Mt. Gox is tumbling down. The online Bitcoin exchange, which used to be the largest of its kind, suspended transactions Monday following allegations the company is nearing bankruptcy and has lost almost $365 million in Bitcoin over the last several years.

The allegations are based on a "Crisis Strategy" document purportedly written by Mt. Gox and leaked by Ryan Selkis, a Bitcoin-focused entrepreneur.

The document states:

The reality is that MtGox can go bankrupt at any moment, and certainly deserves to as a company. However, with Bitcoin/crypto just recently gaining acceptance in the public eye, the likely damage in public perception to this class of technology could put it back 5~10 years, and cause governments to react swiftly and harshly. At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public.

This tragic violation of the trust of users of Mt.Gox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry. There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants.

In response, a number of Bitcoin exchanges and "wallet" companies released a joint statement on the Coinbase blog:

[...]

Bitcoin operators, whether they be exchanges, wallet services or payment providers, play a critical custodial role over the bitcoin they hold as assets for their customers. Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading. The Mt. Gox exchange rate plummeted after the allegations, with Bitcoin fetching around $600 -- much less than it cost at its $1,200 peak in November. The exchange has since replaced the front page of its website with this message:

Dear MtGox Customers,

In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.

Best regards, MtGox Team Reactions from around the Web

Bloomberg says that Mt. Gox's woes are merely the latest problems for bitcoin:

The troubles at Mt. Gox are the latest setback for Bitcoin after authorities in Russia, China and Israel sought to restrict the digital money, while the U.S. seeks ways to prevent money-laundering and illicit sales without killing the new technology.

Confidence — that bitcoin is a reliable store of value, and that it can be used without fear of getting totally ripped off — is just the problem for bitcoin. Mt. Gox is by far the largest in a long string of collapses and thefts that have plagued the upstart currency. The exchange had its humble roots as an online marketplace for wizard-themed playing cards (its full name derives from “Magic: the Gathering Digital Exchange), but in the end it made a fortune in bitcoins disappear into thin air. The question now is whether bitcoin will follow suit.

But at the same time that the news about Mt. Gox was emerging, [SecondMarket] announced plans to create an exchange that could draw the world’s largest banks into the virtual currency market for the first time.

Quartz's Asia correspondent, Heather Timmons, writes that this is more than a simple stumbling block for the crypto-currency:The New York Times reports that SecondMarket is hoping to create a Bitcoin exchange backed by the world's largest banks, which might lend the currency some legitimacy:

[...]

Barry Silbert, SecondMarket’s chief executive, said that he had already talked with several banks and financial companies about joining the new exchange, along with financial regulators, and that he hoped to have it in operation this summer. Fred Wilson, who has invested in Coinbase, went ahead and bought more Bitcoin:

We are witnessing the maturation of a sector and part of that will inevitably be failures, crashes, and other messes. Almost every technology that I’ve watched come into a mass adoption has gone through these sorts of growing pains. One big difference is that in addition to technology, we are also talking about people’s money when we talk about Bitcoin. To me, that doesn’t change the discussion and the implications, but it sure does amplify the emotions around it.

Full disclosure: I bought a little Bitcoin today. Not much. But I always feel good buying when there is blood in the streets in any market. It is my favorite time to buy. Pando weighs in

Tim Worstall writes that we're currently living in an alt-currency bubble... and that won't matter in the long run:

I have absolutely no doubt at all that there’s a bubble in alt-currencies: The existence of how ever many hundreds of them that there are now is proof enough of that. Recall, the proof of the South Sea Bubble was not that the Company’s stock soared, it’s that someone was able to float a stock with the prospectus “a company for carrying out an undertaking of great advantage, but nobody to know what it is.”

That there is a bubble here tells us nothing at all about the long term success or not of the adventure. Bubbles can lead to nothing (the Mississippi land bubble in France) or to economic effects that are still with us now. The Dutch Tulip Mania was very definitely a bubble but the world’s cut flower market is still run from a couple of sheds just outside Amsterdam. Dotcom Mania funded all sorts of monstrosities as well as Google and Amazon.

[Illustration by Hallie Bateman for Pando]