About a year ago, many in the Bitcoin community saw Mt. Gox as the best Bitcoin exchange, and it certainly was the most popular, with about 80% of the global trading volume.
But after a series of problems and a long decline, Mt. Gox shut down on Monday. So many Bitcoin traders are asking, what's the best Bitcoin exchange now?
To be blunt, the "best Bitcoin exchange," even when Mt. Gox was thriving, has always been more of a question of which is the most tolerable. All of the existing Bitcoin exchanges have serious issues mixed in with their good aspects.
And as we saw with the dramatic demise of Mt. Gox, a Bitcoin exchange with serious issues can be bad news for customers - just ask anyone with bitcoins trapped in a Mt. Gox account.
Given the rise of Bitcoin over the past year - both in popularity and price - it's puzzling that a first-rate operation worthy to be called the "best Bitcoin exchange" has not emerged.
But now we know what such a beast should look like...
To figure out what features an ideal Bitcoin exchange would need, let's first take a look at what's wrong with the Bitcoin exchanges we have now, including the stricken Mt. Gox.
For the purposes of this discussion, we're sticking with Bitcoin exchanges that deal in U.S. dollars.
For U.S. Bitcoin investors, one of the biggest problems with Bitcoin exchanges has been that all of the major ones are based in foreign countries.
Mt. Gox is based in Japan. Bitstamp, now the largest Bitcoin exchange, moved about a year ago to the UK from Slovenia. BTC-e, now the second-largest Bitcoin exchange, is based in Bulgaria.
Because these Bitcoin exchanges operate outside the United States, they are not subject to any U.S. laws or government regulations. And just as worryingly, the governments of those countries have generally ignored Bitcoin activity.
So when a situation as we've seen with Mt. Gox happens, U.S. customers have no legal recourse whatsoever.
Other problems related to this have to do with getting fiat currencies, particularly U.S. dollars, into and out of these Bitcoin exchanges.
Getting dollars into or out of Mt. Gox became nearly impossible last May, when U.S. regulators cracked down on a Mt. Gox U.S. subsidiary and its partner, Dwolla. The Mt. Gox subsidiary had not registered as a money transfer company. The issue was never resolved.
It's not nearly that bad at Bitstamp, but trades must be done via wire transfers, take several days, and incur a 0.1% deposit fee with a $15 minimum.
The much-smaller, U.S.-based CampBX recently had a similar problem. On Jan 31 it reported that the bank it had been working with suddenly decided to process ACH and wire transfers, effectively preventing the movement of dollars in and out of the exchange.
Yes, the few U.S.-based Bitcoin exchanges have problems, too. CampBX is the largest U.S. Bitcoin exchange by volume; Kraken is a distant second.
While less risky than their overseas counterparts, they share a different problem: low liquidity.
According to BitcoinCharts.com, 30-day volume on BitStamp is 847,225 bitcoins; on BTC-e it's 558,428. But 30-day volume on CampBX is just 7,205 bitcoins, and on Kraken it's a mere 906 bitcoins.
That means you can trade Bitcoins on these exchanges, but not always when you want, and perhaps not at the price you want. The low liquidity can also contribute to price volatility depending on whether there's a paucity of buyers or sellers.
There's also LocalBitcoins.com, which connects individuals in the same area so they can meet and physically exchange bitcoins. But that option not only loses the pricing action of a full Bitcoin exchange, it presents serious safety concerns.
The ideal Bitcoin exchange would be one that addresses all of the above issues while retaining some of their better features, like these...
The best Bitcoin exchange for U.S. users should:
There's been a lot of buzz about SecondMarket's plans to create a New York-based Bitcoin exchange, but it will be modeled on stock exchanges like the New York Stock Exchange.
In other words, you'll need a "seat" to trade on this Bitcoin exchange, and the seats will go to the usual suspects - the big banks and brokerage houses as well as certain Bitcoin startups like Circle and Coinbase. Individual traders are not invited, at least for now.
It's too bad, because the SecondMarket exchange (it has no formal name yet) looks like it will have most if not all of the characteristics of an ideal Bitcoin exchange for U.S. traders.
Retail investors will have to wait a little longer, it seems, for something they can truly call the "best Bitcoin exchange."
What features do you think the best #Bitcoin exchange should have? Did we leave any out? Tell us on Twitter @moneymorning or Facebook!
People who have bitcoins trapped at Mt. Gox may not have lost everything, after all. There is still something they can do to recover at least a portion of their money. And it's easier than you might think...
