The Future of Bitcoin Pt. 2 – Mt. Gox
Mt. Gox was the first and biggest Bitcoin Exchange of its time. Now, we have a plethora of choices from Bitfinex, Poloniex, Kraken, and so on. Back then, 2010-2013, the majority of the volume went through Mt. Gox. What the majority of the user base didn’t know was that Mt. Gox was insolvent, had been for years and it would become one of the first major disasters in Bitcoin history. Let’s hop back in our time machine and see it unfold!
We’re at the top of the mountain now. The Silk Road has been closed, its assets seized and the Dread Pirate Roberts has been arrested. This kind of media attention has brought in droves of new buyers into the Bitcoin Market. The U.S. Government, in the wake of the Silk Road seizures, holds hearings on Bitcoin. To many within the Bitcoin communities surprise, the Senate Committee is more thoughtful about the idea of Bitcoin and the hearings go off well. The People’s Bank of China has okayed the use of Bitcoin and has essentially said it’s a currency. What everyone, in their euphoria, didn’t know was that they were at the top of the mountain.
From out of nowhere, and much to the communities surprise, the Chinese Government steps in and bans all financial institutions from using Bitcoin. In two months the price falls from over $1,000 per Bitcoin to $700 per Bitcoin. The uncertainty of Bitcoin’s adoption in China begins to worry investors and they begin to sell their Bitcoin. Most of the trading volume, at this time, is going through Mt. Gox. The price begins to tumble further and when it falls to around $540 a Bitcoin, around February, 2014 the unimagined happens.
Mt. Gox completely suspends withdrawals on February 6th, 2014, claiming, bizarrely, that the reason was to “obtain a clear technical view of the currency processes”. On February 10th, the company release a statement essentially claiming they have suspended all withdrawals because of security concerns and that they are working closely with the Bitcoin development team to restore service. Throughout the month of February, Mt. Gox continues to release such statements, assuring customers that their money is well protected and will be available ‘soon’.
Then, Febuary 24th came around, the day brought the truth that everyone who had Bitcoin in Mt. Gox had feared most. All trading, which somehow was still going on all this time, ceased, and the site went offline without a press release or any word from the company. The CEO resigned from the Bitcoin Foundation and his twitter account went silent. The coming months would reveal that the company had lost over 750,000 of its customers Bitcoin and 100,000 of its own. At the time that was 7% of all Bitcoin in existence. The butcher’s bill ended up being in the neighborhood of $470 Million. Customer’s began filing lawsuits and Mt. Gox filed for bankruptcy protection against the lawsuits. In 2015 a trustee was named to help process claims, a process that is still ongoing at the time of this writing.
The bomb that was Mt. Gox closing cannot be understated and its effects are still being felt, and exploited, to this day (with the price of Bitcoin, at the time of this writing, approaching its price just prior to the Mt. Gox closure). But the hit’s wouldn’t stop there. Bitcoin, its reputation as well as its price value, wasn’t down being beat up yet.
Stay tuned for our next article, where we’ll talk about Bitcoin’s slip-and-slide to just over $200 and talk about where things began to turn back around. Until then, help us keep the lights on around here, and hop into a casino game or two!