The theory is that sometime in 2011--probably after the crash from $30 to $10--MtGox was lax with security and a group of thieves or hackers was able to steal about 500,000 to 1,000,000 BTC. At the time, this only represented $10 million dollars.
To avoid discrediting bitcoin and embarrassing himself, Mark pretended that nothing happened. He knew that BTC withdrawals were roughly balanced by BTC deposits (typical fraction reserve banking) and he hoped to slowly earn back the bitcoins through trading fees.
Meanwhile, the thieves worked to mix their coins with non-stolen coins and slowly sold them off, thereby driving the bitcoin price eventually to $2 later in the fall of 2011. It was this extra selling pressure that continued through the remainder of 2011 and 2012 that kept the price of bitcoin artificially depressed.
Meanwhile MtGox was buying coins whenever it had spare cash. But as the price of bitcoin exploded in the spring of 2013 they saw their liabilities in $ terms increase tremendously. But at this point they had to keep going, even using customer deposit money to buy coins from other exchanges or individuals.
The problems at MtGox (probably due to extreme stress of MK) got worse, and MtGox lost market share, slowly dwindling down MtGox's small supply of coins.
MtGox purposely mixed immature coins into withdrawal transactions, and later used the malleability excuses, all to buy time to somehow get more coins and make good on withdrawals.
But eventually all hope was lost. Their supply of coins dwindled down to 2,000 BTC while their bitcoin liability were a huge 750,000 BTC.
i know im being too hopeful
