Warning: How many of you Bears have ever been a victim of a Short Squeeze?

[cypherdoc]

we don't know they'd liquidate the BTC since it's digital.  all physical property sure.

even if they did liquidate BTC held into BK to USD to pay you back, it still would be better assuming the USD price continues to go up from here.

What we do know is that a) there is no legal basis or precedent to indicate that BTC would be exempt from liquidation, and b) there is no legal requirement to repay debts in any form other than fiat currency.

On the second point, I don't understand. I'm saying:

-Liquidate at current prices (whenever BK proceeds)
-Case moves through the system over a period of years
-Goxcoin holders are repaid based on the liquidation price --> What is the price of BTC against USD after years have gone by?

Its your sequence of events I disagree with.

I see liquidation of those coins late in the bk process if at all. Look how long the DOJ is taking with silk roads coins.  If I had goxusd right now, I'd be buying goxBTC at these 90% discounted prices and just waiting it out. You either get appreciated BTC at the end of the long bk process or more usd if they liquidate late in the process. 

Furthermore, if they open up withdrawals soon you can get your coins out immediately before everyone else.

That's not bankruptcy you are talking about.

But of course, it wouldn't happen immediately. My point earlier was that from a long term bull's perspective, selling BTC at Point A and getting fiat down the line at Point B is a bad decision.

Like I said, if it happens, I highly doubt Goxcoin holders will be paid in BTC. Nothing you've said really challenges that, certainly not from a legal perspective.

In regards to the liquidation of BTC in a MtGox bankruptcy event, I suppose it's possible, but I doubt it would happen. 

The important thing to remember is that the people making these decisions would be required to proceed in a manner that maximizes the assets returned to Gox creditors (i.e., the account holders owed Gox USD and Gox BTC).  Bitcoins would only be liquidated if this seemed like the prudent course of action from the point of view of the Gox creditors.  If liquidation is expected to return $0.25 on the dollar, then obviously the creditors would not be in favour of this.   

That's all well and good. The fact is that the best interest of creditors is decided by the trustee. So while Goxcoin holders obviously prefer payment in BTC, the rest of the world (up to and including trustees in bankruptcy) is highly unlikely to view liquidating everything but the bitcoins as prudent.

I'm a long term bull -- most of the world isn't. If you expect bankruptcy courts to magically change the rules for bitcoin such that trustees in bankruptcy are now entering the role of financial speculators -- I don't think so.

For example, in a Chapter 7, stocks, bonds and other investments are generally considered non-exempt. Do you think trustees in bankruptcy decide which investments are good and which are bad? Do you think they liquidate the "bad investments" and distribute the rest -- perhaps a mish-mash of stocks, bonds and commodities --pro rata among creditors? No, they don't. If you think otherwise, I'd appreciate it if you could provide some examples. A trustee's role is to gather non-exempt property of the debtor, liquidate it and distribute the proceeds.

Like I said, I am not an expert on bankruptcy proceedings. But what you are both suggesting appears to have absolutely no basis in any legal system.

Having said that, this is all hypothetical and unlikely.

But goxcoin holders could just as well argue Bitcoin is cash.

I could also see trustees doing what is easiest and most efficient in terms of returning the monies involved.  Remember gox is an international exchange; I don't see them liquidating into each and every account holders form of fiat.

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[MAbtc]

But goxcoin holders could just as well argue Bitcoin is cash.

I could also see trustees doing what is easiest and most efficient in terms of returning the monies involved.  Remember gox is an international exchange; I don't see them liquidating into each and every account holders form of fiat.

Goxcoin holders can argue whatever they want. Doesn't change anything. You keep ignoring my points. This isn't about what Goxcoin holders want. If the world worked the way Goxcoin holders wanted, I have a feeling we'd be living in a very different reality.

The currency issue is trivial. If anything, assets would probably be liquidated to JPY.

