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Bitcoin turmoil after exchange disappears

Bitcoin
AAP
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The Bitcoin community has been thrown into turmoil after the disappearance of what had been its biggest exchange, shaking confidence in the fast-growing virtual currency.

Critics say the failure of the Tokyo-based MtGox exchange – and the apparent loss of about $US300 million ($A333 million) in Bitcoins – highlights flaws in the cryptocurrency, while others say it is merely a bump in the road.

The value of a Bitcoin tumbled more than $US100 ($A111) in early trades but then recovered to fetch $US517 ($A575) at 2200 GMT (0900 AEDT), according to the Winkdex Bitcoin index.

The moves highlighted the extreme volatility of the currency, which surged over $US1,100 ($A1,223) last year and then fell sharply.

The closing of MtGox “is a significant setback for the Bitcoin community,” said Mark Williams, a Boston University expert on risk management and financial markets who has long warned about the dangers of Bitcoin.

“This exposes its structural flaws,” Williams said.

“It shows self-regulation doesn’t work. When there is big money on the table, there is an incentive to cheat and consumers are 100 per cent exposed.”

Henry Farrell, a George Washington University political economist, said that, as with other currencies, Bitcoin needs to establish confidence.

“If people start to panic and think this is a sign of general problems in the Bitcoin economy, it becomes a bit like the 2009 financial crisis,” he said.

Farrell said Bitcoin is now in a “fragile situation” and needs to get through the current crisis to survive.

But he does not see Bitcoin expanding beyond being a “hobby currency”.

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