850,000 bitcoins lost as Mt Gox exchange files for bankruptcy

Bowing in contrition, Mt Gox chief executive Mark Karpeles apologises for troubles and blames lax internal computer security systems

PUBLISHED : Friday, 28 February, 2014, 7:04pm
UPDATED : Saturday, 12 September, 2015, 11:56pm

Troubled bitcoin business Mt Gox yesterday filed for bankruptcy, ending days of speculation about the Tokyo-based company's dire financial situation.

At a press conference at Tokyo District Court, Mt Gox's French CEO Mark Karpeles said the firm had applied for bankruptcy protection as it was saddled with 6.5 billion yen (HK$494 million) in outstanding debt and only 3.8 billion yen in assets to cover losses.

A bigger black hole for investors may yet emerge as Mt Gox said the exchange, used overwhelmingly by foreigners, had lost 750,000 of its users' bitcoins and 100,000 of its own. At the current bitcoin price of about US$565, that would total some US$476 million.

Just hours before the bankruptcy filing, Japanese Finance Minister Taro Aso said: "No one recognises them as a real currency. I expected such a thing to collapse."

Japan's financial regulators have been reluctant to intervene in the Mt Gox situation, saying they do not have jurisdiction over something that is not a real currency.

An embattled Karpeles looked tired and resigned as he appeared in front of the cameras.

Bowing in contrition, Karpeles spoke in Japanese and said: "I am sorry for the troubles I have caused all the people." He apologised for what he cited as "a weakness in our system", pointing a finger at lax internal computer security systems.

Once a major mover and shaker in the virtual currency world, problems began to emerge on February 7 when Mt Gox suspended bitcoin withdrawals.

After weeks of turmoil, a loss on a grand scale began to emerge after a leaked company document pointed to a huge theft of its custodial bitcoins, but Mt Gox remained largely silent.

Mt Gox said it had only found out about the missing bitcoins only last Monday, at which point the company halted all transactions. The cost per bitcoin dropped 5 per cent to US$557.17 after the bankruptcy announcement was made. The negative reaction is considered modest after the leaked Mt Gox document contributed to a 25 per cent drop in price.

The insolvency strategy deals a hammer blow to bitcoin, seeking to become an alternative to real-world cash.

Nathaniel Karp, the chief US economist at Spanish banking group BBVA research, described the Mt Gox situation as "a costly and big confidence blow that will have a more prolonged impact".

He added: "Bitcoin is not the beginning nor the end of the virtual currency saga."

The loss raises questions around the current lack of consumer protection in the rising popularity of virtual currencies.

In Hong Kong, authorities have warned consumers from buying and investing in the virtual currency, describing it as "risky" while ruling out legislation or regulation to bring it into line with other financial instruments.

Many bitcoin market participants have said Mt Gox's problems were specific to the company and were caused by what they said was a lax attitude by Karpeles, while bitcoin itself - free of any central bank control - was still a noble venture.

Bitcoin first emerged in 2008, created by a person or a team of programmers under the pseudonym Satoshi Nakamoto. The digital currency is a decentralised crypto-currency and not backed by a government or a central bank.

Bloomberg and Reuters