Major bitcoin exchange is insolvent

Kolin Burges, AaronMail.com

TOKYO (AP) — A major bitcoin exchange has gone bust after secretly racking up catastrophic losses, other virtual currency companies said Tuesday — a potentially fatal blow for the exotic new form of money.

The website of Tokyo-based Mt. Gox was returning a blank page Tuesday. The disappearance of the site follows the resignation Sunday of Mt. Gox CEO Mark Karpeles from the board of the Bitcoin Foundation, a group seeking legitimacy for the currency, and a withdrawal ban imposed at the exchange earlier this month.  

Prominent members of the Bitcoin community — including San Francisco-based wallet service Coinbase and Chinese exchange BTC China — sought to shore up confidence in the currency by saying Mt. Gox’s collapse was an isolated case of mismanagement. They said it had abused users’ trust, but did not offer details on how.

“As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today,” the statement said. Documents purportedly leaked from the company lay out the scale of the problem. An 11-page “Crisis Strategy Draft” published on the blog of entrepreneur and Bitcoin enthusiast Ryan Selkis says that 740,000 bitcoins are missing from Mt. Gox, which roughly translates to hundreds of millions of dollars’ worth of losses, although figures are fuzzy given Bitcoin’s extreme volatility.

“At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public,” the draft said. In a post to his blog, Selkis said that the document was handed to him by a “reliable source” and that several people close to the company had confirmed the figures. Reached by phone, he declined further comment. The Japanese government, meanwhile, has not announced any formal investigation.

The scandal may cost customers dear. At the Tokyo office tower housing Mt. Gox, bitcoin trader Kolin Burges said he had picketed the building since Feb. 14 after flying in from London, hoping to get back $320,000 he has tied up in bitcoins with Mt. Gox.

“I may have lost all of my money,” said Burgess, next to placards asking if Mt. Gox is bankrupt. “It hasn’t shaken my trust in Bitcoin, but it has shaken my trust in bitcoin exchanges.” Mt. Gox CEO Karpeles did not immediately return several messages seeking comment. A security officer at the office tower said no one from Mt. Gox was in the building. Tibbane, an Internet company that Karpeles is CEO of, still has its name listed on the building’s directory.

“I have no idea” where they are, said Burges, the trader. “I’m both annoyed and worried.” On bitcoin exchanges, the currency’s value has fallen to about $470 from $550 in the past few hours, a figure already down more than 50 percent on the price of $1,200 per bitcoin reached on Mt. Gox three months ago.

The disappearance of Mt. Gox could be fatal for Bitcoin, which was started in 2009 as a currency free from government controls. Bitcoin’s boosters say the currency’s design make it impossible to counterfeit and difficult to manipulate, and the virtual money has won an eclectic mix of die-hard fans, including libertarians, tech enthusiasts and adventurous investors.

But the currency has struggled to shake off its associations with criminality, particularly its role in powering the now-defunct online drug marketplace Silk Road. Only last month another member of the Bitcoin Foundation, Vice Chairman Charlie Shrem, was arrested at New York’s Kennedy Airport on charges of money laundering.

Authorities have been taking an increasingly hard look at Bitcoin and related virtual currencies including Litecoin, Namecoin, Ripple, and countless others. Some countries, including Russia, have effectively banned the currency. In other jurisdictions, authorities are weighing whether to try to tame the marketplace through licenses or other mechanisms.

Even if Mt. Gox doesn’t drag Bitcoin down with it, there’s fear that the exchange’s demise will push officials to take an even more skeptical stance. “I think this is disastrous from a (regulatory) standpoint,” Selkis, the enthusiast, said in a message posted to Twitter. “The hammer will now come down hard.”

Satter reported from London. Associated Press writer Stephen Wright in Bangkok also contributed to this report.

http://www.mail.com/scitech/news/2675392-major-bitcoin-exchange-to-insolvent.html#.7518-stage-hero1-4

2 thoughts on “Major bitcoin exchange is insolvent

  1. Surprise, Surprise…

    How STUPID can people be??? The American stock market is RIGGED, Currency is Fiat, But put your money in a BITCOIN…

    Land , Silver , Gold and Ammo is what you put your money in…

  2. This is simply an example of the kind of thing that can happen in a truly free market. If a company screws up, it goes under. Unfortunately, that also means those who have a vested interest (such as the $320k mentioned above) are far more at risk of total loss.

    If the US Empire had any truly free markets in 2008, there would have a been 0 (zero, zip, zilch, nada, sweet FA) chances of any of the major banks surviving. You would have seen the EXACT same scenario as we see now as with MtGox (Magic the Gather Online eXchange, if you want their history, use google). And in a genuinely free market, the customers of the major financial institutions would have to deal with the same level of risk and loss as with MtGox.

    In a truly free market, it’s up to us as individuals to be aware of all our risks. It doesn’t matter if we talk banks (government backed institutionalized fraud), or cryptocurrencies (electronic 0s and 1s used in a triple entry accounting, peer to peer network, backed by encryption). Both are risky.

    If what we own isn’t in our own hands, we don’t own it. Not really.
    If you own silver certificates, you own silver certificates. You don’t own silver.
    If you have silver but keep it in your safety deposit box, you don’t own it. The bank does (remember Cyprus… or MF Global… or Peregrin Financial Group…).
    If you have your silver in your hand (figuratively as well as literally), then that silver is really yours.

    If your bitcoins aren’t in your wallet, then they aren’t your bitcoins. Not really (MtGox). If you don’t have your cash in your hand (its in the bank), it’s not really yours (again, Cyprus),

    Land, silver, gold, art. The old money does the third rule – one third land, one third metals, one third art. While I do get a paycheck, it’s a paycheck just slightly above minimum wage (also known as the lowest amount I’m allowed to be paid by statutory law). Land is unattainable, gold unaffordable, and my taste in art usually includes cartoons from The Far Side or Calvin and Hobbes. That leaves silver, and it is good. Risk is low. Attainability (at least in Vancouver) is easy.

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