only $5 million seized from MtGOX - making fears of insolvency ATM SMALL

[mrkent]

I believe there's two likely scenarios.

Costs of business:
Employees: at least 20, ~$150,000/month (low estimate)
Office: tokyo (from past photos/videos, seems like pretty nice place) I know their address should be public somewhere, with which can be used to estimate monthly rental costs.
Server costs: ? no clue
Legal fees: ? no clue
Seized funds: at least $4.5 mil

Earnings:
Since March: MagicalTux was quoted in irc claiming a $8 mil earnings since March or April.
Before March: Let's assume $2mil

1. MtGox is becoming insolvent. In my own convo with him earlier this year, he claimed that before the bubble, they were barely breaking even. Writing off the $5mil that that were seized, it would surprise me that the company is overall profitable for the past 3 years. Before you read #2, estimate for yourself a numerical likelihood of this being true (say 70%).


2. Very likely as a last ditch effort, mtgox suspended withdraws. Either premeditated or not, they took advantage of the spread between themselves and other major exchanges and decided to arbitrage the discrepancy.
Supporting observations:
- Gox/bitstamp spread has been *almost* consistently at ~10% since May 15 (day of dwolla seizure)
- Two exceptions are: 1. June, the spread closes. 2. Around 2 weeks ago, the spread went as high as ~20%
So the questions that are hard to answer are:
- Why would the spread be so consistent at 10%, even though it seems more and more likely that gox is in some serious financial trouble? It's been over 2 months, and I'd expect the spread would grow in percentage.
- Why would the spread close in June, even though there were no verification of Gox processing withdraws again?

Added the fact that gox is clearly losing market share and the withdraw suspensions are likely delaying that process.
Liquidity has dropped significantly and general confidence is probably lower, yet rate on bitstamp has actually be following mtgox going up.

Holes in this hypothesis:
Why wouldn't the spread be closer to 1% if gox was arbitraging?
- There's probably a limited amount they are willing or able to trade at any given time. Any other exchange can freeze gox's accounts, ban them, or whatnot if suspected they were doing this. That would put a nail in the coffin. So to avoid getting caught/raising suspicion, gox is limited in its arbitraging opportunities.

Now, if #1 is true, I'd say #2 would almost certainly be true. If Gox is going down:
1. it can go down in flames and with nothing to show,
2. Take everyone's money and run, or
3. it can gracefully go down (relatively) without losing money and without blatantly stealing money.

[Beta-coiner1]

I am sorta Bullish about the short term[~2 months] prospects of a price rise due to what's been going on.Irregardless of what people may think concerning Mtgox it is still seen as one of the main price points for BTC and with that fact limiting fiat withdrawal and the only way to get out is to buy BTC leaves me to believe that this price rally will only end when Mtgox is not considered the main exchange anymore.

[Qoheleth]

- Why would the spread close in June, even though there were no verification of Gox processing withdraws again?

Recall that June was only a little bit after timely withdrawls began to be a problem, and at the time, Gox issued a statement implying that things would be back to normal on the 4th of July. It's possible that some folks with deep pockets, speculating that everything was about to return to normal, decided to conduct arbitrage prior to actually being able to withdraw their money.

Why wouldn't the spread be closer to 1% if gox was arbitraging?

If such a scheme is going on, a consistent tight spread over months would give it away. Sooner or later speculative arbitrage will run out of money, which means the only way to keep the prices equal is a back-channel. Keeping it at 10% or so, in this hypothetical, better matches people's assumptions and gives them less reason to reevaluate.

- There's probably a limited amount they are willing or able to trade at any given time. Any other exchange can freeze gox's accounts, ban them, or whatnot if suspected they were doing this.

Why would any exchange in their right mind do that? If Gox wants to set up arbitrage to Bitstamp, for example, it's no skin off their nose. On the contrary - it would line Bitstamp's pockets with trade commissions and increase their volume. If Gox is doing this sort of trick, it's in the destination exchange's interest to let it continue. I'm not even convinced that it's unethical - Bitfinex does a similar thing, by "routing" trades to Bitstamp when they're better than the local ones.

[mrkent]

If Gox is doing this sort of trick, it's in the destination exchange's interest to let it continue. I'm not even convinced that it's unethical - Bitfinex does a similar thing, by "routing" trades to Bitstamp when they're better than the local ones.

If gox is in fact in serious trouble, the wiser move for bitstamp would be to put a nail in that coffin rather than skim the transaction fees. All the fees will be theirs if gox is gone.