MtGox Premium Vanishes as Company Announces Bitcoin Withdrawal Halt

The spread between prices of bitcoins at MtGox where the digital currency had been trading at a premium to other

The spread between prices of bitcoins at MtGox where the digital currency had been trading at a premium to other major exchanges has nearly vanished today.  The premium had briefly reached $200 last month and in percentage terms had been between 10-20% for over six months.  Currently though, spreads have gone negative with bitcoin currently trading at $660 at MtGox, compared to $680 at BTC-e (for current prices). 

Wide price discrepancies took place after customers experienced delays with withdrawals of fiat currency. This led users who wished to transfer funds out of their accounts to be willing to pay a premium for bitcoins which were easier to withdraw. However as of the end of January customers began to experience delays with bitcoin withdrawals as well. Exact reasons for the problems are currently up to debate, with no shortage of reasons such as technical failures, company insolvency, and or government investigations.

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On its part, the company has finally issused a statement today indicating that the problems are a technical glitch that they are working on.  However, the firm also stated that it will be temporaily halting all withdrawals until February 10th as they said “In order for our team to resolve the withdrawal issue it is necessary for a temporarily pause on all withdrawal requests to obtain a clear technical view of the current processes.”

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Previous to the current announcement, customers have been in the dark about what is taking place at MtGox, and worries of insolvency or technical glitches led to  more aggressive selling among MtGox customers as they convert their bitcoins into fiat currency.  Although withdrawals of dollars are still expected to endure month long or more delays, in a worst case scenario of insolvency, it may be easier to track in the future.

Prices Fall Below $700

Despite the statement though, it doesn’t seem to have assured customers as selling has picked since making the statement with prices crashing to a low of $660.  Throughout the week, selling at MtGox had been fairly concentrated at that once exchange, with prices remaining stable elsewhere around the $800 level.  However, as selling pressure and silence at MtGox continued, prices of bitcoin began to slip yesterday at other exchanges, with selling accelerating as prices have gone below $700 on all major exchanges.  As seen in the chart above, as prices have been falling at MtGox, there have been levels of support as buyers stepped up to purchase bitcoins as spreads initially contracted back to around $100.  Strong support was first seen at just above $900, and then at about $820.

Currently though, buyers are appearing to have nearly completely backed away with liquidity drying up, which has led to prices of MtGox now trading at a discount to other exchanges.  Even after admitting to a technical glitch, MtGox may need to issue information about its financial well-being to regain customer trust.

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