[Peter R]

But goxcoin holders could just as well argue Bitcoin is cash.

I could also see trustees doing what is easiest and most efficient in terms of returning the monies involved.  Remember gox is an international exchange; I don't see them liquidating into each and every account holders form of fiat.

Goxcoin holders can argue whatever they want. Doesn't change anything. You keep ignoring my points. This isn't about what Goxcoin holders want.If the world worked the way Goxcoin holders wanted, I have a feeling we'd be living in a very different reality.

The currency issue is trivial. If anything, assets would probably be liquidated to JPY.

I am assuming that the creditors in a MtGox bankruptcy proceeding would primarily be the Gox BTC and Gox USD holders.  The bankruptcy trustee will try to do what is in the best interest of the creditors.  Do you disagree?

[cypherdoc]

But goxcoin holders could just as well argue Bitcoin is cash.

I could also see trustees doing what is easiest and most efficient in terms of returning the monies involved.  Remember gox is an international exchange; I don't see them liquidating into each and every account holders form of fiat.

Goxcoin holders can argue whatever they want. Doesn't change anything. You keep ignoring my points. This isn't about what Goxcoin holders want. If the world worked the way Goxcoin holders wanted, I have a feeling we'd be living in a very different reality.

The currency issue is trivial. If anything, assets would probably be liquidated to JPY.

That's ridiculous. It would not be trivial not to mention totally unnecessary. Gox has thousands of customers. And moving it all to yen? Cmon.

It would be much more efficient and expedient for trustees to return whatever currency an account holder had at the time of bk. It is a currency exchange after all.

[MAbtc]

But goxcoin holders could just as well argue Bitcoin is cash.

I could also see trustees doing what is easiest and most efficient in terms of returning the monies involved.  Remember gox is an international exchange; I don't see them liquidating into each and every account holders form of fiat.

Goxcoin holders can argue whatever they want. Doesn't change anything. You keep ignoring my points. This isn't about what Goxcoin holders want.If the world worked the way Goxcoin holders wanted, I have a feeling we'd be living in a very different reality.

The currency issue is trivial. If anything, assets would probably be liquidated to JPY.

I am assuming that the creditors in a MtGox bankruptcy proceeding would primarily be the Gox BTC and Gox USD holders.  Do you disagree?

The bankruptcy trustee will try to do what is in the best interest of the creditors.  Do you disagree?

No, I don't. I responded to this point earlier. What you believe are the best interests of the creditors, and what the trustee in bankruptcy believes they are (and what the courts will allow) are likely two very different things.

But goxcoin holders could just as well argue Bitcoin is cash.

I could also see trustees doing what is easiest and most efficient in terms of returning the monies involved.  Remember gox is an international exchange; I don't see them liquidating into each and every account holders form of fiat.

Goxcoin holders can argue whatever they want. Doesn't change anything. You keep ignoring my points. This isn't about what Goxcoin holders want. If the world worked the way Goxcoin holders wanted, I have a feeling we'd be living in a very different reality.

The currency issue is trivial. If anything, assets would probably be liquidated to JPY.

That's ridiculous. It would not be trivial not to mention totally unnecessary. Gox has thousands of customers. And moving it all to yen? Cmon.

It would be much more efficient and expedient for trustees to return whatever currency an account holder had at the time of bk. It is a currency exchange after all.

It's extremely trivial. Banks and currency exchanges do it on massive scales everyday. You're trying to come up with this bizarre "convenience" argument to route around any and all legal precedent. Tell it to the bankruptcy courts. Good luck.

Efficiency and expedience are not characteristic of court systems. An emphasis on legal compliance is. The entire purpose of bankruptcy is to repay value pro rata to creditors -- not to "return whatever currency an account holder had at the time of bk." That is insane. Can you find me any historical examples, precedents where this would indicate payment in anything other than legal tender? These are state court proceedings, not the bitcoin wild west.

