Feb 26, 2014 · 4 minutes

Lawmakers in the United States and Japan are investigating Mt. Gox, which used to be the world's largest Bitcoin exchange, according to reports. The investigations follow allegations that the company has lost $365 million worth of bitcoin in the last few years.

Japan's Chief Cabinet Secretary, Yoshihide Suga, briefly discussed the investigations during a news conference:

The relevant agencies and ministries such as the police and the Ministry of Finance are trying to grasp the actual situation. After understanding the actual situation, the government shall make appropriate responses but at this point in time the government is still trying to gather information.
Manhattan US Attorney Preet Bharara is also investigating the case. An anonymous source has explained the situation to Reuters:
Subpoenas have been sent to numerous businesses, including Mt. Gox, once the largest bitcoin exchange, as well as other firms that did business with the Tokyo-based company, the source said.

Prosecutors want to know more about the nature of the cyber-attacks on Mt. Gox and other exchanges and how those exchanges dealt with them. Mt. Gox halted customer withdrawals on February 7 in response to what it termed unusual activity and on Tuesday the exchange went dark, leaving customers unable to recover their funds. Reactions from around the Web

Coinapault CEO Erik Voorhees tells the Verge that anyone who's been paying attention to Bitcoin has been worried about Mt. Gox for a while:

It's not like this came out of left field. People have known that Mt. Gox sucked for years. I knew that. I knew that I was being foolish keeping money there, and ultimately got burned for it.
Quartz's David Yanofsky reports that alternative Bitcoin exchanges have seen a surge in activity, but worries about the currency's future following this debacle:
Mt. Gox has handled nearly 40% of all exchanges between US dollars and bitcoins since January 1, according to data from bitcoincharts.com. But the void left by its absence has been quickly filled by two other exchanges, Bitstamp and BTC-e.

It remains unknown how many people will be willing to convert their money to bitcoin following the Mt.Gox meltdown. But these two other exchanges are profiting from any activity. Both Bitstamp and BTC-e transaction volumes today are at their highest level in more than two months, only half way through the day. MarketWatch notes that Bitcoin's prices have fallen to an all-time-low following the controversy, though they have rebounded somewhat:

News that Mt. Gox had closed hit bitcoin prices hard on Tuesday, sending the virtual currency to a three-month low of $515.13, down from $545.32 on Monday.

However, the bitcoin price rebounded on Wednesday, rising almost 8% to $575.13, according to CoinDesk. The price represented that of CoinDesk’s own index, and Mt. Gox’s bitcoins have traded at a sharp discount to those at other exchanges for some time ahead of its shutdown.

Blockchain's chief security officer, Andreas Antonopoulos, airs some concerns about media coverage of the Mt. Gox story on his personal blog:
We will face a storm of negative media, conflating Gox with bitcoin and hurting the bitcoin community in the short term. First and foremost, we must all be thinking of the people affected by the loss of funds in Gox and I extend my heartfelt sympathy to them all. We must honestly and directly address the concerns of all users and interested parties, emphasizing the difference between a decentralized trusted system (bitcoin) and the failures of a single company that did not use the trust mechanisms offered by bitcoin’s blockchain technology.

Gox represents a the failure of a poorly managed exchange that had full centralized control of customer funds, in custodial accounts, off the bitcoin blockchain. By keeping the funds off the blockchain, Gox removed the protections of transparency and end-user control and replicated the model of a centralized bank without any of the controls and oversight such institutions require. John Gruber captures the seeming absurdity of this week's events in a tweet:

In lieu of Bitcoin, I’ve stuck to flushing $100 bills down a toilet. I’m deep in the red but at least I understand exactly what’s going on.
Heidi Moore, the Guardian's finance and economics editor, argues that Mt. Gox's downfall might actually help Bitcoin:
This is why Mt Gox’s collapse is a boon for bitcoins. It clears out another attic full of ethical cobwebs from Bitcoin’s past. There are plenty of other bitcoin exchanges – who declined to bail out Mt Gox, according to Tim Fernholz at Quartz. The powerful Second Market, a regulated exchange, is now ready to create a standalone bitcoin business. Second Market’s move is a major one; the company has hurdled financial regulators in the past and acts as a bridge to the Silicon Valley community, with which it already has strong relationships.

To function as a currency, bitcoins need one thing: legitimacy. The further it gets away from its shady, fantasy-currency roots, the closer it will get to practical reality. Bitcoin has been a lively theoretical playground for wonks and nerds. Once it becomes powerful, it will become interesting to consumers. And that’s the real test of a currency. Pando weighs in

Pando's Tim Worstall wrote on Tuesday that Bitcoin has yet to become the ultra-polarized currency that its supporters and detractors expect it to be:

There are two general views out there currently. One is that it is the harbringer of a bright new world where we are free of fiat currencies and the expenses of money transfer. Could be — although that’s not the way I personally am betting. The other is that it’s a great and wondrous scam that depends upon the Ponzi principle of selling to the greater fool before the crash. I don’t quite sign up to that either, regarding it at present as a Schroedinger’s Currency that could go either way when we finish the experiment and open the box.
[Image courtesy btckeychain]