The collapse of a major cryptocurrency exchange is always a seismic event, but not all collapses are created equal. Nearly a decade separates the fall of Mt. Gox in 2014 and the implosion of FTX in 2022, yet both events rattled markets, destroyed investor confidence, and prompted calls for regulatory intervention. However, beneath the surface, the two disasters tell very different stories—one of negligence and incompetence, the other of outright fraud and deception. Understanding the differences and similarities between these collapses provides valuable insight into how far the crypto industry has come and what lessons still need to be learned.

Similarities: The Devastation of Centralized Failure

Both Mt. Gox and FTX serve as painful reminders of the dangers of trusting centralized entities in the crypto space. In each case, users deposited funds with the expectation that they were secure, only to find out that the exchanges were unable to honor withdrawals when it mattered most.

• Customer Losses: Mt. Gox lost around 850,000 Bitcoin, worth roughly $450 million at the time but valued in the tens of billions today. FTX, on the other hand, saw approximately $8 billion in customer funds disappear.
• Panic and Market Fallout: The collapse of both exchanges sent shockwaves through the broader crypto market. Bitcoin dropped by nearly 36% in the wake of the Mt. Gox collapse, while FTX’s downfall triggered a similar selloff, erasing hundreds of billions in crypto market value.
• Bankruptcy and Legal Chaos: Both Mt. Gox and FTX entered prolonged bankruptcy proceedings, leaving creditors in limbo for years. The Mt. Gox payout process is still ongoing nearly a decade later, while FTX creditors are just now beginning to see partial repayments.

Differences: Incompetence vs. Fraud

While the end result—financial devastation—was similar, the causes of collapse couldn’t be more different. Mt. Gox was primarily a case of mismanagement, whereas FTX was a deliberate, calculated fraud.

• Nature of the Collapse: Mt. Gox fell due to a combination of poor security practices, technical vulnerabilities, and sheer incompetence. The exchange suffered multiple hacks over the years, but the final nail in the coffin was a massive security breach that drained its reserves.
• FTX’s Fraudulent Foundation: FTX, on the other hand, wasn’t simply mismanaged—it was built on lies from the beginning. The exchange, under Sam Bankman-Fried’s leadership, misused customer funds, engaged in reckless trading through its sister firm Alameda Research, and manipulated financial records to hide its insolvency.
• Regulatory and Public Perception: In 2014, Mt. Gox’s collapse was seen as an isolated incident in an unregulated Wild West of crypto. By 2022, the industry had matured, and FTX’s downfall had far greater implications, attracting mainstream scrutiny and government intervention on a global scale.

Bankman-Fried vs. Karpeles: The Men Behind the Meltdowns

Mark Karpeles and Sam Bankman-Fried were both at the helm of their respective exchanges when they collapsed, but their roles in the disasters—and their personal accountability—couldn’t be more different.

• Mark Karpeles (Mt. Gox): A software developer turned exchange operator, Karpeles inherited Mt. Gox when he acquired it in 2011. Under his leadership, the exchange grew rapidly but suffered from persistent security flaws. By the time Mt. Gox collapsed, Karpeles claimed he was unaware of the full extent of the missing funds, attributing it to poor security measures and hacking incidents. He was arrested in Japan, charged with embezzlement and data manipulation, but was later acquitted of most charges and received a suspended sentence.
• Sam Bankman-Fried (FTX): Unlike Karpeles, Bankman-Fried actively engaged in fraudulent activities. He knowingly misappropriated customer funds, used them for speculative investments, and misled both investors and regulators. While Karpeles’ downfall was largely due to negligence, Bankman-Fried’s actions were deliberate and criminal. His trial resulted in multiple convictions for fraud and conspiracy, cementing his legacy as one of the most notorious financial criminals of the 21st century.

Lessons Learned: The Case for Bitcoin and Self-Custody

Both cases underscore the fundamental lesson that has been repeated time and again in the crypto world: not your keys, not your coins. When users place their trust in centralized exchanges, they expose themselves to risks that can lead to devastating losses.

• Regulation Can’t Prevent Bad Actors: Despite increased regulation in the crypto industry, FTX’s fraud was not caught in time. No amount of government oversight can fully protect users from deception if they willingly hand over control of their funds.
• Bitcoin Stands Alone: The collapse of both exchanges had no impact on the integrity of Bitcoin itself. Bitcoin’s decentralized nature ensures that it cannot be manipulated or misused in the way FTX’s customer funds were.
• Self-Custody is the Future: If Mt. Gox and FTX taught us anything, it’s that centralized exchanges are not to be trusted with long-term holdings. The best way to secure Bitcoin is through self-custody—hardware wallets, multi-signature setups, and personal responsibility.

While the crypto industry has evolved significantly between the Mt. Gox and FTX collapses, the fundamental risks of centralized custodianship remain the same. The biggest lesson from both disasters is clear: trusting third parties with your crypto is a risk not worth taking. Bitcoin’s strength lies in its decentralization, and those who embrace self-custody will be the ones best positioned to weather any future storms.

For a deep dive into the full history of the FTX collapse, read this article.