Bitcoin's Mt. Gox Files for Bankruptcy Protection

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Views Of Mt. Gox Headquarters As The Bitcoin Exchange Goes Offline
Kiyoshi Ota/Bloomberg via Getty Images
By YURI KAGEYAMA

TOKYO -- The Mt. Gox bitcoin exchange in Tokyo filed for bankruptcy protection Friday and its chief executive said 850,000 bitcoins, worth several hundred million dollars, are unaccounted for.

The exchange's CEO Mark Karpeles appeared before Japanese TV news cameras, bowing deeply for several minutes.

He said a weakness in the exchange's systems was behind a massive loss of the virtual currency involving 750,000 bitcoins from users and 100,000 of the company's own bitcoins. That would amount to about $425 million at recent prices.

The online exchange's unplugging earlier this week and accusations it had suffered a catastrophic theft have drawn renewed regulatory attention to a currency created in 2009 as a way to make transactions across borders without third parties such as banks.

It remains unclear if the missing bitcoins were stolen, voided by technological flaws or both.

"I am sorry for the troubles I have caused all the people," Karpeles said in Japanese at a Tokyo court.

Karpeles hadn't made a public appearance since rumors of the exchange's insolvency surfaced last month. He said in a web post Wednesday that he was working to resolve Mt. Gox's problems.

The loss is a giant setback to the currency's image because its boosters have promoted bitcoin's cryptography as protecting it from counterfeiting and theft.

Bitcoin proponents have insisted that Mt. Gox is an isolated case, caused by the company's technological failures, and the potential of virtual currencies remains great.

Debts at Mt. Gox totaled more than 6.5 billion yen ($65 million), surpassing its assets, according to Teikoku Databank, which monitors bankruptcies.

Just hours before the bankruptcy filing, Japanese Finance Minister Taro Aso had scoffed that a collapse was only inevitable.

"No one recognizes them as a real currency," he told reporters. "I expected such a thing to collapse."

Japan's financial regulators have been reluctant to intervene in the Mt. Gox situation, saying they don't have jurisdiction over something that's not a real currency.

They pointed to the Consumer Affairs Agency, which deals with product safety,
as one possible place where disgruntled users may go for help.

The agency's minister Masako Mori urged extreme caution about using or investing in bitcoins. The agency has been deluged with calls about bitcoins since earlier this year.

"We're at a loss for how to help them," said Yuko Otsuki, who works in the agency's counseling department.

It's hard to know how many people around the world own bitcoins, but the currency has attracted outsize media attention and the fascination of millions as an increasing number of large retailers such as Overstock.com begin to accept it.

Speculative investors have jumped into the bitcoin fray, too, sending the currency's value fluctuating wildly in recent months. In December, the value of a single bitcoin hit an all-time high of $1,200. One bitcoin has cost about $500 lately.

Roger Ver, a Tokyo resident who has provided seed capital for bitcoin ventures such as Blockchain.info, a registry of bitcoin transactions, said he believes bitcoin will survive, possibly emerging with better technology that's safer for users.

He said Mt. Gox people were likely sincere but had failed to run their business properly.

"Mt. Gox is a horrible tragedy. A lot of people lost a lot of money there, myself included," he said ahead of the bankruptcy filing. "I hope we can use this as a learning experience."

Some countries have reacted sternly to bitcoin's emergence, but many people remain fans of its potential.

Vietnam's communist government said Thursday that trading in bitcoin and other electronic currencies is illegal, and warned its citizens not to use or invest in them.

Late last year, China banned its banks and payment systems from handling bitcoin, although people still use them online. Thailand earlier put a blanket prohibition on using bitcoins and Russia has effectively banned them.

There was still considerable appetite for bitcoin in China, where it has become attractive as an investment since tightly-regulated state banks offer very low interest rates on deposits.

Even some with money tied up in Mt. Gox were undaunted.

Huang Zhaobin, a 21-year-old student in Chengdu, said he had lost 50,000 to 60,000 yuan ($8,125 to $9,750) from the Mt. Gox closure.

"Actually this money itself is the benefit from bitcoin investment," said Huang, who plowed 10,000 yuan into bitcoins about three months ago.

"If it is legal, I will continue to invest for sure as it is the trend in the world."

In Singapore, Tembusu Terminals, a joint venture specializing in crypto-currencies, announced Friday its first bitcoin ATM in the city-state and plans for many more. In Hong Kong, a group opened what it said was the world's first bitcoin retail store.

Yang Weizhou, analyst at Mizuho Securities Co. in Tokyo, said laws to regulate virtual currencies may have to be created by countries including Japan.

