The apparent collapse of Bitcoin's best-known and once-dominant trading platform has provoked outrage among its users, but it has also stirred hopes that the way may now be clear for more established players to transform and rein in a largely unregulated market.
Hours after it stopped trading without warning Monday night, the secretive Bitcoin exchange Mt. Gox said that it would "close all transactions for the time being in order to protect the site and our users." The action and brief statement left users wondering where their money went, amid accusations that as much as 6 percent of the Bitcoins in circulation were now missing — worth more than $300 million at current exchange rates.
Outside the offices of Mt. Gox in central Tokyo, disgruntled Bitcoin traders and their supporters held up signs that read "Where Are My Bitcoins?"
"I'm filled with disbelief," said Kolin Burges, a trader from London who flew to Japan this month after the exchange stopped paying out funds. "I was prepared for the worst, but it's hard to believe they might have lost their coins."
Toru Hanai/Reuters Protesters outside of the building in Tokyo where Mt. Gox is housed. Yet the unanswered questions about Mt Gox did not shake the faith of many in Bitcoin. With one of its earliest online marketplaces seemingly gone, the world of virtual currency may now be forced to become a more mature part of the financial system.
"I think it's a significant event, but I think there's a decent chance that it is part of what we would call this sort of shaking out of the industry as it matures and slowly becomes a little more regulated," said Benjamin M. Lawsky, New York state's top financial regulator.
Mr. Lawsky is not the only regulator trying to determine the next steps. Three commissioners from the Commodity Futures Trading Commission were at a meeting recently where Bitcoin was on the agenda, and the agency's lawyers are examining the regulators' options, according to a person briefed on the matter who spoke on the condition of anonymity. Federal prosecutors in New York also are investigating potential legal violations that arise from use of the virtual currency.
Financial regulators around the world have weighed in over the last few months on how to oversee Bitcoin, with some countries, like Russia, banning it altogether, and others, like Germany, generally favoring the new technology.
The interest in Bitcoin is that its underlying technology holds the promise of allowing users to move money around the world without using an intermediary, thus lowering the cost of financial transactions.
Troubles at Mt. Gox have rattled the Bitcoin world before. A year ago, the exchange suspended operations for several hours, and Bitcoin trading nearly ground to a halt.
But since then some prominent venture capitalists have invested millions in new Bitcoin companies that are intended to provide more sophisticated platforms for virtual currency transactions. Many of those investors went public on Tuesday to declare their continued confidence in the technology.
Cameron Winklevoss, an early Bitcoin proponent who, along with his brother, Tyler, owns about $64.1 million worth of the virtual currency, said that Mt Gox's closure "underscores just how far the Bitcoin ecosystem has come."
"Several exchanges have seamlessly picked up the slack and the market price has shown remarkable resilience," Mr. Winklevoss said in an email. "Mt. Gox is in the past, and the brightest minds in the room are hard at work building a responsible and secure future."
Such optimism was reflected in the oft-volatile price of Bitcoin, which rose on Tuesday after plummeting overnight. Tuesday evening, the price of a Bitcoin stood around $525, not far from where it was when the Mt. Gox news emerged Monday night.
"There's a little bit of a sense of relief that the whole thing didn't crumble," said Gil Luria, a managing director at Wedbush Securities, who has written research notes on Bitcoins. "Over the next few weeks and months, we're going to see new exchanges either gain prominence or emerge."
Many users of Mt. Gox had long ago given up on the company after numerous incidents in which it was forced to temporarily shut down.
At one point last year, Mt. Gox handled 80 percent of all Bitcoin transactions. But the exchange's market share began to significantly decline last year, when newer exchanges like Bitstamp in Slovenia, and BTC-e in Bulgaria, took its place, according to data from the Genesis Block, a virtual currency research firm.
A number of other early Bitcoin companies have also struggled recently. A few weeks before the problems at Mt. Gox, the founder of the popular early exchange BitInstant, Charles Shrem, was arrested and accused of helping to facilitate drug transactions on the now-defunct online marketplace Silk Road.
"There's definitely been a clear transition happening," said Greg Schvey, the Genesis Block's head of research.
Among the new, more experienced companies entering the space is SecondMarket, which runs an exchange for the buying and selling shares of private companies. On Monday, as Mt. Gox was preparing to go offline, SecondMarket announced its plans to start a new, regulated Bitcoin exchange for major banks. Until now, virtually all Bitcoin exchanges have allowed anyone to sign up and trade, which has made them harder to police.
Companies dedicated to being more regulator-friendly for consumers and merchants, like BitPay, Coinbase and Circle, have also grown in number and size. BitPay, for example, is currently working with 24,000 merchants to take payments in Bitcoin, up from 10,000 last September and 1,000 in 2012, according to a spokeswoman. Last year, BitPay processed $110 million to $120 million in transactions.
Some early Bitcoin adopters have been uncomfortable with the involvement of banks and regulators in a virtual currency whose early appeal was its apparent freedom from any central bank or government. But many of the new Bitcoin companies have said that virtual currencies will have to face more regulation if they want to be widely used.
"I think it's important always to know what the rules of the game are," said Steve Hanke, a professor of applied economics at Johns Hopkins University.
In Japan, financial regulators have so far declined to step in to help Mt. Gox customers, saying the virtual coins are a traded product, not a currency, and therefore remain outside of their purview.
Tibanne, the company that operates Mt. Gox out of Tokyo, according to the local registry office, has told other Bitcoin companies that it is planning to file for bankruptcy, according to John O'Brien, a spokesman for a coalition of Bitcoin companies that has been responding to the problems.
A bankruptcy administrator could distribute Mt. Gox's assets — any remaining Bitcoins plus any nonvirtual cash — to its creditors, a process that could take a year or more. But the company could also be acquired, given the value of its customer list and name recognition.
Even those who fear they have lost money they held with Mt. Gox remained enthusiastic on Tuesday about the potential of virtual currencies.
"My thoughts and my heart also go out to all of those others in the community who lost a lot more than me today," said Rick Falkvinge, the 42-year-old founder of the Pirate political party based in Sweden. Despite losing what he said was $80,000 in Mt. Gox, Mr. Falkvinge said that he remained "absolutely bullish on Bitcoin."
Hiroko Tabuchi and Ben Protess contributed reporting.
