According to statements filed in U.S. Bankruptcy Court in Dallas earlier this month, when executives at Japan-based Mt Gox, then the world’s largest Bitcoin exchange, discovered that “hundreds of thousands” of Bitcoin’s had “disappeared,” the exchange continued to allow trading in product they no longer held.
$473 million bankruptcy
Mt. Gox filed for bankruptcy in the U.S. on March 9 after losing $473 million in Bitcoin. The firm also filed for bankruptcy in Japan last month.
Nearly 750,000 customer Bitcoins were lost along with 100,000 of Mt Gox’s own Bitcoin stash, according to a Bloomberg report. The total amount of Bitcoin lost in the theft represents around 7% of all of the digital currency in existence.
Trading after discovery of missing “coins”
On February 7, the date the disappearance was discovered, Mt Gox discontinued customer withdrawals from the exchange. However, customers continued to trade on the exchange until February 24.
Mark Karpeles, Mt Gox chief executive officer, said in a sworn statement, “These events caused among others Mt Gox to become insolvent.”
Mt Gox was originally started as an exchange for magic cards and the name of the firm is an acronym for Magic, the gathering online exchange.
Some close to the derivatives industry as well as certain New York based investment banks have considered starting a Bitcoin exchange, which would certainly help usher the payment method into the mainstream. Analysts, however, point out the difficulty in hedging a currency that has no natural peg in the physical world and no intrinsic value make a robust derivatives market-making system difficult, among other issues.
On Wednesday, the New York State Department of Financial Services (NYSDFS) said that it will consider proposals for a regulated virtual currency exchange. In a nod to the Mt Gox issue, a statement identified “the urgent need for stronger oversight … including robust standards for consumer protection, cyber security, and anti-money laundering compliance.”