MtGox Prices Falling as Anxious Clients Selling Bitcoins – Any Answers?

Prices of bitcoins have been consistently higher than other exchanges due to reported month long or more delays of processing

Prices of bitcoins have been consistently higher than other exchanges due to reported month long or more delays of processing fiat currency withdrawals.  Until now, the theory had been that customers could gain access to their funds quicker by requesting withdrawals based in bitcoins.  This led to bitcoin prices at a premium on MtGox as customers were willing to pay more to convert their funds into a more easily transferred currency.  As a result, spreads between the price of bitcoins at MtGox and other major exchanges such as BTC-e and Bitstamp reached over $200 last month.

Currently, customers have begun to also experience delays in bitcoin withdrawals as well.  Regarding this, MtGox has issued this statement to customers that followed a similar one a few days ago.

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Update – Statement Regarding BTC Withdrawal Delays

Dear MtGox Customers,

As noted recently, we are currently experiencing a problem where some bitcoin withdrawals are not being transferred correctly, affecting a limited number of users. Currently the problem is being fixed, but many previous transactions did not go through over the past days. Those transactions have now been returned to customer accounts in full, so any transactions that appeared to be “stuck” should now be refunded.

This problem applies primarily to larger transactions, so we appreciate your patience as we fix the issue. Smaller transactions should be fine in the meantime, and we will update you on the status as soon as possible.

Thank you for your patience.

Best Regards,

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MtGox Team

Without having much luck with either fiat or bitcoin withdrawals, it has triggered a bout of selling at MtGox today. As seen in the chart below, prices at MtGox have fallen from a high of $960 to a low of $920 before settling currently around $930. The decline in prices has occurred as volumes picked up indicating a reaction of customers to MtGox’s second statement about bitcoin withdrawal delays.  During the same period, prices remained steady around $800 at both BTC-e and Bitstamp, reflecting the volatility was limited to only MtGox (current prices).

MtGox bitcoin prices falling

Ponzi Scheme? Tied up with Silk Road?

Following the current delays, the question is whether MtGox is deliberately withholding customer assets. Earlier delays of dollar based transactions could be pinned on problems with their banking partners, which is an issue that has plagued many a bitcoin firm.  However, delays in bitcoin transactions are more difficult to explain.  Among possible explanations are a problem with their back office reporting which may have led to the inability for MtGox to identify the ownership of bitcoins being held for customers, and need for manual review and processing.  In addition, the firm may have been the target of cyber theft, which have they haven’t made public.

Alternatively, and becoming seemingly more of a possibility every day by virtue of a lack of transparency of MtGox’s financial position, as well as the firm’s continued statements of claiming ‘we are having delays’ in paying customers back is that the exchange may be involvement.  If so, the question is whether this has occurred due to theft and misappropriation by renegade insiders, or a planned fleecing by company owners.

Another possible explanation is that MtGox has become involved with the Silk Road investigation that recently led to the arrest of Bitinstant CEO Charlie Shrem.  Following its first statement that they were facing bitcoin withdrawal delays, MtGox also referred to Bitinstant and announced that they would require further verification from for users of Bitinstant.  As such, more than having a problem with their bank, MtGox could be also experiencing a freeze on their bitcoin holdings due to regulatory intervention.

In any event, like any financial which hold customer funds and are refusing to return clients their money, it’s now up to MtGox to prove that they are in fact solvent and account funds are safe and why in fact are the withdrawal delays taking place.

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