[Peter R]

Gox might have 100,000 BTC.  Assuming this is true, do you think they would dump these coins on BitStamp?  Do you think they would hold an auction?  How would the trustee do his duty to return good value to the creditors?

Also, say Person A owns 100 BTC and Person B owns $50,000.  If the trustee liquidates everything into JPY, then how much is $1 worth, and more importantly, how much is 1 BTC worth?  If you say Person A is credited with 100 x the BTC liquidation value (adjusted proportionately to cover any missing funds), then wouldn't it be easier just to give them the BTC directly, thereby avoiding the liquidation?  If you say something else, I'd like to hear what it is.  


EDIT: Here's what I think: the trustee will calculate the total shortfall (let's assume 15% of the cash and 30% of the BTC is missing).  Bitcoin holders will have their accounts debited by 30% and a small fiat credit added.  Fiat holders will have their accounts debited by about 22% (whatever is required so that fiat and BTC holders share equally in the % loss).  

[User705]

Trustees will do what they want and what the courts will allow.  Also depending on MtGox actions leading up to bankruptcy clawbacks may come into play.

[MAbtc]

Gox might have 100,000 BTC.  Assuming this is true, do you think they would dump these coins on BitStamp?  Do you think they would hold an auction?  How would the trustee do his duty to return good value to the creditors?

I imagine, similar to the SR situation, coins would not be dumped on an exchange. Perhaps an auction or series of off-exchange sales approved by the court. I have no idea.

Also, say Person A owns 100 BTC and Person B owns $50,000.  If the trustee liquidates everything into JPY, then how much is $1 worth, and more importantly, how much is 1 BTC worth?  If you say Person A is credited with 100 x the BTC liquidation value (adjusted proportionately to cover any missing funds), then wouldn't it be easier just to give them the BTC directly, thereby avoiding the liquidation?  If you say something else, I'd like to hear what it is.  

EDIT: Here's what I think: the trustee will calculate the total shortfall (let's assume 15% of the cash and 30% of the BTC is missing).  Bitcoin holders will have their accounts debited by 30% and a small fiat credit added.  Fiat holders will have their accounts debited by about 22% (whatever is required so that fiat and BTC holders share equally in the % loss).  

The purpose of liquidation is to preserve (fiat) value of assets. If I may reiterate, the courts are not in the business of financial speculation. And it's not a simple matter of debiting USD and BTC ledgers on user accounts, since these are not Gox's only liabilities.

It doesn't matter what's "easier." There's that "convenience" argument again. I just don't see it -- that's not how courts operate. If there is no legal reason to exempt bitcoins from liquidation, then they won't be. The example of stocks, bonds, etc. in regards to Chapter 7 filings that I brought up earlier is relevant here. Actually, I suspect that forcing creditors to speculate on investment vehicles throughout the whole of bankruptcy proceedings is likely illegal in most jurisdictions -- but that's just a guess.

And I don't think that the question of whether bitcoins are legal tender -- thus sufficient to repay creditors in bankruptcy proceedings -- would be a precedent that will be set by a bankruptcy court.

[Peter R]

Also, say Person A owns 100 BTC and Person B owns $50,000.  If the trustee liquidates everything into JPY, then how much is $1 worth, and more importantly, how much is 1 BTC worth?  If you say Person A is credited with 100 x the BTC liquidation value (adjusted proportionately to cover any missing funds), then wouldn't it be easier just to give them the BTC directly, thereby avoiding the liquidation?  If you say something else, I'd like to hear what it is.  

EDIT: Here's what I think: the trustee will calculate the total shortfall (let's assume 15% of the cash and 30% of the BTC is missing).  Bitcoin holders will have their accounts debited by 30% and a small fiat credit added.  Fiat holders will have their accounts debited by about 22% (whatever is required so that fiat and BTC holders share equally in the % loss).  

