Vulture Investing on the Web: Buying Mt. Gox Bitcoin at pennies on the dollar.

By , February 28, 2014

Distressed assets may be the “extreme sports” version of value investing, but it’s a game as old as money itself.

From Baron Rothschild faking everybody out and going long British gilts after the Battle of Waterloo, to the whole Marty Whitman school of investing in distressed assets, when something implodes, while most people scramble to unload the toxic assets, there is are the vultures who swoop in and sometimes make out like bandits.

The key is to this is creating low risk / high reward setups, so your downside risk is minimal (even if you lose your entire investment) while your upside potential is phenomenal. These types of investments are frequently losers, but the minority of winners win big, enough to make it all worthwhile (if not lucrative) for the people who are practiced at the craft of distressed investing.

So it goes that as technology – and money – evolves, so will the investment scenarios that present themselves. In today’s case, the destruction of the world’s largest bitcoin exchange provider, Mt. Gox, has presented just such an opportunity.

If you don’t know what bitcoin is or what Mt Gox was, you shouldn’t even attempt this so I won’t bother explaining it. For the rest of us, you can buy GOXBTC (what bitcoins trapped within the Mt. Gox system have become known as) right now for less than 5 cents on the dollar.

What appears highly likely is that any money invested into GOXBTC will be trapped forever and lost.

However, for a relatively small amount of money, you can get a pretty nice chunk of GOXBTC.

IF, something changes, like some industry sponsored liquidation/rescue of Mt. Gox occurs, and any of the GOXBTC trapped within the system suddenly become freed up and turn into “regular bitcoins” again, two things will happen:

1) GOXBTC will suddenly appreciate 20X as the discount vaporizes instantly

2) the overall BTC price of Bitcoin itself will probably soar. I won’t even hazard a guess on how high. I normally don’t do price action guestimates but it’ll happen.

That’s what the vulture players are banking on.

So why do I think there might be a chance that Mt. Gox or GOXBTC may be revived?

The word on the street is that Gox has lost enough bitcoin to make them insolvent, there are (or were) still bitcoin within the system because after outbound transfers were ceased, Mt. Gox users were still able to transfer BTC between addresses within the Mt. Gox system.

It was precisely because of that which enabled Josh Jones (original Dreamhost founder) to build – and before MT Gox went off the air entirely, enough people transferred their GOXBTC to bitcoinbuilder addresses to enable a functioning marketplace (the liquidity is amazing, I’ve been getting instantaneous order fills on my buys).

What I like about bitcoinbuilder is that if Gox comes back from the dead and all those GOXBTC become liquid again, there will be a lot of “seller’s remorse”, this resolves that because the coins have already been moved to an escrow address.



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