Bitcoin exchange in abrupt trading halt

Bitcoin coins are shown in this file photo. REUTERS/Jim Urquhart
Bitcoin coins are shown in this file photo. REUTERS/Jim Urquhart
Mt Gox, once the world's biggest bitcoin exchange, abruptly stopped trading today and its chief executive said the business was at "a turning point" but gave no details.

Several other digital currency exchanges, including Bitstamp and BTC-E, issued statements attempting to reassure investors of both bitcoin's viability and their own security protocols.

The website of Mt Gox suddenly went dark on Tuesday with no explanation, and the only activity at the company's Tokyo office was outside, where a handful of protesters said they had lost money investing in the virtual currency.

Hours later, Mt Gox CEO Mark Karpeles told Reuters in an email: "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."

He did not give any other details.

Bitcoin investors deposit their holdings in digital wallets at specific exchanges, so the Mt. Gox shutdown is similar to a bank closing its doors - people cannot retrieve their funds.

Tokyo-based Mt. Gox, which began as a venue for trading cards, had surged to the top of the bitcoin world, but critics, from rival exchanges to burned investors, said the digital marketplace operator had long been lax over its security.

Mt. Gox halted withdrawals earlier this month after it said it detected "unusual activity on its bitcoin wallets and performed investigations during the past weeks." The move pushed bitcoin prices down to their lowest level in nearly two months.

On Sunday Karpeles resigned from the board of the Bitcoin Foundation, the digital currency's trade group.

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.

A statement on Bitcoin's website said, "In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly."

Investors in bitcoin, who have endured a volatile ride in the value of the unregulated cyber-tender, said they still had faith in the currency despite the problems at Mt. Gox.

"Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity," said The Bitcoin Foundation in a statement. "This incident demonstrates the need for responsible individuals and members of the bitcoin community to lead in providing reliable services."

Steve Hudak, spokesman for Treasury's anti-money laundering unit, the Financial Crimes Enforcement Network (FinCEN), said it is "aware of the reports regarding Mt. Gox" but had no additional comment. To date it is the only U.S. regulatory agency to have any oversight of Mt. Gox.

In a statement, Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York, said that while all of the facts surrounding Mt. Gox are "not yet clear, 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."

Lawsky said last month that he planned to issue rules for businesses handling virtual currencies.

Bitcoin has been a roller-coaster of late, rising and falling dramatically, sometimes on an intraday basis, and its price varies greatly depending on the exchange.

The Mt. Gox bitcoin, which traded at $828.99 before Feb. 7, when the exchange halted withdrawals, since plunged 83.7 percent to $135. Coins at Bitstamp, another large exchange, at one point hit $400 on Tuesday, down 40 percent since Feb. 7. It had recovered lately to $517.

Mt. Gox was a founding member and one of the three elected industry representatives on the board of the Bitcoin Foundation. A bitcoin exchange since 2010, Mt. Gox is a relatively old player, having grown quickly when there were few alternatives.

"I'm very angry," said Kolin Burges, a self-styled "crypto-currency trader" and former software engineer who came from London for answers after Mt. Gox failed to tell him what had happened to his bitcoins, which at one point were worth $300,000.

"It looks like that's disappeared," said Burges, one of six protesters outside the Mt. Gox office, which was as deserted as a nearby cafe that had formerly accepted bitcoins as payment. In a statement last week, Mt. Gox said it had moved office because of security issues.

Six leading bitcoin exchanges - which allow users to trade bitcoins for U.S. dollars and other currencies - distanced themselves from 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," the companies - Coinbase, Kraken, Bitstamp, BTC China, Blockchain and Circle - said in the statement. "As with any new industry, there are certain bad actors that need to be weeded out, and that is what we're seeing today."

Bitstamp separately said its customers are safe and "nothing is amiss," adding that it has "conducted a thorough audit of our bitcoin accounts."

Venture capitalists, many of whom have invested in bitcoin and related services, jumped to bitcoin's defense.

Fred Wilson, a partner at Union Square Ventures and a backer of Coinbase, which allows consumers to easily buy and sell bitcoins with wallets directly connected to their bank accounts, wrote in a blog post that part of the maturation of a sector "will inevitably be failures, crashes, and other messes."

"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, adding that he had bought some bitcoin on Tuesday. "I always feel good buying when there is blood in the streets in any market."

In Boston, Kyle Powers and Chris Yim, co-founders of Liberty Teller, a company that operates a bitcoin automated teller machine, were helping customers and answering questions at their kiosk in South Station on Tuesday. Yim said he expects a price dip in bitcoin, but not a long-term problem with the currency.

Virtual currency exchanges "stand to benefit from the Mt. Gox fallout," but there will be "increased expectations on the transparency and disclosures they need to make to customers," said Jaron Lukasiewicz, co-founder and chief executive of Coinsetter, a New York-based bitcoin exchange.

Democratic Senator Tom Carper of Delaware, who chairs the Homeland Security and Governmental Affairs Committee, said in a statement that the "disturbing news today from Japan is a reminder of the damage potentially ill equipped and unregulated financial actors can wreak on unsuspecting consumers. U.S. policymakers and regulators can and should learn from this incident to protect consumers."

Karpeles himself, while insisting on his own exchange's reliability, has made no secret that bitcoin is, as he told Reuters last April, a "high-risk investment".

"If you buy bitcoins, you should buy keeping in mind that the value could be zero the day after."

The concierge at his home - an upscale apartment in the Shibuya district - said he was not answering his intercom. His mailbox was so stuffed with mail that the flap would not close.

ODT/directory - Local Businesses

CompanyLocationBusiness Type
Remarkable UpholsteryQueenstownSpecialist Trades
Brown and Cope LtdDunedin
Dave Wootton Builder LtdDunedinBuilders
Dooleys MasonryOamaruSpecialist Trades