The purpose of liquidation is to preserve (fiat) value of assets. If I may reiterate, the courts are not in the business of financial speculation. And it's not a simple matter of debiting USD and BTC ledgers on user accounts, since these are not Gox's only liabilities.

It doesn't matter what's "easier." There's that "convenience" argument again. I just don't see it -- that's not how courts operate. If there is no legal reason to exempt bitcoins from liquidation, then they won't be. The example of stocks, bonds, etc. in regards to Chapter 7 filings that I brought up earlier is relevant here. Actually, I suspect that forcing creditors to speculate on investment vehicles throughout the whole of bankruptcy proceedings is likely illegal in most jurisdictions -- but that's just a guess.

And I don't think that the question of whether bitcoins are legal tender -- thus sufficient to repay creditors in bankruptcy proceedings -- would be a precedent that will be set by a bankruptcy court.

Thanks for the response MAbtc.

In a bankruptcy proceeding, assets are liquidated (like you said) and distributed to the creditors in an equitable manner.  If Person A owns 100 BTC and Person B owns $50,000, the trustee would have to translate Person A's holdings into "dollars" in order to calculate his claim.  Do you expect they would use the liquidation value in $ / BTC to calculate Person A's claim?  I wonder if the creditors would be able to bid on these BTC using some sort of credit arrangement backed by the expected disbursement of recovered funds.  


EDIT: Upon reflection, I think you are right: all assets would be liquidated into USD or JPY.  The trustee and courts would make the Gox BTC holders happy by allowing them to bid on the Gox BTC.  Somehow reasonable credit arrangements would be made available to the Gox creditors for the purposes of this auction.  This credit would be backed by the expected disbursement of recovered funds.

[MAbtc]

Also, say Person A owns 100 BTC and Person B owns $50,000.  If the trustee liquidates everything into JPY, then how much is $1 worth, and more importantly, how much is 1 BTC worth?  If you say Person A is credited with 100 x the BTC liquidation value (adjusted proportionately to cover any missing funds), then wouldn't it be easier just to give them the BTC directly, thereby avoiding the liquidation?  If you say something else, I'd like to hear what it is.  

EDIT: Here's what I think: the trustee will calculate the total shortfall (let's assume 15% of the cash and 30% of the BTC is missing).  Bitcoin holders will have their accounts debited by 30% and a small fiat credit added.  Fiat holders will have their accounts debited by about 22% (whatever is required so that fiat and BTC holders share equally in the % loss).  

The purpose of liquidation is to preserve (fiat) value of assets. If I may reiterate, the courts are not in the business of financial speculation. And it's not a simple matter of debiting USD and BTC ledgers on user accounts, since these are not Gox's only liabilities.

It doesn't matter what's "easier." There's that "convenience" argument again. I just don't see it -- that's not how courts operate. If there is no legal reason to exempt bitcoins from liquidation, then they won't be. The example of stocks, bonds, etc. in regards to Chapter 7 filings that I brought up earlier is relevant here. Actually, I suspect that forcing creditors to speculate on investment vehicles throughout the whole of bankruptcy proceedings is likely illegal in most jurisdictions -- but that's just a guess.

And I don't think that the question of whether bitcoins are legal tender -- thus sufficient to repay creditors in bankruptcy proceedings -- would be a precedent that will be set by a bankruptcy court.

Thanks for the response MAbtc.

In a bankruptcy proceeding, assets are liquidated (like you said) and distributed to the creditors in an equitable manner.  If Person A owns 100 BTC and Person B owns $50,000, the trustee would have to translate Person A's holdings into "dollars" in order to calculate his claim.  Do you expect they would use the liquidation value in $ / BTC to calculate Person A's claim?  I wonder if the creditors would be able to bid on these BTC using some sort of credit arrangement backed by the expected disbursement of recovered funds.  


