- As MtGox BTCs price drops relative to Bitstamp BTC, more BTCs will be bought/withdrawn on MtGox, and the cost to MtGox to make customers whole also goes up
This is flawed logic. The amount of fiat at Mt.Gox is fixed as people cannot withdraw significant amounts.
Assuming you are correct and Mt.Gox is short BTC then a low BTC price is ideal for them because they can replace their losses for less fiat money.
If nothing else, they can borrow against all the fiat noone can withdraw anytime soon.
no, if MtGox exchange is short BTCs, the low price of BTC on mtgox is FAKE. there are no BTCs to be bought at $250. The price of $250 is probably
( (Actual number of BTCs on mtgox) * Bitstamp price ) / (Number of BTCs that mtgox is representing they have)
It was always GoxBTC you were buying on Gox, rather than real BTC. You were paying with GoxUSD too, for that matter. For a while previous to this current incident, GoxBTC has been valued at close to what other exchange's BTC was worth, while GoxUSD was worth less than USD on other exchanges.
If they can buy GoxBTC on their own exchange for less than they can sell it for elsewhere then they can reduce their BTC liability (i.e. they now "owe" the customer that sold them the GoxBTC fiat instead of BTC, and in fact they owe them less in fiat than what the BTC was "worth".
the assumption was that goxBTC is fungible with BTC, otherwise its just paperBTC. In fact, before this incident goxBTC was $100 above bitstampBTC, because goxUSD was impossible to withdraw and worth less than bitstampUSD.
back in the day I used to sell goxUSD for $1.05, because everyone wanted BTCs and it took time to deposit into gox. so they were paying 5% for the time. used to do this on bitcoin_otc irc,using goxUSD codes.
until now, mtgox traded as if they had enough BTCs to cover. this time is difference.