Bitcoin firm’s collapse triggers fear

U.S. officials are monitoring the apparent collapse of a major bitcoin exchange, which may have resulted in the loss of millions of dollars.

Sen. Tom Carper (D-Del.) said staff on the Senate Homeland Security and Governmental Affairs Committee is “working closely” with federal agencies to “help ensure this does not happen here in the United States.”

{mosads}The Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which has issued guidance for bitcoin exchangers and dealers, is also keeping tabs on the developments, a spokesman told The Hill.

“FinCEN is aware of the reports regarding Mt. Gox and we will continue to gather additional information,” Steve Hudak said in an email.

Mt. Gox, which was at one time the world’s largest platform for converting the virtual currency into cash, announced on Tuesday that it has decided to “close all transactions for the time being,” a month after halting withdrawals.

The Japanese exchange’s decision has effectively frozen the accounts of people with money at the site and prompted concern across Washington.

“U.S. policymakers and regulators can and should learn from this incident to protect consumers,” Carper, who has led Congress’s inquiry into the web-based currency, said in a statement. “If today’s news is true, it is a sad violation of consumer trust, whether through malicious action or simple incompetence. Regardless, it’s unacceptable.” 

Bitcoins exist only virtually but can be traded for cash at sites like Mt. Gox and also exchanged for goods and services at a growing number of businesses.

Rapid fluctuation in the bitcoin market and concerns about potential money laundering have prompted some law enforcement agencies and lawmakers to take notice of the currency in recent months.

For weeks, users of Mt. Gox have complained about having difficulty withdrawing their money from the site. Late on Monday, it seemed to disappear from the Internet entirely.

A document appearing to outline a “crisis strategy” for the exchange circulated among bitcoin proponents on Monday evening, explaining that about 745,000 bitcoins “are missing due to malleability-related theft which went unnoticed for several years.” That number of bitcoins would amount to about $387 million.

Over the weekend, Mt. Gox CEO Mark Karpelès stepped down from the Bitcoin Foundation, the currency’s main trade group. Mt. Gox was a founding member of the organization.

Proponents of the currency hoped that the latest developments would not doom the public perception of bitcoins.

The heads of major bitcoin wallets, which allow users to store their bitcoins online, said in a joint statement that Mt. Gox’s “tragic violation” of users’ trust “was the result of one company’s abhorrent actions and does not reflect the resilience or value of bitcoin and the digital currency industry.”

“As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today,” they added.

Carper echoed the sentiment.

“As any industry matures it will face growing pains and there will be individuals who believe they can use the fog of uncertainty to cover up their follies,” he said on Tuesday morning. “When it comes to policy, it is the responsibility of the federal government to steer the boat, not row the boat.”