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The troubled Mt. Gox exchange officially filed for bankruptcy today (Friday) in Japan, but this Bitcoin news was so much expected that prices on other exchanges hardly moved.
Bitcoin prices on most major exchanges briefly dipped about 5% on the news, but recovered quickly. The composite Bitcoin price on CoinDesk was $565 at midday, down less than 2% for the day.
It's a sign that most of the Bitcoin community has moved on from Mt. Gox, but the severity of the collapse ensures it will never be forgotten.
The details of the Mt. Gox bankruptcy were even worse than the numbers that had been circulating when the site went dark on Monday.
Mt. Gox said it had lost a total of 850,000 bitcoins - 100,000 of its own and 750,000 belonging to customers. At current Bitcoin prices, the lost currency would be worth $480 million and represent about 7% of all bitcoins in existence.
In addition, Mt. Gox said it had liabilities of $63.67 million against assets of $38 million.
It was an astonishing fall for a Bitcoin exchange that a year ago was the home of 80% of all Bitcoin trading.
"There was some weakness in the system, and the bitcoins have disappeared," said Mt. Gox Chief Executive Officer Mark Karpeles at a news conference at the Tokyo District Court press club. "I apologize for causing trouble."
What the Bitcoin News About Mt. Gox Means
The flaw Karpeles blamed allowed hackers to double-draw Bitcoin from their accounts, which apparently was happening on a large scale. The time period of the theft is unclear, although The Wall Street Journal described it as "long-running."
What's most puzzling is that Mt. Gox only recently detected the theft, which indicates the company was doing a very poor job of tracking the money in its accounts and apparently had no safeguards in place.
The Mt. Gox bankruptcy leaves the exchange's customers with little hope of ever recovering their bitcoins.
It's just this kind of Bitcoin news that shows why the digital currency needs to be regulated. That degree of carelessness with customer money - and the utter lack of any recourse for those customers - simply can't be allowed if Bitcoin is ever to gain wider acceptance.
Under the Japanese bankruptcy law Mt. Gox used, which is similar to Chapter 11 in the United States, the exchange said it will try to continue operating so that it could repay its creditors.
However, the damage to the Mt. Gox reputation is so severe that it's unlikely anyone would ever trust any version of it enough to use the exchange again.
Meanwhile, Bitcoin proponents left to explain why the Mt. Gox bankruptcy should not be held against the digital currency.
"It can't be emphasized enough that Mt. Gox's demise was not a Bitcoin problem; it was a Mt. Gox problem," wrote Tyler Winklevoss in a blog post this week. Tyler and his twin brother Cameron are seeking to launch a Bitcoin ETF before the end of 2014.
"Mt. Gox's closure marks the end of Bitcoin's first wave of entrepreneurs and at the same time underscores just how far the Bitcoin ecosystem has come," Winklevoss wrote, noting that such an event just 10 months ago would have been catastrophic for the digital currency. "Today, thanks to the hard work of many, the Mt. Gox 'crisis,' as it's been reported, has really been more of a speed bump on the road to mainstream maturity."
Has the Mt. Gox bankruptcy affected you in any way? What do you think of this piece of Bitcoin news? Let us know on Twitter @moneymorning or Facebook.
While some countries, such as Russia, have sought to ban Bitcoin, regulators in the United States so far have recognized that digital currencies have enormous economic potential. As they get closer to taking action, here's what you can expect...
Related Links:
- The Wall Street Journal:
- Tyler Winklevoss blog:
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.