So it finally happened. Mt. Gox, the Tokyo-based exchange that used to handle something like 70% of all bitcoin trades back when I first started paying attention to this stuff, filed for bankruptcy protection today in a Tokyo court. The number being reported is 850,000 bitcoins gone, customer funds and company funds both, which at today's prices works out to something like $470 million. Just gone. Nobody seems to know exactly where, though "hackers exploited a bug for years and nobody noticed" is the working theory going around right now.
I want to be honest: I saw this coming, and I don't say that to sound smug about it. Back on February 7th when Gox froze all withdrawals citing "transaction malleability," a term I'd bet most of their users had never heard before that week, I told a friend of mine over beers that I'd put money on this ending badly. He'd put a few hundred bucks into bitcoin the previous fall when the price spiked past $1000, mostly as a joke, mostly through Gox because it was the exchange everyone talked about. He's not getting that money back anytime soon, if ever, and he's been weirdly calm about it, which honestly worries me more than if he were furious.
What got me was the site basically going dark a few days ago. No trading, no updates, just silence, and then that leaked "Crisis Strategy Draft" document started circulating with a 744,408 bitcoin figure in it before the company confirmed anything themselves. That's not how a company facing a $400+ million hole is supposed to handle things, leaked internal memos doing your PR for you. Mark Karpeles, the CEO, is apparently going to hold a press conference soon, and it's going to be something to watch, because the guy has been almost entirely silent through this whole slow unraveling.
Here's the thing that bugs me about the reaction I've been reading online today. A lot of it is "this proves bitcoin is a scam" and a lot of it is "this proves bitcoin is unstoppable, exchanges don't matter, the protocol is fine." Both of those miss the actual boring lesson, which is that Mt. Gox was a badly run company built on code that started life as a Magic: The Gathering card trading site (seriously, that's where the name comes from, Magic: The Gathering Online eXchange) and it got handed hundreds of millions of dollars worth of other people's money because it happened to be first and nobody asked too many questions while the price kept going up. That's not a cryptocurrency problem. That's the same story as basically every financial collapse ever, just with a weirder logo.
I never had money on Gox myself. I looked at buying in back in 2013 when a coworker wouldn't shut up about it, got as far as reading through their signup process, and bailed because the whole thing felt held together with duct tape even then. The site was slow, the verification flow asked for scanned documents in a way that felt more like a pawn shop than a bank. Small thing, but it stuck with me. If the front door feels sketchy, don't assume the vault is any better.
Anyway. The price on the other big exchanges, Bitstamp and BTC-e mostly, barely moved today, which tells you something about how much the market had already priced this in after three weeks of the withdrawal freeze. It's trading in the low $500s last I checked this afternoon, down from over $1100 back in early December. People who bought at the top are having a much worse month than people reading about this from the sidelines, like me.
Going to be interesting watching what happens to Karpeles personally over the next few weeks. Reports out of Tokyo say police are getting involved too. This is not close to over, not even a little.