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Rational Exuberance? Bitcoin soars as Feds close in on Mt. Gox


Bitcoin is trading much higher today as details emerge around the collapse and now Federal subpoena of Mt. Gox and its executives. Previously the alternative currency’s largest exchange, Mt. Gox is currently closed for business with no apparent plans to re-open. Company CEO Mark Karpeles posted a letter on the Mt. Gox website reassuring traders that he was still in Japan (rather than fleeing) and working hard to “find a solution to our recent issues.”

Considering investors are unlikely to see their money again and there are reports of 750,000 Bitcoin disappearing from the exchange, Mt. Gox’ statement is a masterpiece of understatement.

If you caught the trade at just the right time and bought on an exchange other than Mt. Gox, you could have made a good amount of cash on Bitcoin over the last 2 days. From a low near $400 immediately after the Mt. Gox news was confirmed, Bitcoin has recovered nearly the entire crash, at one point moving over $600.

At this point both sides of the Bitcoin debate are well and truly entrenched. Believers argue that Mt. Gox’s collapse is merely part of the Bitcoin growth process. To them Mt. Gox is simply a little necessary pain on the currency’s path to global dominance. Non-believers use the disappearance of 6% of the entire Bitcoin base as all the evidence needed to declare the whole experiment an unmitigated failure.

The Reformed Broker Josh Brown finds the middle ground. “There’s a case to be made that you can be bullish on Bitcoin in terms of its future utility without placing a speculative bet on its price.”

To achieve its potential as an alternative global currency Bitcoin is going to need liquid, secure marketplaces. Millions of (real) dollars in venture capital money is being invested in a Bitcoin infrastructure but security measures are clearly not ready for prime time. The amount missing from Mt. Gox is equal to about 6% of Bitcoin’s entire float. Depending on the quote at any given moment the dollar value of the purloined Bitcoin is around $400 million. If true that would make the heist one of the 10-largest in history.

“You can be skeptical about it but accept the possibility that maybe it will be useful one day,” summarizes Brown. “Right now unless you’re selling ecstasy or guns I don’t understand why you need an untraceable currency to pay your rent or lease a car. It doesn’t make any sense to me at all.”

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