Major Tokyo-based bitcoin exchange Mt. Gox goes dark

A major Bitcoin exchange has gone bust after secretly racking up catastrophic losses, other virtual currency companies said Tuesday — a potentially disastrous blow for the exotic new form of money.

The website of Tokyo-based Mt. Gox was showing a blank page Tuesday. The glitch followed the resignation on Sunday of Mt. Gox CEO Mark Karpeles from the board of the Bitcoin Foundation, a group seeking legitimacy for the currency, and a withdrawal ban imposed at the exchange earlier this month.

Karpeles emailed a statement to Reuters on Tuesday, saying, "We should have an official announcement ready soonish. We are currently at a turning point for the business. I can't tell much more for now, as this also involves other parties."

Prominent members of the Bitcoin community — including San Francisco–based wallet service Coinbase and Chinese exchange BTC China — sought to shore up confidence in the currency by saying in a statement that Mt. Gox's collapse was an isolated case of mismanagement. They said it had abused users' trust, but they did not offer details.

"As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today," the statement said.

Documents purportedly leaked from the company laid out the scale of the problem. An 11-page "crisis strategy draft" published on the blog of entrepreneur and Bitcoin enthusiast Ryan Selkis said that 740,000 bitcoins are missing from Mt. Gox — that amount roughly translates to hundreds of millions of dollars' worth of losses, although figures are fuzzy, given Bitcoin's extreme volatility.

"At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public," the draft said.

In a post to his blog, Selkis said that the document was handed to him by a "reliable source" and that several people close to the company had confirmed the figures. Reached by phone, he declined further comment.

The scandal may cost Bitcoin enthusiasts.

At the Tokyo office tower housing Mt. Gox, bitcoin trader Kolin Burgess said he had picketed the building since Feb. 14 after flying in from London, hoping to get back $320,000 he has tied up in the currency with Mt. Gox.

"I may have lost all of my money," said Burgess, next to signs asking if Mt. Gox is bankrupt. "It hasn't shaken my trust in Bitcoin, but it has shaken my trust in bitcoin exchanges."

A security officer at the office tower said no one from Mt. Gox was in the building. 

"I have no idea" where they are, said Burgess. "I'm both annoyed and worried."

On bitcoin exchanges, within hours of the site's going blank, the currency's value had fallen to about $470, from $550 — less than half the $1,200 per bitcoin reached on Mt. Gox three months ago.

The disappearance of Mt. Gox could spell trouble for Bitcoin, which was started in 2009 as a currency free from government controls. Bitcoin's promoters say the currency's design makes it impossible to counterfeit and difficult to manipulate, and the virtual money has won an eclectic mix of die-hard fans, including libertarians, tech enthusiasts and adventurous investors.

But the currency has struggled to shake off its associations with criminality, particularly its role in powering the now defunct online drug marketplace Silk Road. Just last month, another member of the Bitcoin Foundation, vice chairman Charlie Shrem, was arrested at New York's JFK Airport on charges of money laundering.

Authorities have recently taken an increasingly hard look at Bitcoin and related virtual currencies, including Litecoin, Namecoin, Ripple and countless others. Some countries like Russia have effectively banned the currency. In other jurisdictions, authorities are weighing whether to try to tame the marketplace through licenses or other mechanisms.

Even if Mt. Gox doesn't drag Bitcoin down with it, there's fear that the exchange's demise will push officials to take an even more skeptical stance.

"I think this is disastrous from a (regulatory) standpoint," Selkis said in a message posted to Twitter. "The hammer will now come down hard."

Wire services