Skip to main content

The Bitcoin Bugle: Former Role-Playing Card Exchange Files For Bankruptcy

  • Author:
  • Updated:

Today, we learned two things about Mt. Gox CEO Mark Karpelès: He owns a suit and is, in fact, still in Japan, where he made a quick trip to Tokyo District court to place his collapsed bitcoin exchange into bankruptcy, after hackers made off with half a billion dollars worth of fake money.

Bitcoin exchange Mt. Gox said Friday it was filing for bankruptcy protection after losing almost 750,000 of its customers' bitcoins, marking the collapse of a marketplace that once dominated trading in the virtual currency.

The company said it also lost around 100,000 of its own bitcoins. Together, the lost bitcoins would be worth approximately $473 million at market prices charted by the CoinDesk bitcoin index, although the price of Mt. Gox bitcoin had fallen well below that index after it stopped bitcoin withdrawals in early February….

"There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble," Mr. Karpelès said during a packed news conference at the Tokyo District Court press club.

The company's lawyer said at the news conference that Mt. Gox had outstanding debt of about ¥6.5 billion ($63.6 million) with assets worth ¥3.84 billion.

Karpelès said that "reducing the impact" of his firm's failure "is the most important point." That, however, may no longer be possible.

Authorities around the world are grappling with how to regulate virtual currency in the wake of the implosion of Mt. Gox, a prominent trading platform for Bitcoin.

In Tokyo, where Mt. Gox is based, Japan’s top government spokesman, Yoshihide Suga, said on Wednesday that agencies including the Financial Services Agency, the Finance Ministry and the police were collecting information on the Bitcoin trade in Japan, with an eye toward regulatory action….

New York State’s top financial regulator, Benjamin M. Lawsky, has also signaled an interest in regulating the virtual currency. And the Commodity Futures Trading Commission is examining its potential authority over Bitcoin exchanges that have a United States presence, a person briefed on the matter said, as is the F.B.I. in New York.

The Fed, however, is steering clear of the whole goddamned mess, and will continue to do so until Sen. Joe Manchin gets his way.

“The Federal Reserve simply does not have authority to supervise or regulate bitcoin in any way,” Ms. Yellen said Thursday in testimony before the Senate Banking Committee. “This is a payment innovation that is taking place entirely outside the banking industry and to the best of my knowledge there is no intersection at all” between bitcoin and banks that the Fed can oversee….

Ms. Yellen said “it certainly would be appropriate, I think, for Congress to ask questions to what the right legal structure would be” for overseeing the new currency. But she said the issue could pose challenges for lawmakers.

“It’s not so easy to regulate bitcoin because there is no central issuer or network operator to regulate,” she said in response to questions by Sen. Joe Manchin (D., W.Va.), who previously called on U.S. regulators to impose stricter limits on bitcoin.

In a letter released Wednesday to regulators and Treasury Secretary Jacob Lew, Mr. Manchin said: “I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.”

Americans like: Fortress Investment Group, which apparently took a flyer on the cryptocurrency because co-CEO Mike Novogratz thinks it's neat.

The Fortress Investment Group reported a paper loss of $3.7 million from investments in Bitcoin, the first large public company to disclose a stake in the volatile virtual currency.

Fortress said it bought $20 million worth of Bitcoin in 2013, according to a filing with the Securities and Exchange Commission on Thursday….

The Fortress filing on Thursday did not detail the exact nature of its virtual currency investment, and a spokesman for Fortress declined to comment.

All of this has Citigroup wondering what comes next for the theoretically shiny bitcoin. At least, Citi is wondering what else can go wrong for it.

1) Bitcoin traders and potential investors lose confidence in the security and safety of Bitcoin transactions and holdings.

2) Other digital currencies start eating into Bitcoin’s market share, taking away some of the first-mover advantage.

3) “Competition emerges from conventional financial institutions using generic bitcoin technology, without the decentralization and within the conventional regulatory framework,” Mr. Englander says.

None of this, however, will dampen the enthusiasm of bitcoin's biggest fans.

The 39-year-old Venezuelan joins higher-profile investors, such as Marc Andreessen and Fred Wilson, in betting that the virtual currency will keep gaining traction as a way for people to buy and sell things online….

“Mt.Gox is the only exchange that wasn’t backed by venture funds or institutional investors,” said Malka, who is on the foundation’s board. “It will take time for the rest of the Bitcoin ecosystem to prove that this is a bad apple and not a problem of the entire ecosystem.”

“I will happily retweet all retractions and apologies from people who wrongly forecasted death of Bitcoin as result of Mt. Gox collapse,” Mr. Andreessen posted on Twitter on Wednesday.

Here's a fun fact for those of us wondering where, exactly, Mt. Gox is: Like the thing formerly traded upon it, it does not exist. "Mt. Gox" is, reassuringly, an acronym that stands for "Magic: The Gathering Online Exchange." So there's that.

Bitcoin Exchange Mt. Gox Files for Bankruptcy [WSJ]
Mt. Gox files for bankruptcy, blames hackers for losses [Reuters]
Now, Nations Mull the Ways to Regulate Bitcoin [DealBook]
Yellen on Bitcoin: Fed Doesn't Have Authority to Regulate It in Any Way [WSJ MoneyBeat blog]
U.S. Senator Calls for Tigher Regulation of 'Dangerous' Bitcoin [WSJ MoneyBeat blog]
Fortress Discloses a Paper Loss on Bitcoin [DealBook]
Citigroup: Here Are Three Risks Facing Bitcoin [WSJ MoneyBeat blog]
Bitcoin Bull Holds Firm as Mt. Gox Drags Down Currency [Bloomberg]