Fraud and Insolvency Swirls as MtGox Halts Trading and Website Goes Offline

Trading on MtGox, what had been the largest bitcoin exchange with over 50% of market share a year ago, has

Trading on MtGox, what had been the largest Bitcoin exchange with over 50% of market share a year ago, has been suspended this morning. This was shortly followed by the company’s website going offline, with only a black screen left of the site (site was updated with a short statement). Today’s actions follow weeks of delays in processing bitcoin withdrawals by customers.

What started as a problem due to a technical glitch which allowed for theft of bitcoins, has now snowballed to where the company is being accused of fraud and/or insolvency. According to an anonymous document that is being attributed to insiders from the company, theft at MtGox may have totaled close to 750,000 bitcoins or about $350 million. Due to the losses, the document showed MtGox to be insolvent, with an $80 million shortfall between liabilities and assets. However, despite appearing to be an authentic internal document that illustrates the bitcoin exchange’s current problems and restructuring plans, it may be part of a larger cover up by MtGox insiders to hide misappropriation and theft (more on the possible MtGox hoax)

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Reaction to the news has been mixed between, anger, confusion and ‘no surprise’. In the corner of little surprise, commenting to DC Magnates, several members of bitcoin firms stated that they believed MtGox insiders were to blame as they created stories to mask their mistakes. Elsewhere, in a joint statement of major Bitcoin companies including Coinbase, BTC China, and Blockchain.info, commented that they will be coordinating efforts to reassure the public about the safety of their funds and create measures to increase transparency for the future. In terms of public reaction, comments on social media sites such as Facebook, Reddit and Twitter have been very negative towards MtGox, accusing them of damaging the entire Bitcoin community.

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Before halting its operations, prices had been falling on MtGox yesterday, hitting a low of $102 after trading as high as $348 during the weekend after reports of withdrawals taking place. On other exchanges, the news from MtGox, and potential negative sentiment it will bring towards bitcoins has also led to lower prices. As a result, prices of bitcoins reached a low of $430 on BTC-e, down 27% from Monday’s high of $590. Currently, prices have begun to stabilize and have risen to just below $500 (real time prices).

MtGox Bitcoin Trading

Elsewhere, it has been confirmed from Leverate that the technology provider has recently added support of bitcoin prices from Bitstamp for its broker clients. Depending on the arrangement with Leverate, as either a feed only or white label customer, Bitstamp pricing was made available as early as last week. However, some clients reported to Forex Magnates that the new pricing feed was only accessible on Monday; leaving them to decide whether to halt trading in their MtGox CFDs as prices were out of sync with the rest of the market or continue to offer trading. Overall due to the price differences between exchanges, the problems from MtGox and lack of immediate solutions to deal with the price volatility highlight some of the difficulties in handling risk management that are unique to digital currencies.

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