a wall sooner than they did.
But I think it's plausible that: they could write an exchange platform, that platform did not have any glaring issues, but eventually they ran into a ditch because they lacked funding and risk controls to keep things operating when the cashouts substantially exceeded buyins. If that's the case, then this should just be regarded as the expected outcome of an ill-advised adventure.
Write your congressman. Tell him he sucks.
(Score: 0) by Anonymous Coward on Wednesday March 05 2014, @02:36AM
Oh, yeah, I get it! Yeah... yeah. My thinking about this case had become very uptight.
So what happened is, they had their cold wallet on a single machine, the hard drive died, they couldn't recover it and didn't have a backup... no way they could admit it... It makes perfect sense now!