The Fall of MtGox
In 2014, when Bitcoin was still in its beginning, Ethereum had not yet been launched, and most people were unfamiliar with terms like crypto, blockchain, digital wallet, etc. At that time, the value of one Bitcoin was less than $1,000, the Japanese crypto exchange MtGox declared bankruptcy due to a security breach.
MtGox, at that period, was the trading platform with the highest trading volume, handling about 70% of all crypto transactions. The exchange had around 850,000 Bitcoin, and due to the security breach, about 650,000 Bitcoin were stolen. Approximately 200,000 Bitcoin remained because they were not on the platform at the time of the breach but were stored in MtGox’s cold wallet.
One February morning 2014, many people around the world, including many Israelis, felt their world had collapsed.
A trustee was appointed for MtGox, who began the process of liquidating the company and repaying some of the debts to the creditors, partly by cashing out Bitcoin in 2017 at a value much higher than its 2014 value (the debt to the creditors is based on the Bitcoin’s value at the time of the theft).
Receiving compensation from MtGox
At the end of 2023, many creditors began receiving compensation from MtGox in cash (FIAT).
Additionally, starting from mid-July 2024, some creditors began receiving the additional compensation component from the MtGox trustee in Bitcoin/Bitcoin Cash, and sometimes both.
Although the creditors are not compensated for all the Bitcoins they had at the time of the breach, it is important to remember that the value of Bitcoin skyrocketed from the time of the breach in 2014 to the time of compensation in 2024, increasing by approximately 6800% (!!).
Tax Consequences of Receiving Compensation
The reception of compensation from MtGox may have tax implications.
The creditors receive cash and Bitcoin, which are worth more than at the time of the breach. It’s important to note that the creditors receive only about 20% of the total coins, so 80% of the coins have effectively become an asset that will likely never be recovered, which may create a financial loss offset against capital gains.
In some cases, we managed to achieve a minimal tax payment for the compensation receiver, and in most cases, we concluded that there is no tax liability at all. Our firm includes former senior officials from the Tax Authority, lawyers, accountants, tax advisors, and economists with rich experience in crypto, voluntary disclosures, and tax liability regulation for unreported income.
Our firm accompanies individuals who have received, are receiving, and will receive compensation from MtGox, assessing their tax implications, reporting methods, and minimizing tax liabilities by offsetting losses, providing expert opinions, managing assessment discussions with the Tax Authority, and/or filing reports to the Tax Authority.
If you have received or are about to receive compensation from MtGox, contact us today for an initial consultation at no cost with one of our lawyers or accountants who specialize in crypto.
