Concerns about the future of virtual currency bitcoin have been raised after a major exchange abruptly stopped trading.
The website of Mt. Gox, once the world's biggest bitcoin exchanges, suddenly went dark yesterday with no explanation and the company's Tokyo office was empty – the only activity was outside, where a handful of protesters said they had lost money investing in the virtual currency.
Investors deposit their bitcoins in digital wallets at specific exchanges, so the Mt. Gox shutdown is similar to a bank closing its doors – people cannot retrieve their funds.
Hours later, Mt. Gox CEO Mark Karpeles told Reuters in an email: "We should have an official announcement ready soon-ish. We are currently at a turning point for the business. I can't tell much more for now as this also involves other parties." He did not elaborate on the details or give his location.
Prominent bitcoin supporters said the apparent collapse of the exchange was an isolated case of mismanagement that would weed out "bad actors", but the setback raised serious questions about the currency's tenuous status.
At least one supporter said the blow could be fatal to bitcoin's quest for acceptance by the public after it was just beginning to gain legitimacy beyond the technology enthusiasts and adventurous investors who created it.
San Francisco-based wallet service Coinbase and Chinese exchange BTC China sought to shore up confidence in the currency by saying the Mt. Gox's situation was isolated and the result of abusing users' trust.
"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.
Bitcoin has gained increasing acceptance as a method of payment and has attracted a number of large venture capital investors. At a current price of about $517, the total bitcoins in circulation are worth approximately $6.4bn.
But a document circulating on the Internet purporting to be a crisis plan for Mt. Gox, said more than 744,000 bitcoins were "missing due to malleability-related theft", and noted Mt. Gox had $174m in liabilities against $32.75m in assets.
It was not possible to verify the document or the exchange's financial situation, but if accurate, that would mean approximately 6 per cent of the 12.4 million bitcoins minted would be considered missing.
A statement on Bitcoin's website said: "In the event of recent news reports and the potential repercussions on Mt. Gox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly."
Mt. Gox halted withdrawals earlier this month after it said it detected "unusual activity on its bitcoin wallets and performed investigations during the past weeks." The move pushed bitcoin prices down to their lowest level in nearly two months.
Even with the halt on 7 February, Mt. Gox still handled more transactions than any other in the past month. Over the last 30 days, Mt. Gox has handled more than one million bitcoin transactions denominated in dollars, or about 34 per cent of activity, according to Bitcoincharts, which provides data and charts for the bitcoin network.
Critics of the exchange, from rivals to burned investors, said the digital marketplace operator had long been lax over its security. Investors in bitcoin, who have endured a volatile ride in the value of the unregulated cyber-tender, said they still had faith in the currency despite the problems at Mt. Gox.
"Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity," The Bitcoin Foundation, the digital currency's trade group, said in a statement.
"This incident demonstrates the need for responsible individuals and members of the bitcoin community to lead in providing reliable services."
The digital currency has caught the eye of regulators concerned with consumer protections and bitcoin's use in money laundering.
Benjamin Lawsky, Superintendent of Financial Services for the State of New York, said in a statement that while all of the facts surrounding Mt. Gox are "not yet clear, these developments underscore that smart, tailored regulation could play an important role in protecting consumers and the security of the money that they entrust to virtual currency firms."
Lawsky said last month that he planned to issue rules for businesses handling virtual currencies.