Liquidating Bitcoins is not easy!

People should have seen this a mile away, but MtGox (the exchange that at one point facilitated the vast majority of Bitcoin transactions for real currency) finally packed it in and documents claimed that there was a gaping hole of about 744,408 Bitcoins due to some technical issues with the exchange software that accumulated over a couple years (not to mention a net of about US$33 million cash owed to customers!).

My hypothesis is more plausible: fraud. Anybody running an exchange operation like this would be looking at their account balances like a hawk, hourly, and have proper built-in mechanisms to ensure that there are no leaks in the system. Claiming a loss like this over a period of a couple years is simply incomprehensible.

One of the great things about how Bitcoin works is that the entire transaction ledger (the blockchain) is in public view, and some enterprising people will likely be able to reconcile what happened from publicly available data. 744,000 Bitcoins is about 6% of the entire amount in circulation.

Considering the underlying value of Bitcoin is zero, it is still amazing to see that one can still sell these things for US$500 a piece on other exchanges. This is assuming, of course, they won’t go under either.

I didn’t know how high the hype would go for Bitcoin. Guessing when the tops of markets occur is a tricky endeavour and is simply that, guesswork. My initial guess was “no higher than US$10,000 per bitcoin”, but I subsequently revised that to closer to US$900 than the $10,000 mark.

Now I’ll come with an even starker prediction: Bitcoins will never reach its all-time high (US$1,200) ever again. The hype is gone and the true weaknesses of Bitcoin have more or less been shown to make the entire system unusable except as a novelty.

Bitcoins to currency almost reminds me of what gift cards are to currency: like cash, except worse. If you truly want to invest in something that is relatively immune to the machinations of evil central bankers world-wide, this is the chart of the commodity that I think has profited the most from Bitcoin’s collapse:


Right now a bitcoin is US$516 on Bitstamp (the now leading exchange for Bitcoin volume). You can get an ounce of gold for 2.6 bitcoins. An easy decision for those that still want to believe in hyper-inflationary theories.

Disclosure: No bitcoins, no gold!