Hedge funds in the United States and Japan are reported to be buying the claims of the thousands of account holders who lost money following the collapse of bitcoin exchange Mt. Gox in 2014.
Described as a “daring wager” by The Financial Times, the four hedge funds are offering claim holders a shortcut that lets them sell their claim now and receive 15 per cent of the yen value of each claim in cash. Although no compensation payments have yet been made, when they are processed, it’s expected that the payment will be around 25 percent of the amount lost by the customer.
The compensation will be paid in bitcoin. What this means is that not only will the hedge funds profit on the difference between what they paid for the debt and what is potentially paid out, with the debt itself being paid out in bitcoin, the acquired creditor claim could also potentially deliver a big windfall if the price of bitcoin continues to climb.
For example, the Mt. Gox trustees calculated their value using an exchange rate of just under $450 per bitcoin based on the price of bitcoin at the time the exchange failed. Today bitcoin is trading at $1,019.06 and is on an upwards price trajectory following market jitters from an ongoing investigation into bitcoin exchanges in China.
The gamble comes down to whether the trustees are able to recover enough assets from Mt. Gox to make a payment up to 25 percent of the amount owed to creditors. That’s not guaranteed at this stage. Given that the price of bitcoin remains as strong as it is now, should the price of bitcoin plunge well below $450 (it dropped below $200 in 2015), the hedge funds will book a loss on the debts they have acquired.
Mt. Gox creditors who want to sell their debts to hedge funds now instead of waiting for what could potentially still be years to receive their payments can obtain details on how to do so from MtGoxClaim.com, a site set up by Daniel Kelman, a Mt. Gox creditor and attorney representing creditors in the case.