Sizzle/Fizzle

Singles’ Day Sizzles, IPOs Fizzle And Mt. Gox Brings (More) Pain

Sizzle

Singles’ Day is for Lovers (of Global eCommerce): The record set last year for Alibaba’s Singles’ Day gets crushed with this year’s $25 billion in transactions (1.4 billion of them). That the tally is up 39 percent year over year is nothing to sneeze at. But the larger sizzle here is eCommerce, truly transacted across borders, stretching through the U.S., Australia and Germany.

Retail Sales, Digitally Done in the U.S.: Investors may have treated the companies with divergent reactions, sending shares up (or down), but the movement online is clear. Macy’s said in its latest earnings report that digital sales growth was up double digits for the thirty-third straight quarter. Similarly, Target showed 24 percent growth in its own online business. In the latest volley of digital retail sales growth as point of pride, Walmart said its own eCommerce was up 60 percent year over year. Taken alone or en masse, the reports indicate that while earnings may beat, and guidance may miss (or the converse), the longer-term migration from bricks to clicks is intact.

India: In the wake of demonetization, those who rely on cash are, well, strapped.  Some subsets of the economy, such as SMBs, have had a bit of a hard time embracing alternative forms of transactions. But where there is intent, there is groundswell and a willingness to embrace change. Visa said this past week that research shows individual consumers in India are looking forward to adopting to and adapting digital transactions. About 78 percent of 2,000 consumers surveyed said they look forward to transacting across bits and bytes.

 

Fizzle

Hacking is Forever (21): The retailer discloses a breach at a number of its stores (thus far an unknown number) between March and October. If breaches are forever, and data pilfered is forever on the web, then this is not exactly a consumer confidence booster right in front of the holiday season.

Making a Meal Out of Grocers: Goldman research shows that online grocer-ing (OK we may have made up that word) is in its early stages but is gaining traction.  Penetration will increase, which spells trouble for the brick-and-mortar crowd.  There is a demographic wrinkle here that cuts across in-store grocery shopping. Restaurant sales are slowing down amid millennials, which show that the traditional ways we get our food — in line or belly up at the fast food counter — may be giving way to the Amazon/Whole Foods/clicking-through-to-the full-plate model.

IPO Blues (Or, How Frayed Are Those Apron Strings?): IPOs, RIP. Blue Apron trades roughly 70 percent below its offer price. Similarly, Snap has snapped, down 25 percent below the initial offer. Disgruntled investors are showing that business models have translated into profits (or at least promise to do so). Beware sizzles that fizzle this quickly, and booms that turn into busts even while companies are busy retooling their operations on the fly.

 

Fizzle of the Week: Mt. Gox (Again) 

During the first big bull bitcoin run, Mt. Gox was the biggest bitcoin exchange in the world. Well, right up until it’s 2014 hacking that separated 4,000 customers worldwide from hundreds of millions of dollars’ worth of cryptocurrency and cash.

Three years later, not a single bitcoin has been returned (or any other form of money for that matter), and it is looking increasingly unlikely that those who lost out will ever recoup their losses. The failed bitcoin exchange is now caught up in what Reuters called a “Russian doll” of global bankruptcies, angry creditors and lawsuits. The $1.6 billion of recovered bitcoin by Mt. Gox in the aftermath of the breach — under Japanese exchange law — will only go back to customers in a fractional amount.

“It’s a legal twilight zone. I wouldn’t be surprised if it took several years more,” noted Kim Nilsson, a Swedish software developer who had more than a dozen bitcoins at Mt. Gox.

That twilight zone experience is a function of structure: Exchanges like Mt. Gox are mostly unregulated and thus a popular target for enterprising cybercriminals who find them a much more attractice target for their million- and billion-dollar heists than banks.

All in, since 2011, over 980,000 bitcoins have been hacked out of exchanges in the last six years — two-thirds of which came out of Mr. Gox alone. Going by the current price of bitcoin, $7,800 per coin, the value of those missing coins is around $6 billion.

The difficulty in getting paid out for those who lost out on Mt. Gox, however, has nothing to do with the amount of funds available for payout. At the time of the hack, one bitcoin was worth $483. Going by that figure, Mt. Gox’s former clients are owed about $400 million. But bitcoin has gone up a lot in price, and based on bitcoin’s four-figure-per-unit value, Mt. Gox’s bankruptcy trustee is sitting on enough cash to repay creditors whose claims have been approved three times over.

But that won’t happen.

The problem is that Mt. Gox is one of the few collapsed exchanges that actually filed for bankruptcy (many just vanished), because the claims were valued by the court (at $400 million) just before the Tokyo District Court ordered the exchange to be liquidated.

According to two Japanese bankruptcy attorneys, Japanese law stipulates that funds left over in a bankrupt company’s estate, after creditors have been paid, go to shareholders.

Mt. Gox is 88 percent-owned by a Japanese company called Tibanne, which itself is 100 percent-owned by Mark Karpeles, a 32-year-old French software engineer and Mt. Gox’s former chief executive. Karpeles is currently on trial for embezzling funds from Mt. Gox and faces 10 years in prison. He has pleaded not guilty.

Creditors are unexpectedly unhappy that the end of this event might just be a massive payday for Karpeles, who is largely blamed by creditors for the exchange’s failure.

Karpeles, who himself is in personal bankruptcy, stands to gain most of the surplus, but not all of it. But he would not get it all. Some of the excess would be allocated to Tibanne and another part would likely go to the owner of a 12 percent stake in Mt. Gox.

No one knows who actually owns that other 12 percent.

“If the government just took all of it, that would be less offensive than if they just gave it to Mark,” said Aaron Gutman, a software developer who had about 464 bitcoins at Mt. Gox, which are now worth about $3 million.

“Some of the people say, ‘I’d rather see the money burned,’” added Henry Dienn, a 61-year-old entrepreneur in Japan who had 175 bitcoins at Mt. Gox

Karpeles told Reuters he doesn’t want the money. The main reason: He expects he would be inundated with lawsuits. He says he already is facing about a half dozen.

“I don’t want to be the beneficiary of this,” he said. “I don’t really need money. I work; I get by.”

Karpeles has been exploring a way to resurrect Mt. Gox under new management and ownership, at an estimated cost of $245 million.

A bold move to be certain, given the way it ended last time.

But if Mt. Gox manages to both lose a massive amount of the currency under its care and the CEO’s payout, who is widely held at fault for the loss? That certainly merits fizzle of the week.

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