Mt. Gox, once the world’s largest bitcoin exchange, collapsed in 2014 after a massive hack resulted in the loss of around 650,000 BTC from the exchange's holdings. After years of legal battles and liquidation proceedings, the long-awaited repayments to customers from 200,000 BTC located is now approaching. Wallets linked to Mt. Gox recently moved USD$930 million in bitcoin to new addresses, signaling preparations for distribution ahead of the 31 October 2025 deadline. With the exchange’s remaining holdings valued at around USD$2.9 billion, the repayments could have significant implications for both the crypto market and the recipients of these funds.
Crypto-Asset Exchange Failures
A key legal issue in crypto exchange collapses is how the law treats the customer assets. If assets are classified as property held on trust, bailment, or simply as unsecured debt claims there are significant impacts on who has priority to be paid. There has also been fierce debate about whether crypto-assets constitute property at law, with courts taking varied approaches. The Australia courts recently confirmed in Re Blockchain Tech that Bitcoin is property and capable of being held on trust, aligning with the influential decision in Ruscoe v Cryptopia Ltd (in liquidation) from the New Zealand High Court.
The Cryptopia judgment provides persuasive authority in Australia, concluding that the cryptocurrencies in that case were held on express trusts for accountholders rather than forming part of the exchange’s general assets. The decision analysed the key requirements for a trust - certainty of intention, subject matter, and objects - and found that Cryptopia’s internal records and business practices supported the existence of separate trusts for each type of cryptocurrency held by the exchange. Importantly, the court recognised that:
cryptocurrency can be classified as ‘property’ capable of forming the subject matter of a trust;
trusts can arise even without formal documentation if the conduct of the parties implies a trust arrangement; and
the commingling of customer assets does not necessarily negate the existence of a trust.
In contrast, in the largest restructuring of an exchange, creditors of Australia’s Digital Surge held only a debt claim against the exchange rather than a beneficial interest in their crypto holdings (but in that case all customers are likely to recover 100c in the dollar of their claims priced at the date of insolvency, a very rare outcome in insolvency) The terms of service of the exchange clearly stipulated that customers who deposited assets onto the exchange no longer owned their crypto-assets. The precise legal relationship between an exchange and its users thus depends heavily on the exchange’s terms and conditions.
Tax Implications for Mt. Gox Customers
The classification of Mt. Gox’s creditor claims - whether as property held on trust or as unsecured claims - will have major tax consequences for recipients of repayments. The taxation of these distributions in Australia is complex, and recipients should consider whether their receipt of distributions is a return of their property or a form of compensation, which is complicated because distributions are in BTC, which has gone up massively in value since the hack. But the BTC being returned is not the same BTC which each customer transferred to the exchange. Complex capital gains taxation rules will likely also apply for certain customers, as will the classic tax dilemma of the revenue vs capital characterisation (but the BTC here is likely to fall under a capital characterisation).
Key Takeaways
While cases like Cryptopia suggest that crypto-assets can be held on trust, whether this applies in other cases will depend on the applicable legal agreements and facts. The taxation of distributions from any insolvency remains complex, and given the novel nature of crypto-assets, creditors should always seek professional tax advice to ensure compliance with regulations and to mitigate the risk of penalties. As blockchain markets continue to mature and evolve, regulatory clarity on the treatment of exchange collapses and customer repayments will be crucial.
Written by Steven Pettigrove and Luke Higgins with Michael Bacina
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