Did MtGox play people's money? Would explain hypothetical lack of liquidity

[ehoffman]

Well, this is all speculation  But people are fearing that Gox doesn't have the liquidity to pay everybody.  One theory I could have is that Gox played people's money.

Normally, in an exchange, people send their money and play their own money.  BTC price may rise and fall, people individually gain and lose money, but in the end, no money is really gained or loss, it's only TRADED.  One person will make money on the back of another less fortunate lad, or lose money to another person's gain.

So, as long as each individual account is kept separate, then whatever people bring in or out of the exchange, be it fiat or BTC, then the exchange is still viable, and can have all the fiat/BTC liquidity required.

However, under the cover, the fiat sent to the exchange is just put in a big melting pot.  Some sort of money pool.  And how much each person still hold in fiat (or BTC) is just data bytes stored on a computer.  But this still works as good, and it's much simpler for the exchange operations.

So, as long as each individuals are treated independently, with their own assets isolated from other individuals, the game go on.  If the prices rise and fall, and someone gain or lose money in the end, then it's only their gain/loss.  The exchange is just providing exchange service, and the integrity stays on.

Now, let's speculate what would happen, if in a moment of great "illumination", Gox decided to invest in BTC, but didn't want to put it's own money in the pool.  Instead, it would just go to his main Gox pool account (after all, a lot of people keep fiat in their accounts for different, and legitimate, reasons).  Then, Gox actually play people's money.  It ends up as if Gox would withdraw from the money pool, and re-insert it under it's name, to buy BTC.  All this in hope that price will rise, and cash out (return what it took from the pool, and take out the profit).  But what happen is that the pool is now short.  What would happen if that the prices keep falling.  People more and more want to cash out.  The only problem is that the fiat pool is now drained.

The only options are:
- For Gox to insert fresh money in the poll (actually taking his loss at that time), but that most realistically won't happen (talking millions of $ here).
- Delay the cashout, in hope people reflow the fiat pool, so to pay out other investors wanting to cash out.  And hope that enough transactions occurs in the meantime so Gox has some revenue from transactions to help cover this up.  Well, seeing an increase in transaction fees would very highly back this theory up!

That scenario, although started faithfully, has now fully turned into a Ponzi-like scheme.

Note that this scenario is hypothetical and hopefully purely fiction.  But I think there's still reasons for concerns...

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[Komodorpudel]

Well, this is all speculation  But people are fearing that Gox doesn't have the liquidity to pay everybody.  One theory I could have is that Gox played people's money.

Normally, in an exchange, people send their money and play their own money.  BTC price may rise and fall, people individually gain and lose money, but in the end, no money is really gained or loss, it's only TRADED.  One person will make money on the back of another less fortunate lad, or lose money to another person's gain.

So, as long as each individual account is kept separate, then whatever people bring in or out of the exchange, be it fiat or BTC, then the exchange is still viable, and can have all the fiat/BTC liquidity required.

However, under the cover, the fiat sent to the exchange is just put in a big melting pot.  Some sort of money pool.  And how much each person still hold in fiat (or BTC) is just data bytes stored on a computer.  But this still works as good, and it's much simpler for the exchange operations.

So, as long as each individuals are treated independently, with their own assets isolated from other individuals, the game go on.  If the prices rise and fall, and someone gain or lose money in the end, then it's only their gain/loss.  The exchange is just providing exchange service, and the integrity stays on.

Now, let's speculate what would happen, if in a moment of great "illumination", Gox decided to invest in BTC, but didn't want to put it's own money in the pool.  Instead, it would just go to his main Gox pool account (after all, a lot of people keep fiat in their accounts for different, and legitimate, reasons).  Then, Gox actually play people's money.  It ends up as if Gox would withdraw from the money pool, and re-insert it under it's name, to buy BTC.  All this in hope that price will rise, and cash out (return what it took from the pool, and take out the profit).  But what happen is that the pool is now short.  What would happen if that the prices keep falling.  People more and more want to cash out.  The only problem is that the fiat pool is now drained.

The only options are:
- For Gox to insert fresh money in the poll (actually taking his loss at that time), but that most realistically won't happen (talking millions of $ here).
- Delay the cashout, in hope people reflow the fiat pool, so to pay out other investors wanting to cash out.  And hope that enough transactions occurs in the meantime so Gox has some revenue from transactions to help cover this up.  Well, seeing an increase in transaction fees would very highly back this theory up!

That scenario, although started faithfully, has now fully turned into a Ponzi-like scheme.

Note that this scenario is hypothetical and hopefully purely fiction.  But I think there's still reasons for concerns...

