Bitcoin Exchange MtGox Files For Bankruptcy, Prices Still Up Despite The News

  on February 28 2014 12:25 PM
MtGox Feb 20
Bitcoin prices have fallen while MtGox faces technical issues. Courtesy bitcoincharts

MtGox officially declared bankruptcy Friday morning, admitting to the public something they have been denying for the past month: They have no bitcoin to repay their debts. Mark Karpeles, CEO of the formerly dominant bitcoin exchange, said the total loss was 850,000 bitcoin, more than what the leaked “Crisis Strategy Draft” document had reported earlier this week. That represents almost 7 percent of the total bitcoins in circulation and a value of $467 million at today’s rate.

But even with the demise of MtGox, bitcoin prices were unaffected Friday and the cryptocurrency on the whole is still okay.

Price volatility has long been associated with bitcoin. One year ago, prices for the digital currency were around $30 each. Over the next few months, the price rose to a staggering $260 per bitcoin, only to crash on April 11, 2013. It wouldn’t be until November that the price would reach that level again. But instead of crashing, the price climbed to a record high of $1,245 per bitcoin, before falling to lows of $550 on Dec. 5, when China declared it illegal for its federal bank to trade in the cryptocurrency.

More recently, at the end of January the average price per bitcoin hovered at around $850. But when MtGox, the largest bitcoin exchange, halted withdrawal capability Feb. 7, the price started to tank. As more news came out during February, the price dropped even further, dipping below $500 after MtGox deleted its website. But now as the exchange officially announced what industry insiders have been suggesting for some time, the price has remained stable for two days.

So while some reporters have linked the downfall of MtGox with the downfall of the bitcoin protocol, the price stability after such heavy news suggests otherwise. It appears MtGox’s influence over the value volatility has faded. "The bitcoin industry is healthy and it is growing,” Karpeles said in his announcement Friday. “It will continue, and reducing the impact [of MtGox] is the most important point." Indeed, Coindesk’s bitcoin price index shows a rise in the bitcoin price since the news of MtGox’s bankruptcy hit the Web.

coindesk-bpi-chart Coindesk's Bitcoin Price Index shows the price is up in the hours after MtGox's fall.  Courtesy Coindesk

Though investors have lost millions, some see the protocol proliferation as more important than their own funds. Erik Voorhees, CEO of Coinapult.com, lost more than $300,000 on the failure of MtGox. “Personally, I had over 550 BTC in Gox. I will never get any of that back. If misery loves company, then we'll be enjoying a grand feast today,” Voorhees said Tuesday. But while he is upset that he lost that money, he notes that it is important to remember why bitcoin is valuable in the first place.

“So why do we do it? … Because the world needs what we're building. It needs it desperately. If that matters to you, as it does to me, then hold to that thought. You will see through the smoke, and your wounds will heal.” Bitcoin investors are never short on intensity or idealism.

A group of bitcoin exchanges came together on Sunday and released a statement distancing their businesses from MtGox. “This tragic violation of the trust of users of MtGox was the result of one company’s abhorrent actions and does not reflect the resilience or value of bitcoin and the digital currency industry,” the joint statement reads. So while the price for bitcoins may be down now, and the oldest exchange may be bankrupt, the bitcoin is still around, and it appears it will be for a long time.

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