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In the MtGox case, the exchange was (allegedly) fraudulently buying BTC with cash that didn't exist, which could theoretically continue for as long as they have
by nrb 9y ago
In the MtGox case, the exchange was (allegedly) fraudulently buying BTC with cash that didn't exist, which could theoretically continue for as long as they have enough cash on hand to satisfy withdrawal requests. IANAL but in the US that sounds like blatant wire fraud at the very least; I'm not sure about the relevant Japanese law.
- fjsolwmv 9y agoOf course the cash existed. It was their depositors cash and cash from their depositors Bitcoin
- nrb 9y agoRight, I'm saying the exchange isn't actually solvent. The "cash balance" on the fraudulent buyer account wasn't backed by any actual cash deposit or proceeds from BTC sale, it's just a column in a database table. Theoretically, the exchange buys up a bunch of BTC with non-existent cash, raising the price tenfold, until their real cash deposits are too low to meet withdrawal requirements, then they do as the grandparent post says and disable withdrawals, deposits, or freeze the market until they can get it under control.