In Defense Of Bitcoin, Andreessen Compares Mt. Gox To MF Global

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Venture capitalist Marc Andreessen has come to Bitcoin’s defense, comparing the collapse of its best known trading platform Mt. Gox to MF Global’s fraud and subsequent bankruptcy in 2011, report William Alden and Rachel Abrams for The New York Times, but the comparison highlights exactly why investors see Bitcoin as a high risk investment.

“This is like MF Global, not some huge breakdown of the underlying technology or other exchanges,” Andreessen said on CNBC. “Bitcoin protocol is unchanged and other Bitcoin exchanges and companies are doing fine.”

Andreessen compares Bitcoin to the early internet

Andreessen has been a Bitcoin bull for some time, arguing that the protocol Bitcoin is based on will eventually revolutionize the way many businesses operate, and that just like internet protocols which were the domain of IT departments and a handful of early adopters for decades, the potential of Bitcoin isn’t fully appreciated. More concretely, Andreessen led a round of financing for CoinBase Inc that pulled in $25 million for the popular Bitcoin service provider.

Bitcoin prices have stabilized at some other exchanges, but rates are hovering around $500, down from highs of $1200, as investors worry that the cryptocurrency isn’t as secure as previously advertised.

Mt. Gox broken and possibly outright crooked: Andreessen

Andreessen acknowledges that Mt. Gox has been “broken and possibly outright crooked for months,” before it completely went under, but just like MF Global’s meltdown didn’t turn people away from all futures trading, he doesn’t see why it should turn people off Bitcoin as an asset class.

But MF Global highlights the important of effective regulation. If the Commodity Futures Trading Commission (CFTC) had done a better job policing MF Global, it’s possible that disaster could have been averted. But even if they couldn’t have stopped the fraud beforehand, after two years of work it was able to restore $1.2 billion to MF Global’s customers.

There’s no easy way to determine how much was lost, but there are claims that more than 700,000 Bitcoins, well over $1 billion even after Bitcoin dropped in value, have been stolen from Mt. Gox but without the paper trail that made restitution possible in the MF Global case. Whatever was lost when Mt. Gox went under is simply gone, no one is getting their investments back.

Mt. Gox has claimed that its troubles are due to Bitcoin’s source code, and that other exchanges will eventually face the same problems. Andreessen is confident that this isn’t the case, but investors without the necessary background in cryptography and IT security to judge the matter for themselves may want to stay invested in more traditional assets.

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About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

1 Comment on "In Defense Of Bitcoin, Andreessen Compares Mt. Gox To MF Global"

  1. Mt. Gox’s finger-pointing at the protocol is a desperate bid to prey on the majority’s lack of knowledge about how the protocol works, and a smokescreen to deflect attention from the fact that they failed to program their custom wallet correctly, failed to conduct regular internal audits, failed to secure user’s funds and in general, failed in every conceivable way. No surprise there, though, as that company has been failing at the most basic administrative tasks imaginable for YEARS. A simple verification of documents for a new account took them a MONTH to process, where it should have been a simple matter, done in days. Customer service and support tickets would routinely go unanswered for several weeks.

    As Andreessen and others in the Bitcoin business community have rightly pointed out, the failures of Mt. Gox have nothing whatsoever to do with Bitcoin as a protocol. Mt. Gox was not prepared to become the biggest exchange on the planet (for a time), its leadership was inept and unable to scale the business to meet the demands of its users. It simply got too big for its relatively small britches, and has failed. And to anyone with any knowledge about how Gox has operated over the past couple of years, it comes as almost no surprise that they were the first to fall. I feel for those who had money trapped there, but I have to question their sanity in leaving funds in an exchange that was so obviously and consistently mismanaged…its failings were widely and frequently publicized. Let it be a lesson to investors…do your due diligence.

    They’re now a cautionary tale, an anecdote that old timers will tell twenty years from now about the “early days” of Bitcoin…the trading card site that became the biggest exchange in the world, then collapsed under the weight of its own mismanagement. The short history of the world wide web is LITTERED with stories like this.

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