Oh come on....it is possible but really really unrealistic.
They make their money as an exchange and with a long term perspective they could make way more money with an honest exchange than taking all money from the customers to buy coins.

[ehoffman]

Reviving my original post...  Time to re-consider my original taught?

Last time was with withholding fiat.  Now they are stopping any currency withdrawal...

[MatTheCat]

Reviving my original post...  Time to re-consider my original taught?

Last time was with withholding fiat.  Now they are stopping any currency withdrawal...

I LOL'd at Komodorpudel's post. The level of naivety in society in spite of all the reports of corruption even in the mainstream media, never ceases to amaze me. Not only naive, but he then reprimands you for your tin-foiled hattedness.

It was only after I read your updated post that I spotted that this was originally posted way back in July 2013.

Looks like your concerns were justified. Gox has played the oldest money changer trick in the book. They have realised that not everyone wants all their fiat withdrawn or in Bitcoin all at once, they have taken money, and possibly worked fake Bitcoin into their exchange (accrediting accounts with more Bitcoin than is actually on the exchange) in order that they can take out even more money, and play it on other profitable ventures.

Great when it works. A complete disaster when it doesn't. Gox is blatantly insolvent and the move to block BTC withdrawals suggests that not only do they not have the money to pay people back, but they don't have the BTC either. Yet another massive Bitcoin fraud.

[glendall]

I don't thing so.  

Could this happen? Ya sure, happens all the time.  I lost over a 1000  bucks myself to the fuck-head Ukyo, who absconded with millions of dollars in BTC. He was treating users' deposits as his own personal wallet and gambling with money that was not his to do so with.

But Gox? I think it is simply incompetence. They showed this many times over their history.  Good riddance to Gox (though I do hope everyone gets their money out okay).

[Impaler]

It seems Gox exchange rate has fallen below other exchanges for the first time in months.  This is quite a development, we say that Gox-USD-IOU's were considered to be worth less then a dollar due to delay in withdraw and fears of insolvency.  And I suspect that market belief on that hasn't improved, instead the Gox-BTC-IOU's is now considered to be worth less then a BTC due to the same fears.  In other words everything at Gox is about equally likely to be fictional and unrecoverable so theirs no reason for the exchange rate to be different from other exchanges.  But people may feel that having a USD-IOU is better then a BTC-IOU by just a weee bit (perhaps out of belief that legal action to recover USD is easier, as some have speculated) so the rate is dipping below other exchanges now.  With the freeze in place we can no longer really know how little the IOU's would be valued by the market, they might be worth pennies on the dollar already but when they trade only against each other we can't discover that price.

[traderCJ]

Great reading here ..

http://www.reddit.com/r/Bitcoin/comments/1x9gue/my_protest_at_mtgox_offices_5_to_7th_february/

[caratheodory]

Well, this is all speculation  But people are fearing that Gox doesn't have the liquidity to pay everybody.  One theory I could have is that Gox played people's money.

Normally, in an exchange, people send their money and play their own money.  BTC price may rise and fall, people individually gain and lose money, but in the end, no money is really gained or loss, it's only TRADED.  One person will make money on the back of another less fortunate lad, or lose money to another person's gain.

So, as long as each individual account is kept separate, then whatever people bring in or out of the exchange, be it fiat or BTC, then the exchange is still viable, and can have all the fiat/BTC liquidity required.

However, under the cover, the fiat sent to the exchange is just put in a big melting pot.  Some sort of money pool.  And how much each person still hold in fiat (or BTC) is just data bytes stored on a computer.  But this still works as good, and it's much simpler for the exchange operations.

So, as long as each individuals are treated independently, with their own assets isolated from other individuals, the game go on.  If the prices rise and fall, and someone gain or lose money in the end, then it's only their gain/loss.  The exchange is just providing exchange service, and the integrity stays on.

Now, let's speculate what would happen, if in a moment of great "illumination", Gox decided to invest in BTC, but didn't want to put it's own money in the pool.  Instead, it would just go to his main Gox pool account (after all, a lot of people keep fiat in their accounts for different, and legitimate, reasons).  Then, Gox actually play people's money.  It ends up as if Gox would withdraw from the money pool, and re-insert it under it's name, to buy BTC.  All this in hope that price will rise, and cash out (return what it took from the pool, and take out the profit).  But what happen is that the pool is now short.  What would happen if that the prices keep falling.  People more and more want to cash out.  The only problem is that the fiat pool is now drained.

