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
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.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
"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.
-
Redundancy on the rise – how to manage a sudden drop in incomeUnemployment and redundancies are higher than a year ago, new figures show. We look at how to protect your finances if you face a sudden loss of income.
-
What is the ideal time to spend on the property market? How you could risk losing thousandsTime on the housing market matters – get an offer too quickly or too slowly and you’ll often find you have to settle for less than the asking price. What is the ideal time for a property to spend on the market?
