News & Analysis

Caveat Crypto Emptor! Another catastrophe as Thodex bites the dust

Andrew Saks, Friday, 23 April 2021

Today, at a time when Bitcoin prices are at an all time high, it is somewhat astonishing that the euphoric adoration of all things cryptocurrency is not countered by a degree of self-restraint and risk mitigation.

Here we are, over ten years after the applied mathematics and computer science genius Satoshi Nakamoto, aka Craig Wright (probably!) invented Bitcoin and its finite blockchain distributed ledger technology, unleashing a plethora of anti-establishment mavericks who took to the public domain in flamboyant attire and prose in order to denounce what they saw as a traditional and hierarchic financial system.

Very soon after its invention, several cryptocurrency exchanges and marketplaces came to fruition, many of which saw an invisible, unbacked peer to peer currency and the almost evangelical approach by its advocates as an opportunity to take the hard earned sovereign currency of those who thought they were investing in the future and run away with it.

MtGox, one of the early stars of the Bitcoin exchange world, is a case in point. Its owner, who was accountable to absolutely nobody, ran away with the investments of 750,000 of its customers, who had absolutely no recourse.

The company released a statement saying, "The company believes there is a high possibility that the bitcoins were stolen," blamed hackers, and began a search for the missing Bitcoins.

Whether this is true or not still is not known.

By May 2016, creditors of Mt. Gox had claimed they lost $2.4 trillion when Mt. Gox went bankrupt, which they asked be paid to them.The Japanese trustee overseeing the bankruptcy said that only $91 million in assets had been tracked down to distribute to claimants, despite Mt. Gox having asserted in the weeks before it went bankrupt that it had more than $500 million in assets.

Karpelès was arrested on August 1, 2015, by Japanese police on suspicion of having accessed the exchange's computer system to falsify data on its outstanding balance, he was re-arrested and allegedly charged with embezzlement.

Ergo, these exchanges of invisible assets, owned by individuals, can simply run away with your money.

Old news? Not really.

Albert Einstein is falsely credited with having once said that the definition of insanity is doing the same thing more than once and expecting different results, which is perhaps pertinent today.

Bitcoin prices are absolutely the ones to watch this week, because given the background of so many failed crypto exchanges, another has become insolvent today, at a time during which Bitcoin values are at 48,100 Bitcoins to the US Dollar.

This morning, it became knowledge that Police have raided Bitcoin exchange Thodex's head office in Istanbul, Turkey and that the Turkish government has instigated a procedure to block the company's bank accounts.

Thodex has said that it lacks the financial strength to continue operations, leaving hundreds of thousands of investors believing that their investments have evaporated.

Currently, Turkish authorities are hunting for Faruk Fatih Ozer, a 27 year old who founded Thodex in Istanbul, who, just like MtGox fraudster Mark Karpeles, has fled the country.

Cryptocurrency has experienced a huge boom in Turkey recently. One week ago, the total volume of trading in the Turkish crytocurrency markets was over $1.2 billion, which is three times higher than one week earlier.

Customers of Thodex are estimated to have lost a colletive $2 billion.

One experienced FX trader I spoke to this morning in London shared his perspective: "How can you go bust in an ll time high market when the volume on your exchange must be the highest its ever been? 27 year old CEO says it all, Hes probably on holiday right now in Panama."

There is a moral to the tale. If you are going to trade cryptocurrency, at least do so with a regulated brokerage and not an unregulated 'exchange' set up by a maverick with no electronic trading industry background who may well follow the footsteps of others who have simply packed up and run away.

Today, Bitcoin is down considerably against the US dollar. Just a week ago, one Bitcoin was worth an astonishing $7000 more than it is today against the US Dollar.

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