As of the writing of this article, Bitcoins on Mt Gox are trading for USD $361. At the same time, on the Bitstamp exchange, Bitcoins are trading for USD $655, nearly double the price. The only sensible reading of this is that Mt Gox is crashing and burning. Now, that sounds more dire than it actually is. In the corporate era we have seen entities emerge, collapse, an re-emerge under the same, modified, or completely different names. Mt Gox is dying and could rally or re-emerge, but it is likely at this point that it will collapse. This article will examine some of the key contributing factors and the timeline. Because the news is changing constantly and new information is emerging, this story will be ongoing and the article will be a working document, being updated accordingly. This is not the ‘truth’ or ‘secret’ of Bitcoin but rather my individual analysis – do with it what you will.

In November, Bitcoin broke $250 on the Mt Gox exchange. Bitstamp was never far behind, and BTC-E had a similar trajectory. By December, Bitcoin had broken $1000 on all of these, and many more exchanges. What is remarkable about this is that a casual observation that one might (mistakenly) make is that the success of one exchange was therefore tied to the other and that these other exchanges rose because they were tied to Mt Gox’s success. This is not the case and represents a fundamental misunderstanding of the De-centralized nature of Bitcoin and the free market of exchanges that has quickly emerged. These exchanges are in competition with one another and it is natural that the older exchange (Mt. Gox) has enjoyed a level of seniority and seniority-based prestige, but it is an exchange that is not without its detractors.

Bitcoin users, being themselves a not exclusively libertarian but perhaps fairly exclusively anti-authoritarian and anti-authority individualists, took issue with the way Mt. Gox was run, this is evident from a casual glance at the r/Bitcoin page in the Reddit community, or a quick look at the BitCoinTalk forums. Bitcoin does have a large-if-not-majority base of libertarian/free market ideologues as users, and therefore it has been remarkable the rate at which start-ups and free-market alternatives have emerged from within the Bitcoin environment. Personally, I use Bitstamp. It is pretty reliable, and is at this point rallying while Mt Gox falls. The beauty of the free market in Bitcoin exchanges that is emerging, however, is that it makes it so that, by not keeping any of my money tied up in exchanges (which you shouldn’t really do anyway) you can simply stop using a failing exchange. This is what is happening with Mt. Gox, this is what will continue to happen with Mt. Gox, and this is what could happen to Bitstamp if it engages in similar practices or is victim to the same ultimate central point of all things free market, the freedom and encouragement of consumer pro-activity and voting with your feet. Many Bitcoin users on the internet appear to despise Mt. Gox, showing the already blatant fact that exchanges are in competition with one another. Directly.

Bitstamp and other exchanges are so far theoretically doing well from the collapse of Mt. Gox, because the fall of Mt. Gox’s prices and the resilience of Bitstamp and other exchange prices. The inference that can arguably be made is that the selling of Bitcoins by Mt. Gox holders withdrawing their funds isn’t taking place on Mt. Gox’s own site anymore, since withdrawals on Mt. Gox can be a lengthy process, a large part of its recent failure. It is more likely therefore, that money finally withdrawn from Mt. Gox (who staved off withdrawals by making it sometimes take up to a month for users to withdraw) is being sold on other exchanges, such as Bitstamp, BTC-E, Coinbase, LocalBitcoins and other sites. These other exchanges have all, more or less, shown their independence from Mt. Gox through their resilience in the face of the biggest crash Mt. Gox has ever seen. Historically, these other exchanges had been selling for a lower fiat value than Mt. Gox was trading its Bitcoins for. In the beginning to some, this implied dominance or value, but to many it belied the old whiffs of inflation that Bitcoin was created to avoid. Surely enough, it has come out over time that Mt. Gox engages in quite questionable practices insofar as its relation to the individual user, such as their non-purchase of Bitcoins when they show you that you have purchased Bitcoins from them. It’s messed up in my opinion, it’s a large part of why I’ve never touched Mt. Gox, and frankly it reeks of Fractional Reserve Banking to me.

The clincher for all of this is that while it would have been typical over the past few months to see Mt. Gox at perhaps $1100 while bitstamp and other exchanges would be trading at around $1000 or ~100 lower (not accurate), this is now not only flipped on its head, but drastically different than any environment we’ve seen so far in Bitcoin. The growth of these new exchanges has been staggered behind Mt. Gox because of it’s seniority, not its superiority. This is what is clear and evident from the market now, with $390 being the current price of a Bitcoin on Mt. Gox and $657, nearly double that figure, being the average trading price on Bitstamp and in the general ballpark of other exchanges. In the current cryptocurrency climate, those markets and exchanges which are most liquid will profit and succeed, and this is what the progress so far suggests as a case study. Bitcoin and other crypto-currencies are truly groundbreaking for a myriad of reasons, one of which is their capacity for global Decentralization. Markets such as Kraken have also survived, and barring government crackdown on cryptocurrency the climate is still such that we are likely to be seeing new exchanges emerge, a fact which makes the failure of one old exchange a fairly trite and irrelevant bit of news for many, due to its self-evidence in their eyes of the failure as being justified based on the poor practices they employed as an exchange.

While this article is by no means a gift to the good people at the Mt. Gox exchange and is often extremely critical, it is worth noting that they are in my mind crucial and vital in Bitcoin market history, if not in the current or future market climate, their rise was pinned to the rise of Bitcoin, this is why as they now fail other exchanges continue to succeed. And the many programmers and web developers and designers who worked on their exchange will go on to work in other markets and on other exchanges and on different products and will likely still be able to, in my mind, succeed in the overall Bitcoin economy, albeit perhaps not while associated with Mt. Gox. Mt. Gox is in my mind a massive case study which is available within the global Bitcoin economy and for a large part of the beginning of Bitcoin, Mt. Gox was a major player. This appears to be over or ending now, and the markets that remain will be hardened by the collapse of a titan. Bitcoin exists, in my somewhat ideological opinion, to weed out those economic fallacies which our lawmakers and politicians and bankers propose to us on a daily basis.

Bitcoin is going mainstream. It isn’t there, but it is firmly steered in that direction and the next wave of adoption

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