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Wednesday, February 26, 2014

How Will Mt.Gox's Shutdown Affect Bitcoin's Future?

Posted by Robert Ham on Wed, Feb 26, 2014 at 2:29 PM

It seems that every step forward being made by bitcoin, the virtual currency that I wrote about last December for the Mercury, it ends up taking a few stumbles backward.

The very day that my story posted late last year, the value of bitcoin fell nearly 60% as some investors panicked following the one-two punch of the largest exchange in China halting the acceptance of cash deposits and the People’s Bank of China banning transactions by all digital currencies.

Recently, the market seemed to have stabilized, with the value of bitcoin sticking to around $800 through January. But then news broke yesterday that Tokyo-based Mt.Gox one of the currency’s biggest exchanges closed up shop, potentially losing more than $400 million worth of users’ bitcoins. Investors have responded by selling off their stores and sending the value down to its lowest point in months.

What this means for the future of bitcoin is anyone’s guess at this point. The L.A. Times headline for their story about Mt.Gox was quite fatalistic: “Bitcoin virtual currency is on verge of collapse.” But talk to someone like Colin Lusk, a local network engineer and early bitcoin adopter, and he’ll tell you emphatically, “I remain bullish.”

“I picked up $5,000 worth of bitcoin in the last couple of weeks,” he says. “The entire time it was going down, I was buying some. Right now, it’s already stabilized. In two months, no one is going to remember what Mt.Gox was.”

To his credit, Lusk, who helps coordinate the twice-monthly meetups for Portland Bitcoin Group, says he pulled out of Mt.Gox months ago when he started noticing discrepancies regarding how the site was valuing the cost of one bitcoin.

“Last July, for example, it was trading at $80, $90, $100, something like that,” he remembers. “Mt.Gox had it $105.”

Of course, that led to some enterprising folks to set up bots to buy bitcoin in open market and then sell them on Mt.Gox for a small profit, a loophole that the trading site put a stop to earlier this month.

A bigger problem for users arose when they would attempt to exchange their bitcoin for cash. According to one Reddit user that Lusk was in touch with, the site dragged its feet about making a wire transfer until they were contacted directly. And even then, they charged the user a 5% fee to get his money.

“I said, ‘What?! You’re going to charge $50 to pull $1,000 out? That company is completely out of their mind,’” says Lusk.

As of this writing, all seems calm in the bitcoin marketplace following the Mt.Gox shutdown, with the value hovering just below $600, and users migrating to other exchanges like BitStamp and CoinBase. Mt.Gox CEO Mark Kapeles doesn’t seem particularly concerned either, posting on the site that he is “working very hard with the support of different parties to find a solution to our recent issues.”

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