Investors try to resurrect Mt. Gox, ignoring long, long odds against consumer web turnarounds
The Mt. Gox saga took an unexpected turn today when the company’s creditors agreed to support a bid by outside investors, the Sunlot consortium, to resurrect the insolvent bitcoin exchange.
Under the plan, account holders would receive pro-rated disbursements of Gox’s remaining holdings of 200,000 bitcoin – a sum which is roughly 550,000 bitcoin short of its liabilities – as well as equity in the resurrected exchange. This is assuming that the group can convince both the US and a Japanese bankruptcy courts to accept this unorthodox proposal – no easy task.
"Liquidation would have been a disaster for the US class,” says Jay Edelson, a lawyer representing Gox’s U.S. creditors. "It would have taken significant time, the assets would have been depleted, and the US consumers would have gotten pennies on the dollar."
Seeking to maximize the recovery value for Gox creditors is all well and good, but I fear that everyone involved underestimates the difficulty of resurrecting consumer Web brands once they’ve been tarnished. Accordingly, they’re wildly overestimating the value of the Mt. Gox brand and thus the likelihood that the exchange can be resurrected to a meaningful degree for the ultimate benefit of its creditors.
Such a brand rehabilitation is a feat so difficult that it’s nearly impossible to think of an example where been done successfully. There are dozens of examples, however, from MySpace, to Digg, to AOL, where brands failed to regain even a fraction their former glory after falling out of favor.
Mt. Gox is so closely associated with fraud and managerial ineptitude that the very phrase to be "goxxed” has been appropriated online to mean to be scammed or screwed. Within the bitcoin community, most of the ire is directed at Mt. Gox CEO and grand pubah Mark Karpeles. But elsewhere in the mainstream media and among most consumers, that’s hardly the case. It’s hard to envision that removing Karpeles and installing new leadership will be enough to change this damning perception of the company and its brand.
The other major issue with the resurrection plan is that it will require far more than the installation of more ethical and competent leadership. Gox’s failures appear to have been as much due to the technical shortcomings of its trading platform and bitcoin vault, as they were to Karpeles’ alleged misdeeds. While it would surely be possible to build an new exchange platform from scratch with enough time and money, it’s certainly not a given that the new team will succeed in doing so.
Finally, assuming that the stars align and Gox emerges both with competent leadership and a functional technology platform, there’s no guarantees that it will be able to attract enough users to generate the fees that are being promised as repayment. Much of the reason for Mt. Gox’s original ascension to the position of largest bitcoin exchange in the world was due the timing of its launch and the lack of early competition. Today’s landscape is far different, with a number of large and (relatively) trustworthy exchanges in existence and others entering the fray seemingly daily.
To assume that the new and improved Gox will overcome these long odds and regain its former glory is stretch. That’s not to say that it’s not a plan worth considering. But for all those affected, it's worth considering long and hard whether it’s better to receive repayment under a liquidation or to bank on leveraging what if any remaining value the Mt. Gox brand has in an attempt to build a meaningful business.
Sunlot CEO John Betts argues that the bid is meant not only to increase the restitution paid to Mt. Gox’s creditors, but also to communicate to the market that “the bitcoin community looks after its own.” It’s a noble idea, but as the cliche goes, the road to hell is paved with good intentions.