The oldest and best-known bitcoin exchange closed down in mysterious circumstances this week. Tokyo-based Mt Gox shut down its website while a document circulating online appeared to suggest that 744,000 bitcoins – around $400m – had been lost to hackers.
Earlier this month the exchange had suspended withdrawals, citing a bug making it difficult to track transactions. The price of bitcoin dropped by almost 10% on other exchanges. The volatile virtual currency is down by almost 55% from November’s all-time high.
What the commentators said
“Imagine that a country’s leading stockbroker closed its doors without giving any reason,” said Edward Hadas on Breakingviews. Clients would panic and customers of rival trading exchanges would be extremely rattled. That’s what’s now happening with the world’s “leading pseudo-currency”.
Bitcoin isn’t backed by a central authority, so it depends entirely on people’s confidence in it, as the FT pointed out. And while this is “the biggest crisis” in its five-year history, overall confidence appears to be holding up. Bitcoin users are pointing out that there have been episodes of theft before, albeit not on this scale, and saying that Mt Gox was always an inferior exchange.
“It always had the spit-and-sawdust feel of a site a couple of people knocked together on a weekend coding binge,” said Willard Foxton on Telegraph.co.uk. If bitcoin is to survive and prosper, “the collapse of early, shonky pioneers is a good thing”. Exchanges are already starting to become more professional as far as tech expertise and accounting know-how are concerned.
Commentators have pointed out that those who may have been robbed are on their own, as with bitcoin there is no regulatory framework. Yet far from dooming the currency, this can help it thrive, said Peter Spence in City AM. “A vast financial institution has been able to fail, and to do so relatively safely.”
The price decline is manageable. And as long as people need an “untraceable, untaxable currency” offering fast transfers and low transaction costs, alternative currencies such as bitcoin will be in demand.