Digital Currency's Future In Doubt After Exchange Goes Belly-Up And 740,000 Bitcoins Go Missing

Bitcoin trader Kolin Burges, right, of London and American Aaron (only his first name was given) hold protest signs as they conduct a sit-in in front of the office tower housing Mt. Gox in Tokyo Tuesday, Feb. 25, 2014. The website of major Bitcoin exchange Mt. Gox is offline Tuesday amid reports it suffered a debilitating theft, a new setback for efforts to gain legitimacy for the virtual currency. The URL of Tokyo-based Mt. Gox was returning a blank page. The disappearance of the site follows the resignation Sunday of Mt. Gox CEO Mark Karpeles from the board of the Bitcoin Foundation, a group seeking legitimacy for the currency. 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 with Mt Gox. (AP Photo/Kaori Hitomi)

Bitcoin buttons are displayed on a table at the Inside Bitcoins conference in Berlin on Wednesday, Feb. 12, 2014. The conference brought together entrepreneurs and enthusiasts of the virtual currency to discuss business opportunities and recent developments. (AP Photo/Frank Jordans)

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

The website of Tokyo-based Mt. Gox was returning a blank page Tuesday. The disappearance of the site follows the resignation 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.

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 Mt. Gox's collapse was an isolated case of mismanagement. They said it had abused users' trust, but did not offer details on how.

"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 lay out the scale of the problem. An 11-page "Crisis Strategy Draft" published on the blog of entrepreneur and Bitcoin enthusiast Ryan Selkis says that 740,000 bitcoins are missing from Mt. Gox, which 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 Japanese government, meanwhile, has not announced any formal investigation.

The scandal may cost customers dear.

At the Tokyo office tower housing Mt. Gox, bitcoin trader Kolin Burges 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 bitcoins with Mt. Gox.

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

Mt. Gox CEO Karpeles did not immediately return several messages seeking comment. A security officer at the office tower said no one from Mt. Gox was in the building. Tibbane, an Internet company that Karpeles is CEO of, still has its name listed on the building's directory.

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

On bitcoin exchanges, the currency's value has fallen to about $470 from $550 in the past few hours, a figure already down more than 50 percent on the price of $1,200 per bitcoin reached on Mt. Gox three months ago.

The disappearance of Mt. Gox could be fatal for Bitcoin, which was started in 2009 as a currency free from government controls. Bitcoin's boosters say the currency's design make 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. Only last month another member of the Bitcoin Foundation, Vice Chairman Charlie Shrem, was arrested at New York's Kennedy Airport on charges of money laundering.

Authorities have been taking an increasingly hard look at Bitcoin and related virtual currencies including Litecoin, Namecoin, Ripple, and countless others. Some countries, including 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, the enthusiast, said in a message posted to Twitter. "The hammer will now come down hard."