Bitcoin Virtual Currency Market Crashes

Funniest thing, but a student on Monday said that he'd invested in Bitcoin. I forgot exactly how this came up during discussion. Mostly we were talking about state sovereignty and one of my students got on the topic of a "cashless economy," and then the young guy in the back started in with Bitcoin. We talked about it for five minutes or so, heh.

And then here comes the news from yesterday morning, "Shutdown of Mt. Gox Rattles Bitcoin Market: Closure Raises Concern About the Future of Unregulated Virtual Currency."

And at LAT, "Bitcoin virtual currency is on the verge of collapse":

It was supposed to revolutionize the global monetary system. Instead, the bitcoin virtual currency that has captured the imagination of investors and financiers is on the verge of collapse.

In a stunning blow to a novel way to buy products and services, the world's largest exchange for trading bitcoin currency shut down Tuesday, triggering a massive sell-off and sending many prospective investors away — perhaps for good.

"This is extremely destructive," said Mark Williams, a risk-management expert and former Federal Reserve Bank examiner. "What we're seeing is a lot of the flaws. It's not only fragile, it's fragile as eggshells."

The mysterious circumstances that triggered the failure of the exchange, Mt. Gox in Tokyo, is only adding to the renewed anxiety over the virtual currency, which just a month earlier had been gaining momentum and supporters.

After saying users could not withdraw their funds, Mt. Gox suddenly ceased all operations, including shutting down its website. Mt. Gox users may have lost more than $300 million worth of bitcoins in what was the latest and biggest in a series of recent setbacks for the virtual currency.

The currency exists only online, and its value is based on an algorithm. Investors buy bitcoins with dollars, euros and other real currency. A purchase with bitcoins typically involves transferring an amount from the buyer's bitcoin "digital wallet" to the seller's wallet on the Internet.

The blow to bitcoin's credibility has highlighted all the fears critics have been trying to raise. Because it is unregulated and anonymous, there is probably no way for users to know who may have seized the thousands of missing bitcoins — and no way to recover them.

This sudden reversal of fortune is particularly painful for enthusiasts who believed just a few weeks ago that bitcoin was on the cusp of mainstream acceptance because of growing support from venture capitalists, banks and regulators.

Instead of triumph, the bitcoin community is now focused on repairing the damage. Mt. Gox is nothing more than a "collapsed tower of toxic sludge," said Williams, who is also a finance professor at Boston University School of Management...

Well, I described Bitcoin as a "fad" on Monday, and that might be the perfect word for it in the end.

Still more here.