Peter R Rizun's theory on the collapse of MtGox and its effect on the price of bitcoin

[xavier]

Interesting theory... watching this for sure.

[1714926082]

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[1714926082]

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[btcusury]

If Mark is as competent as your theory says, how do you explain the piss poor customer support and PR at MtGox?

[mdude77]

Watching, thanks.

M

[Adrian-x]

If Mark is as competent as your theory says, how do you explain the piss poor customer support and PR at MtGox?

1,000,000 customers and a hand full of staff maybe?

[btcusury]

Which means massive incompetence in management, hiring, etc.

[theonewhowaskazu]

I suppose this could be real, but if your willing to (A) hold only fractional reserves and (B) not allow withdraws of a certain currency for an indefinite period of time, it was still perfectly possible for Mark to get out of this.

If Willy had reversed before Bitcoin withdraws were dissabled, then it would have gotten ~$1000 per coin for some coins. Then, dissable withdraws with Willy going the whole way down, hell, Willy could have probably cleared the entire orderbook from $1000 to $100 in a day and nobody would have questioned it, given the "bad news" of Gox not enabling withdraws. Hell, nobody questioned it when it happened on Bitfinex/BTC-E. Thats a LOT OF MONEY and probably an average price per Bitcoin of about $700.

With such a huge selloff Willy could almost surely get back more coins back than it sold, without wasting any fiat. And if it couldn't, people couldnt' withdraw Bitcoins anyway. If they expected MTGox Bitcoins to have as good credit risk as Gox fiat, then just issue Bitcoins to yourself in your DB, send it to Bitcoin builder, and withdraw real Bitcoins, and sell those Bitcoins on stamp, and grow your USD reserves, while pushing down the BTC price on your exchange because you're filling it will fake BTC. Then buy the BTC up with the arbitrage'd dollars from stamp. If people DON'T expect MTGox Bitcoins to have as good credit risk as Gox fiat, then just buy the coins with willy after tanking your own market and causing a huge market. In either case, the end result is that you end up with MORE Bitcoins than you started with, without losing any fiat, and in fact gaining fiat in the form of tx fees while the whole panic is going on.

Then, calmly open withdraws back up, a couple of days later, and claim that nothing happened but a glitch in TX malleability, and then posts like the OP's wouldn't even exist. And when you open up withdraws, BUY BITCOINS LIKE NUTS going into the announcement. Result? Huge price increase, and you can sell your BTC back for MUCH more expensive, and now you're making fiat too. Repeat maybe one more time and you're solvent in both BTC and USD.

I think you're basically suggesting that Mt.Gox could have day-traded its way out of insolvency. Sure, that could always work in theory... but there's no guarantee the market wouldn't move against you (people could still arbitrage with other exchanges if withdrawals weren't disabled). Mark might have just dug an even deeper hole (in fact, I think this is how some traditional banks have failed to get out of insolvency...).

No this isn't true.

When you close off withdraws for BTC, you can dump BTC to your own exchange. Now either people re-bid price up to where it was before, in which case you calmly continue dumping, or they let the price fall, in which case you put up a bid. Since there's no cost to issuing as much BTC as you like, eventually the price will have to fall to 0 (or close to it). Then you can calmly re-buy everything your short.

[KWillem]

Thanks Peter for sharing your thoughts π,

Theory makes perfect sense, and explains market anomalies. Still the one question remains: Who did take/steal the original 1,000,000 bitcoins?

[breakinglocks]

No this isn't true.

When you close off withdraws for BTC, you can dump BTC to your own exchange. Now either people re-bid price up to where it was before, in which case you calmly continue dumping, or they let the price fall, in which case you put up a bid. Since there's no cost to issuing as much BTC as you like, eventually the price will have to fall to 0 (or close to it). Then you can calmly re-buy everything your short.

It's not even really about re-buying at some point. You dump fake btc, so demand rises and people will put their fiat into BTC. As the fiat doesn't get paid to real accounts, but to yourself, the total liabilities in fiat on bankruptcy decrease and the BTC you claim as hacked and gone.

[infamousdutch]

This makes sense in a very scary way. 

[joequant]

If Mark is as competent as your theory says, how do you explain the piss poor customer support and PR at MtGox?

This theory also explains the terrible customer support and PR.

1) If Mark was deep in the hole, then ever single cent that they made from trading fees would have gone into fixing the hole.  Any money spent on customer support and PR would have been less money to spend on fixing the hole.

2) Any competent PR or customer support person would have quickly figured out what was going on, and resigned and spilled the beans.  Having a big secret made it impossible to hire anyone competent.  Even a PR or customer support person with no ethics or moral character would refused to have worked for MtGox, because the big secret meant that they were unlikely to get paid.

[joequant]

If you own the exchange (or indeed if you 0wn it) you can publish whatever you want in the orderbook if you want. No need to execute the actual trades.

Because it is non-trivial to generate a computer system that creates realistic looking trades in an order book.  If you generate fake trades, then pretty soon it will be obvious to everyone that something is very wrong.  Generating realistic trade data is something that requires a small team of programmers, who you can't afford because you are in the hole.

Madoff had programmers that did nothing except work on algorithms to generate fake trades.  MtGox didn't have the money to do this.

