Lights Out On Mt. Gox

The oldest Bitcoin exchange has gone offline and appears to be insolvent. The crash has cast doubt on the crypto-currency’s future, but Patrick McGuire downplays the event:

For those who are taking the long-view of Bitcoin, this is a large speed bump that will cause a lot of people grief for a long time; but there are bigger and better services on the way that will be able to learn from this crucial example of how not to run a Bitcoin exchange.

Brian Doherty puts the crash into perspective:

A reminder: if you had invested $1,000 in the horrible mistake of Bitcoin five months ago, that thousand would be worth about four times that today. After this Mt. Gox news.

Certainly, that huge value increase is not proof of Bitcoin’s eternal value as either investment or currency (and inflation in the former isn’t that healthy for use as the latter). But it is a sign that “it’s over, man” seems doubtful. People still believe. And that’s important when it comes to either investment or currency.

Kadhim Shubber bids the exchange good riddance:

Mt. Gox has become a gangrenous limb, infecting the wider bitcoin community with fear, uncertainty, and doubt.

Its reputation has been in a slow decline for some time now—toward the end of last year, news emerged that $5 million of Mt. Gox’s cash had been seized by the U.S. government. The revelations appeared to explain why withdrawals from Mt. Gox had been slow since June 2013, when the seizures occurred. As new and better-run exchanges sprung up, Mt. Gox increasingly became a burden, a holdover from bitcoin’s teenage years.

McArdle thinks the Mt. Gox crash makes Bitcoin regulation inevitable:

I’ve never been very bullish on Bitcoin, because ultimately, the better it performs at evading government surveillance of currency transactions (and government ability to manage debt loads via inflation), the harder those governments are going to try to shut it down. And it turns out that governments are very good at shutting down these sorts of … call them financial workarounds … because they can order the banks and payment networks that service the vast regular economy to refuse to take Bitcoins or take payments from companies that do take Bitcoins. What governments have done to online poker and offshore banking havens, they can do to Bitcoin vendors.

What happened at Mt. Gox only helps the government make its case for much tighter regulation of these networks.

Heather Timmons notes that some Bitcoiners are coming around to the idea of regulation, at least from within:

A growing number of participants believe the nascent bitcoin industry needs to accept the fact that expanding beyond the fringe comes with some some trappings of accountability.

“Nowadays, all bitcoin exchanges are very seriously considering and implementing compliance requirements based on their local jurisdiction’s rules,” said Eddy Travia, chief start-up officer of Seedcoin, a bitcoin company incubator. His firm’s investments include MexBT, a Mexican Bitcoin exchange, where “a large part of the resources…are invested into compliance-related activities,” he said, mostly based on self-imposed rules that are “a kind of self-regulation in anticipation of any potential concerns from the local authorities.”

Felix Salmon assesses the situation:

I actually do believe Coinbase and other next-generation bitcoin companies when they say that they’re much more robust than their predecessors. But I don’t believe that regulators, and the public at large, will believe them. Bitcoin is based on mistrust, which makes it almost impossible for this circle to be squared. There is a small number of cryptogeeks who really love the paradox that they can trust the protocol precisely because they don’t need to trust any given institution. Regulators, it’s fair to say, tend not to be among them. And neither are normal people, who don’t understand the math behind bitcoin, and who have no real ability to secure their coins on their own, and who thereforeneed to be able to trust whatever institution they’re using to store their bitcoin-denominated wealth.

In order for the end of Mt Gox to be a blessing for bitcoin, we’re going to need to see an influx ofnew entrants into the asset class — people who never trusted Mt Gox, but who are happy to trust (say) Coinbase.