My Thoughts on Mt. Gox

I was going to start this article by stating: “Mt. Gox needs to get its shit together.”

But its too late for that. Much too late.

Mt.Gox has been the dominant Bitcoin exchange pretty much since the beginning. In its brief history, it has suffered several bad setbacks, with the one last spring an incident I am intimately familiar with. There were plenty of reasons to give them a pass in the past, and many of us did. It was early. It was a complete and total Wild West and all of us interested were learning this thing together. There were bound to be some major growing pains. Gox made some changes, came back up and a great deal was forgiven. Not this time.

Bitcoin is no longer in Phase 1 of its evolutionary cycle. I believe Phase 2 for Bitcoin began in earnest back in November 2013, when the Senate Committee on Homeland Security and Governmental Affairs held its first hearings on the topic. Those hearings made it clear that, at least for the moment, no significant roadblocks would be put in place to prevent people from transacting with one another using the crypto-currency. Phase 2 also saw the largest Bitcoin investment to-date, a $25 million infusion led by Silicon Valley VC firm Andreessen Horowitz, as well as acceptance by major U.S. retailers, with Overstock being the most significant. Bitcoin is becoming serious, and serious means serious accountability.

As a free market currency, the market will decide the products required to keep the Bitcoin protocol open and functioning to its highest potential. The disruption of Mt. Gox will be another test for Bitcoin. A test which certainly represents a psychological challenge, but probably not much more than that. Bitcoin will survive and come out of this stronger than it was before, just as it has done so many times in the past. However, I do not believe Mt. Gox will be so fortunate.

Mt. Gox is likely to continue to lose customers on its way to ultimately becoming marginalized as an exchange. In fact, Bitstamp is already trading more volume than Mt. Gox and I’d expect this lead to grow going forward. It also provides opportunities for more market players, although the various government rules and regulations out there have definitely stalled such growth, particularly in the U.S., which is not host to any exchange of significance.

Personally, I do not see how anyone is going to feel comfortable trading or holding sizable BTC balances on Mt. Gox after this fiasco. After all, being able to move your bitcoins from one place to another is the most fundamentally important part of the protocol. If people begin to question the ability to do this, they may start to question the usefulness of Bitcoin itself, which is not something any of us want to see.

That said, Mt. Gox’s decline is nothing new, as it had already begun following the serious issues early last year. Coindesk reports that:

For example, on 16 April, the number of bitcoins traded on Mt. Gox alone equaled 572,186 BTC (90% of the total of the three exchanges).

In contrast, on 18 December there was a roughly equal dispersion across BTC China, Mt. Gox and Bitstamp, with a volume of 93,934, 109,723, and 137,070 BTC respectively.

Now here’s a really powerful graph showing the volume traded on the top three exchanges that demonstrates what I am talking about:

BTCvolumechartGraph courtesy of Coindesk.

As you can see, Mt. Gox has already been in decline, and I expect that to accelerate going forward. In fact, the price on Mt. Gox usually trades at a significant premium to Bitstamp, but is right at this moment trading at a $40 discount. This is not good.

Screen Shot 2014-02-08 at 2.30.48 PMGraph courtesy of Coindesk.

What I really want to see is Mt. Gox resolve this issue as soon as possible so that the Bitcoins tied down with them are released and can be freely moved around by their owners. If this happens soon, Bitcoin will rapidly emerge from this difficult moment much stronger and hopefully with some more important lessons learned.

For Mt. Gox though, I think it’s pretty much game over.

In Liberty,
Michael Krieger

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14 Comments

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  1. EXCELLENT Article.
    I was wondering what happened @ Mt. Gox lately!
    I am still waiting for my miner to arrive, 2 more weeks should do it.

    How do I subscribe to your blog?

  2. We need decentralised exchanges where sellers of national currency can be put in touch with buyers of crypto-currency and vice versa.

  3. BitCoin is the most fiat of fiat currencies. It has no history and has no backing. Its sorrowful that previously serious folk such as yourself and Keiser are despoiling their credibility leading the gullible down this black hole. Sure, Zinga and Citi rush to embrace it, as well as several hedge funds.
    Enough of the BitCon already! Its not the money so much as the government which issues it that needs changing. Forget the libertarian forces who wish to protect their ill-gotten gains. Heed Hudson and Wolff, who care and speak for the people.

    • You should get your definitions straight before commenting.

      fi·at
      ˈfēət,ˈfēˌät/Submit
      noun
      1.
      a formal authorization or proposition; a decree.