She said lawsuits from those who lost money were likely, and any court rulings would chart unexplored territory and help define the reach of virtual money.

The trend toward such technology for peer-to-peer payments wouldn't replace traditional money but was here to stay because of its convenience, she said.

"It is undeniable," she said. "One must separate the Mt. Gox problem from the overall concept."

-Associated Press video journalist Kaori Hitomi in Tokyo, researcher Fu Ting in Shanghai and writers Chris Brummitt in Hanoi, Vietnam and Satish Cheney in Singapore contributed to this report.


Bitcoin Exchange Mt. Gox Disappears, Along With CEO

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7 Comments

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impactvqi

just another pyramid scheme, with smoke and mirrors

February 28 2014 at 4:25 PM Report abuse rate up rate down Reply
bgr200

The Geniuses on Fox actually suggested that this might be more reliable than the US dollar. This is what happens when you have little or no Regulation of International Corporations.......Mean-while the Tea Party Continues call for eliminating the Gov't from the economy and weakening the
Economic Recovery by Blocking stimulus spending to rebuild crumbling infrastructure.

February 28 2014 at 11:13 AM Report abuse -1 rate up rate down Reply
skitzlpk

It's only "real money" if you have the complete backing of the entire globe recognizing it's fiat value & you can stamp & print & substitute as much of it as you need to bolster your latest deficits. One third to one half of the United States would literally disappear if indebtedness was called & real assets had to stand for that outstanding indebtedness.

February 28 2014 at 9:31 AM Report abuse -1 rate up rate down Reply
1 reply to skitzlpk's comment
bgr200

Oh , It's real....... and so was the money used to buy it.

February 28 2014 at 11:34 AM Report abuse rate up rate down Reply
Skai

Is this a joke? Can I just file with the court that I lost 79,000 purple tubobs worth $450,000 and therefore shouldnt have to pay my bills?

February 28 2014 at 8:39 AM Report abuse rate up rate down Reply
1 reply to Skai's comment
impactvqi

write it off on your taxes,LOL

February 28 2014 at 4:26 PM Report abuse rate up rate down Reply
lilifuyi

go back to the gold standard and it would be fine

February 28 2014 at 8:27 AM Report abuse -2 rate up rate down Reply
dencuddy

It looks like the tulip market has crashed.

February 28 2014 at 8:03 AM Report abuse +3 rate up rate down Reply
pfjw

There are several pretty good reasons why only national governments should issue currencies. One of which has just been made clear.

February 28 2014 at 6:55 AM Report abuse +3 rate up rate down Reply
stengernc

Bitcoin or any virtual reality currency is a sham....they will never survive. Hackers will destroy confidence and NSA will be able to track all transactions. The Federal reserve will eventually squash the competition to try and keep worthless paper money afloat. The only reason the dollar is the strongest currency in the world today is because it floats better then the other currencies in the global toilet bowl of money. No paper currency has ever survived for long because governments keep printing it and spending it without concern for the long term effects. It is a giant Ponzi scheme. It would be like every American having a credit card with no limits, just spend and spend until the interest you owed was more than what you bought each year....that is where this country is headed.....a financial collapse of unbelievable order. History has shown us for over 6,000 years we are not capable of controlling our greed and quest for power. The US Dollar is currently only worth about 6 cents in value, the rest vanished because of inflation. The so called Gold held by the Federal Reserve is a farce, no one, not even the president or congress can take inventory to prove its existence. It is all smoke and mirrors.

February 28 2014 at 6:44 AM Report abuse +1 rate up rate down Reply
2 replies to stengernc's comment
pfjw

No currency has any value whatsoever other than what is given by the faith of its users. And before the gold-bugs start climbing up on their soap-boxes, consider that the value of gold is equally what is invested in it by its users as it cannot be eaten, is pretty useless as an industrial material (unlike silver, copper, nickle or even aluminum) and must be transported from place to place to be used.

So, given that currency is merely a convenient means of barter without the requirement of shifting large masses from place to place, whether it is a worthless dollar, a worthless euro, a worthless ruble, pound, riyal, yen or peso, it serves the purpose admirably.

Get over it.

February 28 2014 at 7:01 AM Report abuse rate up rate down Reply
1 reply to pfjw's comment
bgr200

Nice try.

February 28 2014 at 11:19 AM Report abuse +1 rate up rate down
ak841

I am glad there is people like you " who know it all " lol

February 28 2014 at 1:04 PM Report abuse rate up rate down Reply