SAN FRANCISCO (MarketWatch) — How bad is the bitcoin fiasco? You’d be better off keeping your money at a bank.

The sudden disappearance of bitcoin exchange Mt. Gox late Monday underscored the cryptic hazards of the new, unregulated cryptocurrency. The price of bitcoin tumbled 22%. Customers of Tokyo-based Mt. Gox are searching for recourse and wondering what happened.

Bitcoin was supposed to be a new, subversive alternative to a financial system that had been exposed as fragile, dangerous and too big to fail in the financial crisis of 2008. Instead, bitcoin and its purveyors now, too, have shattered the essential ingredients for a money system: confidence and trust.

It may be awhile before we know the full details of what happened at Mt. Gox. There is suspicion that hackers made off with bitcoin valued at more than $316 million. Perhaps it was an inside job. Perhaps Mt. Gox got caught on the wrong side of trading without adequate reserves. This is, after all, a five-year-old currency with exchanges even younger, run by people unknown and less understood.

The Mt. Gox debacle comes at a critical time for the currency. Even with its jarring volatility, bitcoin was inching closer to acceptance by ordinary folks. Overstock.com Inc. OSTK, +4.03% began accepting it last year. And Ebay Inc. EBAY, -0.06% and gaming company Zynga Inc. ZNGA, +0.95% are close to honoring the currency.

If bitcoin survives, its proponents will have to ensure that a Mt. Gox won’t happen again. That could mean some form of regulation and adequate capital at exchanges which are essentially run as banks. That will cost money and those costs will have to be passed on to users of the system — the same way MasterCard Inc. MA, -1.22% and Visa Inc. V, -1.29% collect fees of 2% to 3% to make a profit and keep the system reliable.

Such moves, however, would take the thrill and allure out of bitcoin for many users and investors. Bitcoin, after all, is supposed to be free of the cumbersome and costly money system run by banks and monitored by governments. But there is a reason fair banking is boring. Protection such as insurance from the Federal Deposit Insurance Corp. and Securities Investors Protection Corp. gives commerce a foundation.

Bitcoin advocates are finding out what happens when a system doesn’t have a floor. You just keep falling.

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