If you want to steal btc or fiat you just transfer it out. Why trade with yourself first?

Because you are not trying to steal BTC or fiat.  You are trying to cover up a theft that was done by someone else.

I don't know about the details of the initial loss of bitcoin, but if you replace the first paragraph with "X loses a lot of bitcoin" then the rest of the story makes sense.

[Hunterbunter]

Which means massive incompetence in management, hiring, etc.

He might be competent in many things, but no one is competent at everything.

This is why companies exist.

[pointbiz]

http://blockexplorer.com/tx/84f96975ea88d317676771a482c71f39ff53beda790c89c07ae82e427b4d090f

Mark said he made this 432k transaction to move those coins to a safer place. That means to me that he moved it from the hot wallet to the cold wallet. This is more evidence for Peter R's theory that the hot wallet had a Lot of coins.

[pointbiz]

http://bitcoinstats.com/irc/bitcoin-dev/logs/2011/06/19

quiznor: who moved 432K BTC at 2PM EST today

MagicalTux: quiznor: me

Kireji: MagicalTux: good to know, is that the investment base on mtgox?

MagicalTux: Kireji: it's the mtgox funds, which I moved to a secure area until things are cleared

[Idea_Atm23@]

Peter R’s Theory on the Collapse of Mt. Gox


Now we watch the rest of the story unfold.  A story of how an oversight during a hectic period, an untimely theft, and an attempt to cover it up, lead to the greatest loss in the history of bitcoin.  

Great Article. Just another reason bitch coin is a fail. how many times can this happen, with these 'actors' playing Brady Bunch trust me with your money attitude, then bite you like the snakes they really are???!!! And with NSA having back door entry to all windows devices how is any of it safe?? (if your a btc miner and have a life style where you can trade all your btc in person your most secure). Why would you wanna use something designed by the NSA and published under the acronym Satoshi, if it was honest shouldn't they tell you who made it?? Why lie?? Right bc we wouldn't use it. ( Don't know why coming from Japan is Better???!!!) You guys will be on Celebrity Green Room Platform eventually, still have $500,000 for anybody that can hack my site

[mdude77]

Peter R’s Theory on the Collapse of Mt. Gox


Now we watch the rest of the story unfold.  A story of how an oversight during a hectic period, an untimely theft, and an attempt to cover it up, lead to the greatest loss in the history of bitcoin.  

Great Article. Just another reason bitch coin is a fail. how many times can this happen, with these 'actors' playing Brady Bunch trust me with your money attitude, then bite you like the snakes they really are???!!! And with NSA having back door entry to all windows devices how is any of it safe?? (if your a btc miner and have a life style where you can trade all your btc in person your most secure). Why would you wanna use something designed by the NSA and published under the acronym Satoshi, if it was honest shouldn't they tell you who made it?? Why lie?? Right bc we wouldn't use it. ( Don't know why coming from Japan is Better???!!!) You guys will be on Celebrity Green Room Platform eventually, still have $500,000 for anybody that can hack my site

um. 
Exchanges <> bitcoin.
-1

Exchange management <> bitcoin.
-1

completely off the wall comments, do you by chance live under a bridge?  (ie a troll)
-1

M

[manifold]

Later this day, a group of hackers gained access to MtGox servers and executed fake trades that the world could see, driving the nominal price of bitcoin near $0.  Mark was frantic.  He quickly regained control of the servers and learned the dark truth: the million bitcoins that had recently flooded in earlier that month were gone.  Mark admitted publically to the hack, rewound the false trades, but kept the truth of the missing coins a secret.  

• Which transactions show the 1M BTC transfer from and away from MTGox? So many BTC must be tracable... ok.  reading up on the total output...    
• Didn't MTGox have a withdraw limit already at that time?  Or was that withdrawlimit coupled to the BTC price on mtgox? It seems that withdraw limit was coupled to the BTC price and had a huge bug anyway.... Didn't use MTGox a cold wallet at that time for 1M BTC?
• Did people really see Willy sell BTC in February?   Here is from earlier: http://www.reddit.com/r/BitcoinMarkets/comments/1uhjrb/intriguing_bot_activity_on_gox_for_the_last_2
• readin up here and I am shocked: https://bitcointalk.org/index.php?topic=20207.msg252680#msg252680

Mark was in #bitcoin-dev at the time of the heist asking the bitcoin devs to roll back the blockchain, so that lines up with this theory.

Very interesting.  You wouldn't happen to have an IRC log or a link handy to a thread discussing this, would you?

Yes I'd like to see that too...

manifold  

PS: yes I also was goxxed... :-(
PPS: Interesting story, that at least explains all the events... but I hope it's not too close to the truth.
PPPS: The most puzzeling thing for me was the missing Fiat...  and your story (A bot selling/buying fake BTC) explains this....

[Idea_Atm23@]

nEVER understood the irony of pointing out trolls (maybe one of you trolls can explain it to me, by inbox of course), anybody that can comprehend the definitions of words and knows how to use them, feel free to reply to my post, constructive comments about post are always accepted, everything else is cowardly. Im in LA, never scared of niggers anywhere

[jojo69]

excuse me?

[Equus]

I just ignored someone with an activity of 5.  That's a new record for the bright Idea.