EDIT: Upon reflection, I think you are right: all assets would be liquidated into USD or JPY.  The trustee and courts would make the Gox BTC holders happy by allowing them to bid on the Gox BTC.  Somehow reasonable credit arrangements would be made available to the Gox creditors for the purposes of this auction.  This credit would be backed by the expected disbursement of recovered funds.

Are you saying that this liquidation would only happen on paper, prior to this credit-based auction? If I'm not misunderstanding, wouldn't this necessitate the trustee to hold BTC?

If so, my thinking is that the trustee must protect creditors (and the court) from a fall in the price of BTC. If, for example, the price of BTC fell over the period of the bankruptcy proceedings, creditors would not be legally required to accept BTC as repayment -- that's the mandate of fiat currency. Then the state is left holding the bag. I don't see the courts approving of such moves.

[Peter R]

Are you saying that this liquidation would only happen on paper, prior to this credit-based auction? If I'm not misunderstanding, wouldn't this necessitate the trustee to hold BTC?

If so, my thinking is that the trustee must protect creditors (and the court) from a fall in the price of BTC. If, for example, the price of BTC fell over the period of the bankruptcy proceedings, creditors would not be legally required to accept BTC as repayment -- that's the mandate of fiat currency. Then the state is left holding the bag. I don't see the courts approving of such moves.

No, not at all.  I'm saying that they would liquidate the Gox BTC at a public auction.  Anyone could bid, including the Gox creditors.    

However, I expect that somehow some bank or group will provide credit--solely for the purpose of the auction--to the Gox creditors.  This credit would be backed by the expected disbursement of recovered funds.  All creditors will approve of this arrangement (should a willing bank or lender be found) because it would maximize the liquidation value of the BTC at auction. 

[cypherdoc]

It's extremely trivial. Banks and currency exchanges do it on massive scales everyday. You're trying to come up with this bizarre "convenience" argument to route around any and all legal precedent. Tell it to the bankruptcy courts. Good luck.

Efficiency and expedience are not characteristic of court systems. An emphasis on legal compliance is. The entire purpose of bankruptcy is to repay value pro rata to creditors -- not to "return whatever currency an account holder had at the time of bk." That is insane. Can you find me any historical examples, precedents where this would indicate payment in anything other than legal tender? These are state court proceedings, not the bitcoin wild west.

I'm not sure how i let this discussion devolve into a legal one around bankruptcy proceedings.  IANAL and i don't have any bk experience fortunately. i have thought about what you said in regards to liquidation to legal fiat and i believe it is a reasonable assumption.  a link to that  legal requirement would be appreciated for my edification. but i still disagree with your assumed timing of that liquidation for practical reasons from the perspective of the trustee.  said trustee is likely to be very unfamiliar with Bitcoin and not know how to properly liquidate to attain maximum fiat value.  i'm sure it would take months of consultation and discussion as to how and what to do with the goxbtc. if they decided to liquidate to fiat like you suggest, and if they decide on Peter's suggestion of an auction, that would take significant time as well.  in the meantime, the price of btc could very well be much higher.

but all this misses my original point of 2d ago and that was coming not from a legal perspective but from one of a speculator.

When I revived this thread 2d ago, goxbtc was <$100.  the point i was trying to make was that anyone who was in goxusd should consider converting into goxbtc at bargain prices of <$100, and that if one was still in goxbtc, stay there.  assuming bk happened today, i believe any goxbtc-->goxusd liquidation would come months, perhaps years later as i've argued above, but at most likely much higher btc prices (hopefully $10,000 ).  even a month could make a huge difference. auction bidders would probably be bidding much higher for those goxbtc, which hopefully would be real btc, thus maximizing any usd returned from the creditor process which would satisfy the trustees mandate.  in fact, if we've bottomed and the prices start escalating now, as we may have already done, the pressure on the trustee to immediately liquidate to preserve value would be alleviated and give him time to liquidate in a safe and orderly manner.  selling alot of goxbtc at once would not be an easy matter to preserve value for his creditors as you've argued.  the kind of liquidation we're talking about with gox could severely tank the price.  there's a conundrum there btwn quick liquidation and that mandate.