The only options are:
- For Gox to insert fresh money in the poll (actually taking his loss at that time), but that most realistically won't happen (talking millions of $ here).
- Delay the cashout, in hope people reflow the fiat pool, so to pay out other investors wanting to cash out.  And hope that enough transactions occurs in the meantime so Gox has some revenue from transactions to help cover this up.  Well, seeing an increase in transaction fees would very highly back this theory up!

That scenario, although started faithfully, has now fully turned into a Ponzi-like scheme.

Note that this scenario is hypothetical and hopefully purely fiction.  But I think there's still reasons for concerns...

Oh come on....it is possible but really really unrealistic.
They make their money as an exchange and with a long term perspective they could make way more money with an honest exchange than taking all money from the customers to buy coins.

Sadly this is exactly what people said about FullTiltPoker. They made a shit ton of money charging an absurd rake (we're talking millions monthly with barely any upkeep other than advertising so new money would flow in the poker economy). Why would anyone kill the chicken that lays golden eggs? Never under estimate people's greed. FTP ran away with people's money and devastated everyone in the process for a few extra million dollars.

[thelema93]

Reviving my original post...  Time to re-consider my original taught?

Last time was with withholding fiat.  Now they are stopping any currency withdrawal...

I LOL'd at Komodorpudel's post. The level of naivety in society in spite of all the reports of corruption even in the mainstream media, never ceases to amaze me. Not only naive, but he then reprimands you for your tin-foiled hattedness.

It was only after I read your updated post that I spotted that this was originally posted way back in July 2013.

Looks like your concerns were justified. Gox has played the oldest money changer trick in the book. They have realised that not everyone wants all their fiat withdrawn or in Bitcoin all at once, they have taken money, and possibly worked fake Bitcoin into their exchange (accrediting accounts with more Bitcoin than is actually on the exchange) in order that they can take out even more money, and play it on other profitable ventures.

Great when it works. A complete disaster when it doesn't. Gox is blatantly insolvent and the move to block BTC withdrawals suggests that not only do they not have the money to pay people back, but they don't have the BTC either. Yet another massive Bitcoin fraud.

They have stopped BTC withdrawals - for a few days so they can fix some bug.

More scare-mongering like this will not help Gox OR the people who want to continue using their services.

[MatTheCat]

They have stopped BTC withdrawals - for a few days so they can fix some bug.

More scare-mongering like this will not help Gox OR the people who want to continue using their services.

Bwahahahahahahahahahahahahahahaha!

Oh dear. Does Thelema have a shit ton of capital on Gox?

erm yeah, that is right. They just need a few days to fix some erm 'bug'. Just relax and go and have a nice cup of tea. Everything will be fine I am sure.

[traderCJ]

I find it interesting that there are people sending emissaries to Gox to pick up large sums of money from Mark.

[MatTheCat]

I find it interesting that there are people sending emissaries to Gox to pick up large sums of money from Mark.

I wonder if MTGox is where the Wall St money are going to pick up their first batch of double digit Bitcoin as a 'VIP customer', with full withdrawal privileges?

[ehoffman]

Also, don't say comments like "It's just too big and famous to be illegitimate"...  If someone is so naive to think so, think about Madoff, or closer to my home town (in Quebec, Canada), Vincent Lacroix (Norbourg scandal), where even the highest and most serious banks have been duped.

As caratheodory say, don't underestimate people's greed.

Just think about all the corruption, from the small to the most elaborate plot (just look at the news surrounding the construction industry here in Quebec, with the "Commission Charboneau"...  Very elaborate system put in place by the Italian mafia...  Freemasonry secrecy at it's best!).

[ehoffman]

Oh, to add, the warnings are not new...

1 - Remember when the price skyrocketed from 30~40 to 200$+.  Then, bubble popped and what then happened?  April 11 2013, Gox halted the tradings for 12 hours (in hope to stop market crash).  https://www.mtgox.com/press_release_20130412.html
2 - June 20th 2013, cash withdrawal becoming slower and slower, Gox halt fiat withdrawal for 2 weeks.  https://www.mtgox.com/press_release_20130620.html
3 - Well, this is the events taking place right now.  This has been ongoing for at least one to two week (or more).  https://support.mtgox.com/entries/26501000-Statement-Regarding-BTC-Withdrawal-Delays

More and more sources are worried about Gox now.  Some news talk about the "Fall of Gox".  Good link above traderCJ   And http://www.youtube.com/watch?v=cbxD-0EVV00 among other...

Sad days for Bitcoin...  Apple withdraw Bitcoin apps, Gox, Russia Just Outlawed Bitcoin and Other Cryptocurrencies, ...

[ehoffman]

And now...  They try to put the blame on the blockchain...  Lame excuses...  Same strategy as 50BTC...