|Mt Gox meltdown stirs anger and clamor for regulation of bitcoin
The Bitcoin community was thrown into turmoil Tuesday after the disappearance of what had been its biggest exchange.
Critics said the failure of the Tokyo-based Mt Gox exchange and the apparent loss of some US$300 million in Bitcoins highlighted flaws in the cryptocurrency, while others said it was merely a bump in the road, AFP reports.
The value of a Bitcoin tumbled more than US$100 in early trades but then recovered to fetch US$517, according to the Winkdex Bitcoin index. The moves highlighted the extreme volatility of the currency, which surged over US$1,100 last year and then fell sharply.
Mark Williams, a Boston University expert on risk management and financial markets who has long warned about the dangers of Bitcoin said the collapse of Mt Gox “exposes its structural flaws. It shows self-regulation doesn't work. When there is big money on the table, there is an incentive to cheat and consumers are 100 percent exposed.''
Henry Farrell, a George Washington University political economist, said that, as with other currencies, Bitcoin needs to establish confidence.
“If people start to panic and think this is a sign of general problems in the Bitcoin economy, it becomes a bit like the 2009 financial crisis,'' he said.
“You can get a general self-reinforcing panic which sets in.''
But defenders of Bitcoin expressed confidence in the virtual currency, which is based on a computer algorithm designed by one or more anonymous people in 2009.
“This is certainly not the end of Bitcoin,'' said Jinyoung Lee Englund of the Bitcoin Foundation in an email.
“Perhaps the end of one chapter, but certainly not the end. As our industry matures, we are seeing a second wave of capable, responsible entrepreneurs and investors who are building reliable services for this ecosystem.''