As concerns mount about the future of bitcoin, Ron Paul said Tuesday that the government should not regulate virtual currencies, even as a major exchange collapsed this week, costing traders hundreds of millions of dollars.

"I believe if a digital currency was legitimate, the government should never interfere and close it down," the former Republican congressman from Texas said in an interview with the Fox Business Network.

ADVERTISEMENT

This comes as some critics speculate that the future of bitcoin might be in jeopardy after the digital money service's most popular exchange, Mt. Gox, announced Tuesday it has decided to close trading indefinitely.

That means many people who had money in the site would likely lose their investments, experts say.

At one time, Mt. Gox was the largest platform for traders who wanted to convert bitcoins into cash. But the Tokyo-based exchange was pressured to close down after about 745,000 bitcoins were believed to have been stolen.

That's about $387 million, making the company insolvent.

Mt. Gox began halting withdrawals a month ago but didn't make any official announcements until Tuesday.

Paul believes bitcoin could create positive competition with government currencies, such as the dollar, he said.

The collapse of Mt. Gox may give new momentum to efforts in Washington to regulate bitcoin. But Paul disagrees with calls to regulate bitcoin and its exchanges, as long as the service operates within the law and is not fraudulent.

Paul said there's no need to regulate bitcoin, because the markets will. "I think the market is much tougher," he said.

Paul also admitted that he has no clue about how bitcoin operates.

"I didn't get involved, because I sure didn't understand it," he said.