Ambitious project with dubious prospects

Anyone who has been in the crypto universe for a while knows the name Mt.Gox: the crypto exchange handled almost 60 per cent of global bitcoin trading in 2013, until insolvency followed a year later. The former head of Mt.Gox, Mark Karpelès, was sentenced to four years probation. Now he wants to pass on his experience and found a rating agency for crypto exchanges. Will he be successful?

Mt.Gox has a colourful past: founded in 2007 in Tokyo by Jed McCaleb as a platform for exchanging playing cards, the platform was transformed into a Bitcoin exchange under Mark Karpelès after only one year and thus became the world’s largest trading place for Bitcoin within a very short time. But rapid expansion was followed by implosion: as late as 2013, Mt.Gox ran into considerable financial difficulties before it stopped paying out Bitcoins on 7 February 2014. As a result, the website was no longer accessible as of 25 February 2014 and Mt.Gox was insolvent.

Where did all the Bitcoins go?

Around 650,000 Bitcoins went missing – 7,000 of which were presumably stolen by hackers, but the bulk was probably misappropriated by Mt.Gox insiders themselves, which meant total loss for thousands of crypto investors. In the end, Karpelès was sentenced to four years probation in Japan – and is now surprising with a new project: a rating agency for crypto exchanges!

The “Handelsblatt” reported that Karpelès now wants to pass on his negative experiences with crypto exchanges to institutional investors and private investors. To this end, he is currently raising money for a rating agency that, in addition to a free version, also wants to offer a fee-based newsletter that is supposed to provide detailed information about operators, legal conditions and the technology of the respective crypto exchanges.

Modest market prospects

The crypto hype of recent years has led to an explosion of providers – there are now over 1,000 cryptocurrency exchanges. Karpelès’ goal is quite noble: “I’m trying to make sure that something like Mt.Gox doesn’t happen again, […] if I say something is wrong, maybe a lot of people will believe it.” He is certainly playing on his past, calling his agency “UnGox”, an obvious reference to Mt.Gox. Whether the choice of name is wise in view of the industry term “goxen” (euphemism for the bitcoin fraud of Mt.Gox)? Industry expert Norbert Gehrke, founder of the fintech community Tokyo Fintech, is sceptical in an interview with the “Handelsblatt”: “If he sees a business model there, then good luck. I can’t necessarily imagine such a rating agency as a profit-maker.” In addition, the idea is not new and there are already similar services such as CoinGecko with a “trust score” of 1 to 10 for crypto exchanges.

In addition, Gehrke sees the decision on trustworthiness with the market and there with the capital-intensive institutional investors, who already account for two-thirds of the volume at Coinbase, for example: “I don’t see the value of a rating agency with exchanges where the market has already decided,” says the German fintech expert. Of course, crime and security with regard to crypto exchanges is a pressing problem that needs to be solved. However, it remains to be seen whether a rating agency like Karpelès’ is needed for this.

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