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Major bitcoin exchange said to be insolvent

Beacon Journal wire services

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One of the world’s largest bitcoin exchanges has seemingly disappeared, delivering a severe blow to the virtual currency as it struggles to gain legitimacy.

A coalition of virtual currency companies said Tuesday that Tokyo-based Mt. Gox went under after secretly racking up catastrophic losses.

Mt. Gox’s website was inactive Tuesday. The disappearance of the site follows the resignation Sunday of Mt. Gox CEO Mark Karpeles from the board of the Bitcoin Foundation, a group seeking legitimacy for the exotic new form of money. The exchange had imposed a ban on withdrawals earlier this month.

Prominent supporters of bitcoin — including San Francisco-based wallet service Coinbase and Chinese exchange BTC China — sought to shore up confidence in the currency by saying Mt. Gox’s collapse was an isolated case of mismanagement. They said it had abused users’ trust, but did not offer details.

“As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today,” the statement said.

Mt. Gox, which had the largest market share of all digital currency exchanges as recently as April 2013, went offline Tuesday, after halting customer withdrawals on Feb. 7. A document posted on the Internet that appeared to be an internal strategy document said Mt. Gox had lost 744,408 bitcoins — about $390 million — as a result of apparent theft that “went unnoticed for several years.”

Mt. Gox went offline to “protect the site and our users,” according to a statement at its web address. “We will be closely monitoring the situation and will react accordingly,” it added.

Bitcoin prices fell more than 13 percent Tuesday on news of Mt. Gox’s shutdown before recovering to $524.91, down 3.8 percent, at 5:10 p.m., according to the CoinDesk Bitcoin Price Index. That’s down from as high as $1,151 on Dec. 4.

The news triggered renewed calls for better security and consumer protection from several U.S. officials. Sen. Tom Carper, a Delaware Democrat who held the first hearings in Congress, said the apparent losses at Mt. Gox underscored the need for clear rules sooner rather than later.

“As any industry matures it will face growing pains and there will be individuals who believe they can use the fog of uncertainty to cover up their follies,” Carper said.

Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto. The digital currency, based on a peer-to-peer software protocol, has no central issuing authority, and uses a public ledger to verify transactions while preserving users’ anonymity.

The Treasury Department’s Financial Crimes Enforcement Network has said that digital currency businesses could be considered money transmitters, which are licensed by U.S. states. Spokesman Stephen Hudak said the agency is monitoring Mt. Gox developments.


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