Bitcoin's Bumpy Week

CYBERSPACE—As the realization dawned that what seemed like a temporary glitch to Mt. Gox Bitcoin trading was becoming a complete cessation of trading by the leading Japan-based exchange, the media, and especially the financial media, has been covering the story almost non-stop, as if it were a developing war. CNBC in particular has devoted several long segments to the latest gyrations of Bitcoin, and this morning, in the aftermath of the news that the Mt. Gox website was down and its CEO off the grid somewhere, the conversation took an ever more alarmed tone. But talking head after talking head nonetheless has gone on record insisting that despite the apparent loss of funds by Mt. Gox account holders and the hit to Bitcoin confidence as a result of the Mt. Gox implosion, there is no reason to believe that Bitcoin itself is threatened. In fact, one takeaway from this morning's coverage on television as well as in print and online is that the current "shakeout," as a few observers labeled it, actually bodes very well for the currency, and was to be expected. According to Jaron Lukasiewicz, co-founder and chief executive of Coinsetter, a New York-based Bitcoin exchange, other exchanges "stand to benefit from the Mt. Gox fallout," even if there will surely be "increased expectations on the transparency and disclosures they need to make to customers." Not surprisingly, the Bitcoin Foundation, which has been feuding with Mt. Gox in bitter disagreement over the exchange's explanations for why it had to cease trading to due to a serious software security glitch—essentially saying the problem was with Bitcoin and not Mt. Gox software—issued a statement mitigating the Mt. Gox fallout, saying, "Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity. This incident demonstrates the need for responsible individuals and members of the Bitcoin community to lead in providing reliable services." The implication being that Mt. Gox was none of those things. The statement also came in the aftermath of the resignation this Sunday by Mt. Gox CEO Mark Karpeles from the Foundation's Board, and also after the exchange's site had gone dark and reports were coming in that the company had abandoned its Tokyo offices out of security concerns. However, Karpeles did supply a subsequent statement to Reuters saying, "We should have an official announcement ready soon-ish. We are currently at a turning point for the business. I can't tell much more for now as this also involves other parties." The stakes for Mt. Gox and its users, as well as the entire Bitcoin community, remain high. Reuters added today, "A document circulating on the Internet purporting to be a crisis plan for Mt. Gox, said more than 744,000 Bitcoins were 'missing due to malleability-related theft,' and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets. It was not possible to verify the document or the exchange's financial situation. If accurate, that would mean approximately 6 percent of the 12.4 million Bitcoins minted would be considered missing." Needless to say, Mt. Gox depositors demonstrating at their closed Tokyo offices were none too pleased with the possibility that their money may be gone for good. "I'm very angry," Reuters quoted Kolin Burges, a self-styled "crypto-currency trader" as saying. The former software engineer traveled from London to Tokyo after "Mt. Gox failed to tell him what had happened to his Bitcoins, which at one point were worth $300,000." He told the wire service, "It looks like that's disappeared." Because currencies are all founded on trust, the possibility that Mt. Gox will leave investors high and dry has other exchanges scrambling to paint a picture of Mt. Gox as a bad apple. Reuters reports that six exchanges issued a joint statement that took a hard line with Mt. Gox. "This tragic violation of the trust of users of Mt. Gox was the result of one company's actions and does not reflect the resilience or value of Bitcoin and the digital currency industry," stated Coinbase, Kraken, Bitstamp, BTC China, Blockchain and Circle. "As with any new industry, there are certain bad actors that need to be weeded out, and that is what we're seeing today." Indeed, even Wall Street insiders were quick to state a mitigating position with respect to Bitcoin's current chaos and crisis, as if these things are to expected with any new currency that has yet to earn its widespread trust of either the public or regulators. One reason for that forgiving attitude may be the fact that, institutionally speaking, Bitcoin has in fact already arrived, with big players already dipping their toes into the marketplace. For others, Bitcoin's rise and fall and rise and fall indicate actually indicate a secure foundation encompassing a potentially huge global marketplace, with only smart multi-jurisdictional regulation standing in the way of big profits. The measured response by the Financial Crimes Enforcement Network (FinCEN), "the only U.S. regulatory agency to have any oversight of Mt. Gox," could be seen as an indication of that perspective. All Steve Hudak, spokesman for Treasury's anti-money laundering unit had to say was that they were "aware of the reports regarding Mt. Gox" but had no additional comment. In another statement, Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York, said. "These developments underscore that smart, tailored regulation could play an important role in protecting consumers and the security of the money that they entrust to virtual currency firms." Translation: "We'll take it from here."