Bitcoin Prices Plunge After Mt. Gox Exchange Halts Withdrawals

Posted on: February 12, 2014, 05:30h. 

Last updated on: February 11, 2014, 09:06h.

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Expertise: Commercial Gaming.

The history of Bitcoin has been a lot like a rollercoaster: breathtaking highs and terrifying lows around every corner. Sometimes, it even feels like the whole market has been turned upside down. And after the latest move by a major marketplace, the Bitcoin E-ticket adventure has once again reached the free fall portion of the ride.

Mt. Gox Backs Off

Mt. Gox – the most prominent marketplace for buying and selling Bitcoin – put a halt on withdrawals this week after they said that a bug in the Bitcoin software has the potential to allow fraud to occur. This comes after the exchange announced that they were aware of “unusual activity” as of late last week.

“A bug in the Bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of Bitcoins to a Bitcoin wallet did not occur, when in fact it did occur,” Mt. Gox announced in a statement. “Since the transaction appears as if it has not proceeded correctly, the Bitcoins may be resent. Mt. Gox is working with the Bitcoin core development team and others to mitigate this issue.”

The ban on withdrawals only applies to transfers of Bitcoin from wallets held at Mt. Gox to external Bitcoin addresses. Conversions of Bitcoins to currencies and transfers among Mt. Gox addresses have still been allowed to continue as normal.

However, the announcement of the potential security threat and the suspension caused a sharp drop in Bitcoin prices. On Friday, the final trading price was $692 per Bitcoin. That price had dropped as low as $500 on Monday, before ending the day at $595.74 – still 14 percent off of last week’s market-close price.

Swinging Values

Over the short history of Bitcoin, the crypto-currency has seen a high number of dramatic price swings. As the digital currency has gained some broader acceptance, prices for Bitcoins have risen, while scandals related to scams, the use of the currency to buy and sell illegal merchandise, arrests and more have caused price drops. But some financial analysts say that the current issue could be a longer-term issue for the digital currency than others have proved to be.

“This technical issue is of a much larger intensity than we’ve seen in the past,” said currency strategist Sebastien Galy. “The market may be realizing that there are issues which are specific to these forms of currencies.”

According to Mt. Gox, the issue at hand is not limited to their exchange. Instead, it “affects all transactions where Bitcoins are being sent to a third party.” The exchange plans to continue suspending withdrawals until the issue is fixed.

Meanwhile, CoinDesk reacted strongly to the move by Mt. Gox, eliminating the exchange from the CoinDesk Bitcoin Price Index on Monday.

“These recent withdrawal restrictions are just the latest in a series of issues which have made Mt. Gox’s inclusion in the BPI problematic,” CoinDesk wrote. They cited Mt. Gox’s “persistent failure to meet the index’s standards for inclusion” as the reason for dropping them from the BPI.

The CoinDesk BPI also showed a drop in the price of Bitcoin, but one not nearly as dramatic as that seen at Mt. Gox. Over the weekend, the BPI showed a loss of 5 percent, with a further drop of about 3 percent by midday Tuesday after opening at $679.73.