Google – AFP, Rob Lever (AFP), 25 February 2014
 |
The back,
hologram side, of a physical Bitcoin minted in a shop
on April 26, 2013 in
Sandy, Utah (Getty/AFP/File, George Frey)
|
Washington
— The Bitcoin community was thrown into turmoil Tuesday after the disappearance
of what had been its biggest exchange, shaking confidence in the fast-growing
virtual currency.
Critics
said the failure of the Tokyo-based MtGox exchange and the apparent loss of
some $300 million in Bitcoins highlighted flaws in the cryptocurrency, while
others said it was merely a bump in the road.
The value
of a Bitcoin tumbled more than $100 in early trades but then recovered to fetch
$515 at 2030 GMT, according to the Winkdex Bitcoin index. The moves highlighted
the extreme volatility of the currency, which surged over $1,100 last year and
then fell sharply.
The closing
of MtGox "is a significant setback for the Bitcoin community," said
Mark Williams, a Boston University expert on risk management and financial
markets who has long warned about the dangers of Bitcoin.
"This
exposes its structural flaws," Williams told AFP. "It shows
self-regulation doesn't work. When there is big money on the table, there is an
incentive to cheat and consumers are 100 percent exposed."
-
'Self-reinforcing panic' -
Henry
Farrell, a George Washington University political economist, said that, as with
other currencies, Bitcoin needs to establish confidence.
"If
people start to panic and think this is a sign of general problems in the
Bitcoin economy, it becomes a bit like the 2009 financial crisis," he
said.
"You
can get a general self-reinforcing panic which sets in."
Farrell
said Bitcoin is now in a "fragile situation" and needs to get through
the current crisis to survive. But he does not see Bitcoin expanding beyond
being a "hobby currency."
Peter
Leeds, publisher of an investment newsletter, said the MtGox collapse is likely
to discourage investments and prompt more efforts to regulate Bitcoin.
"The
network was always at risk, but now with a sudden drop of over 20 percent, a
tipping point is being approached which would derail the entire system,"
Leeds said.
US Senator
Tom Carper, who heads a homeland security panel, said the MtGox collapse
underscores the need for regulation.
"The
disturbing news today from Japan is a reminder of the damage potentially ill
equipped and unregulated financial actors can wreak on unsuspecting
consumers," Carper said in a statement.
 |
A user is
instructed on how to scan his palm to ensure that a single
user cannot exchange
more than $1,000 in a single day day on the
world's first bitcoin ATM at Waves
Coffee House on October 29, 2013
in Vancouver, Canada (Getty/AFP/File, David
Ryder)
|
- Weeding
out 'bad actors' -
But
defenders of Bitcoin expressed confidence in the virtual currency, which is
based on a computer algorithm designed by one or more anonymous people in 2009.
The heads
of other major Bitcoin exchanges issued a joint statement saying the collapse
of MtGox was a "tragic violation of the trust of users" and
"does not reflect the resilience or value of Bitcoin and the digital
currency industry."
"As
with any new industry, there are certain bad actors that need to be weeded
out," the statement said.
"We
are confident, however, that strong Bitcoin companies, led by highly competent
teams and backed by credible investors, will continue to thrive, and to fulfill
the promise that Bitcoin offers as the future of payment in the Internet
age."
Proponents
say the currency is an efficient and anonymous way to store and transfer
monetary value, and to avoid the risks inherent in any currency dependent on
the viability of a government for its value.
And as
MtGox went down, a new Bitcoin exchange was to be launched by SecondMarket
Holdings, a US firm specializing in alternative investments, The New York Times
reported.
Bitcoin
values steadied after the exchange posted a note several hours after going
offline, saying "a decision was taken to close all transactions for the
time being in order to protect the site and our users."
Some
reports highlighted a line in the MtGox computer code hinting at a new owner --
"put announce for mtgox acq here."
The
Coindesk website that follows the currency reported that MtGox would close for
one month for "rebranding."
Fred
Wilson, a venture capitalist who has invested in Bitcoin, said he bought more
of the virtual currency when the price dropped Tuesday.
"The
wonderful thing about a globally distributed financial network is that if one
of the nodes goes down, it doesn't take the system down," he wrote on his
blog.
"I
always feel good buying when there is blood in the streets in any market. It is
my favorite time to buy."
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