A fresh crisis may be the beginning of the end for Bitcoin exchange Mt. Gox, but the harm to the digital currency itself will be temporary.
Fans of the digital currency woke up Friday trying to figure out why Bitcoin prices are falling after more than a month of relative price stability on the Japan-based exchange.
Long plagued by issues in getting fiat currencies from Mt. Gox accounts to user bank accounts, the exchange in recent days started having trouble transferring bitcoins as well.
To make it easier to pinpoint the problem, Mt. Gox announced it was suspending all bitcoin transfers indefinitely.
"In order for our team to resolve the withdrawal issue it is necessary to temporarily pause all withdrawal traffic to obtain a clear technical view of the current processes," the Mt. Gox memo said. The site promised an update on the situation Feb. 10 (Monday).
Bitcoin traders reacted predictably be selling heavily not just on Mt. Gox, but on all the other major exchanges, including BitStamp and BTC-e.
On Mt. Gox, where Bitcoin prices had been about $100 higher than on other exchanges, the plunge was the steepest. Bitcoin prices fell from about $830 to $652 in a 10-hour span early Friday.
Bitcoin prices on other exchanges followed suit.
But it didn't take long for bargain hunters to jump in, and prices were back into the mid $700s by Friday afternoon.
While critics spent much of the day declaring (for the umpteenth time) the death of Bitcoin, they're wrong again.
Why Falling Bitcoin Prices Don't Mean Doom
Anyone who has followed the Bitcoin story over the past year knows it has had more than its share of existential crises.
There was the crash in April of last year, when prices rocketed to $266, then plunged to $55. There was the shuttering in October of Silk Road, a website where visitors could buy illicit drugs using Bitcoin. And there was the decision by the Chinese government in December to block transfers of yuan into the busy BTC China exchange.
Each time self-assured critics explained why Bitcoin prices are falling – the whole thing is a bubble and now it's popped. It's over and good riddance.
But each time Bitcoin prices have recovered. More than that, however, is that acceptance of and investment in the digital currency has continued to accelerate. You can spend Bitcoin in more places every day, Bitcoin-based business keep sprouting up.
Bitcoin refuses to die because it's not a bubble or a fad. Bitcoin is something new – both a currency and a form of payment – the potential of which is only starting to be tapped.