2d ago i was arguing that if one failed to sell their goxbtc @ $900 goxusd and rode it down to <$100, that would not have been the time to sell out for goxusd.  they'd be stuck at that severely reduced value.  and if someone had the foresight to sell @ $900 goxusd, they should re-buy goxbtc @ <$100 and potentially pick up 9x their original goxbtc.  the upside potential of that play is enormous coupled with the above scenario i've outlined about the liquidation process above.  in fact, we're beginning to see this.  if we see any further restoration of goxbtc, and goxusd withdrawals (no bk), we will surely send the value of goxbtc rocketing upwards.  there was a thread on Reddit and apparently the short interest on btc is near record highs right now.  this could result in the ultimate squeeze which is why i necro'd this thread.

the risk benefit ratio is low, imo.

[billyjoeallen]

gotta be feeling the squeeze now.

[adamstgBit]

gotta be feeling the squeeze now.

na, good bears will double down at 700

[MAbtc]

Sure, it would take time. I think, though, as stated earlier, that in a traditional process, it's "liquidate at Point A, repayment down the line at Point B." This is impossible to time, so it's a bad position to be in for a long term bull. (I am talking only about the case of bankruptcy, not betting on whether or not Gox is solvent/will continue to operate)

Regarding the trustee's mandate, you are still asserting that he/she can play the role of financial speculator, and that the courts will allow this. And even if the BTC were liquidated years down the line, that does not mean that creditors will be immediately repaid -- far from it. It is where the price goes from this point that I am talking about. From here, creditors could still be locked in a USD position for some time. Not the greatest analogy, but Full Tilt was reorganized almost two years ago -- I am still waiting for repayment.

I don't find the case convincing, but I'm fine with agreeing to disagree at this point.

I agree that betting on the Gox fiasco could be (and has been) very lucrative. I just think it's playing with fire. At some point, the world will take notice of bitcoin, and rogue businesses like Gox will be shut down by regulators.

[cypherdoc]

Sure, it would take time. I think, though, as stated earlier, that in a traditional process, it's "liquidate at Point A, repayment down the line at Point B." This is impossible to time, so it's a bad position to be in for a long term bull. (I am talking only about the case of bankruptcy, not betting on whether or not Gox is solvent/will continue to operate)

Regarding the trustee's mandate, you are still asserting that he/she can play the role of financial speculator, and that the courts will allow this. And even if the BTC were liquidated years down the line, that does not mean that creditors will be immediately repaid -- far from it. It is where the price goes from this point that I am talking about. From here, creditors could still be locked in a USD position for some time. Not the greatest analogy, but Full Tilt was reorganized almost two years ago -- I am still waiting for repayment.

I don't find the case convincing, but I'm fine with agreeing to disagree at this point.

I agree that betting on the Gox fiasco could be (and has been) very lucrative. I just think it's playing with fire. At some point, the world will take notice of bitcoin, and rogue businesses like Gox will be shut down by regulators.

actually, i don't think we are disagreeing as we are both long term bulls.  we are just debating how fast the liquidation will play out in a bk case.  and it is that speed (i'm arguing slow) which can make the difference btwn disaster and a home run from the speculative standpoint.  imo, it really shouldn't matter when that creditor gets his usd. if i were a goxusd creditor all that would matter to me is that i eventually do get it back even if years down the line.  how much is what matters

[cypherdoc]

gotta be feeling the squeeze now.

>150% is nothing. 

we're in the bend over phase.  wait til we get to the rip your face off stage.

[cypherdoc]

so who sold/went short under $100?

[cypherdoc]

ah, feels so good to be bent over.  yes, yes!!!

[N12]

If Emptygox opens up BTC withdrawals even at a limited rate, we could well see this baby shoot from 90 to 900.