      You can like or dislike Bitcoin, but fiat it is clearly not.

      Best,
      Michael Krieger

    • “Its not the money so much as the government which issues it that needs changing.”

      Actually, yes, the money does need changing, desperately. It is one of the primary weapons of that gov’t that you believe needs changing.

  4. O.K. Mike, I stand corrected.

    Should I have said a groundless, or perhaps baseless currency, or referred to its “anonymous” creator who decreed it to be a form of exchange. Appreciate the word’s etymology — don’t just copy and paste from Apple’s dictionary. Are we to believe whatever it is just descended from the heaven, from the god of quants?

    Why quibble?
    So its not a “fiat” money because a an imperial authority didn’t order and bless it. ButtCoin, does however seem to have been blessed into existence by an informal cabal of so many of your associates and colleagues, many of whom keenly excoriating the Banksters and their political pets for their grievous crimes against humanity.
    Jim Rogers recently Bcoin what it really is — a ponzi.
    You might also consult Naked Capitalism for some fine authoritative analysis.

    Worst, BC has been a disastrous distraction from truly reforming our monetary system, as well as re-establishing a real and effective democracy with the true will of the people behind it.

    Later,
    and please get on with your otherwise good works

    • Sorry, but the distinction between a government required currency vs. a free market currency is of paramount importance, so yes it matters.
      You are entitled to your opinion of course and I am entitled to mine. I have spent much time outlining why I support Bitcoin, you are free to disagree and not support it.
      I am very much excited about P2P, decentralized currencies and I will continue to support them.
      You can simply choose to read my other articles and ignore the Bitcoin ones.
      Pretty simple.

    • Bitcoin IS the reformation of the financial system by the people. With gov. trying to play catch up.

      Reformation of the financial system has to come from the bottom up. Not top down. Anything from the top down gets you the same thing you have now. Which is one big fraudulent cesspool of nonsense.

      Anyone who says Bitcoin is a Ponzi clearly has no clue what Bitcoin is or AND they don’t understand what a Ponzi system is either. It makes no sense at all to label it a Ponzi.

      As far as establishing a “real and effective democracy” all I can say is I had a good laugh reading that.

  5. From Wiki:
    The Mt.Gox website was originally founded by Jed McCaleb as an online exchange for buying and selling Magic: The Gathering cards, a popular trading card game. Its name was an initialism of Magic: The Gathering Online eXchange.

    Yeah, this is exactly where I want to put my money…Wake me up when we have an online currency that functions like cash. Why would anyone want to use a currency that leaves a digital record of every transaction you make? I mean besides Big Brother of course…

  6. Mr. Krieger – The problems at MtGox are not only with BTC withdrawals but with currency withdrawals as well. My USD withdrawal since December 14, 2013 not received. Support Request to MtGox get a form reply or no reply at all.

    • Actually I believe the currency withdrawal issues have been around since last summer. Hence the explosion in the premium, as people bought BTC to then move the BTC out in order to cash out.

      Shit Show Mt. Gox.

      Best,
      Michael Krieger

  7. Spend significant amounts of money with a site called “Magic The Gathering Online Exchange” and you deserve what you get.

  8. I got into mining altcoins in November of last year (yes, a bit late to the game, but better late than never). I tried several times to create an account at MtGox, but had issues with them never sending me a confirmation email, and then my password didn’t work once I got the confirmation. So I moved on.

    Anyway, as I am mostly interested in trading altcoins for bitcoin, and saving bitcoin (or using it to buy bullion), I haven’t bothered with MtGox, and thankful I haven’t. Exchanges like CoinEx, Coinedup, Coins-e, and Cryptsy are fine with me (there are othersI use as well, but those are the exchanges I use the most). Actually, I don’t understand why anyone would exchange bitcoin for fiat at this particular moment in history.

    I really don’t think the idea of a ponzi scheme can apply to cryptos. In a ponzi scheme, early investors are paid dividends with later investor’s money. Although it would have been great to buy dozens on Bitcoin when they were $10 each (or less); the profits these early investors made were not on the backs of later investors – the price of the commodity/currency simply went up as more and more people began to understand the benefits of bitcoin and other cryptos.

    To those who say “Bitcoin has been a disastrous distraction from truly reforming our monetary system;” you need to open your eyes. Bitcoin and other cryptos ARE the transformation and reformation of our monetary system. I hope you do not miss the boat.

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