A week after Mt. Gox said it would temporarily prevent customers from removing their bitcoins from its online bitcoin exchange, the site has become the cheapest place in the world to buy the digital currency. Why? Because some investors think Mt. Gox is about to go bankrupt.

Welcome to the world of bitcoin, the Wild West of finance, a place where hackers and scandals and insane price fluctuations are just part of doing business. Mt. Gox, a digital currency pioneer that was once the world's largest bitcoin exchange, is imploding before our very eyes. Investors who have accounts with the exchange are selling their bitcoins, even though they may have trouble getting hold of the proceeds. That's because they suspect – not unreasonably – that if the company does go bankrupt, it will be be easier to retrieve their stranded funds as U.S. dollars rather than as bitcoins. The result: bargain bitcoin prices at Mt. Gox, for anyone daring enough to take advantage of them.

>The result: bargain bitcoin prices at Mt. Gox, for anyone daring enough to take advantage of them

For the better part of the past year, bitcoins were unusually expensive at Mt. Gox. While other exchanges – BitStamp or BTC-E, for example – traded the digital currency at roughly the same rates, you had to pay a 8 to 10 percent premium on Mt Gox. As we reported back in November, people were charging extra to trade their bitcoins for U.S. dollars because it was hard to get dollars out of the Japanese exchange. But now it's hard to get bitcoins out too. About two weeks ago, Gox suspended bitcoin withdrawals, blaming a flaw in the bitcoin wallet software that has affected Gox and at least one other exchange.

As a result, something odd has happened. Bitcoin prices have plunged dramatically on Gox, while remaining pretty much level on the other exchanges. On Tuesday, the price of a bitcoin on Bitstamp was $640. On Gox? $250. Investors are speaking through the market, and they're saying that they've lost confidence, according to Donald Marron, director of economic policy initiatives at the Urban Institute, an economic policy think-tank. "It does sound like people worry that they'll never get their bitcoins out," he says.

But there's another explanation for the low bitcoin price on Mt. Gox. Some investors are worried that the exchange will go bankrupt, and if that happens, they think it will be better if the exchange owes them dollars rather than an ill-defined digital currency. "I was advised that if I thought Gox was insolvent, it is better to have a fiat claim against them than a bitcoin claim, which no legal standing," says one Gox investor, who asked not to be identified. He has about 90 bitcoins locked up in the exchange.

Solvent or Not? —————

In the end, Mt. Gox may or may not go bankrupt. The company did not respond to inquiries from WIRED, but bitcoin developers who have been working with the company on its software problem say they do not believe that the exchange is insolvent. According to Andreas Antonopoulos, the chief security officer with Blockchain, a wallet-maker that's been helping Gox fix its technical troubles, it's likely that hackers were able to steal money from the exchange by taking advantage of a flaw in the Mt. Gox accounting software. The flaw let thieves withdraw money from Gox and then trick the exchange into thinking they had not received their funds – essentially giving them a way of getting paid more than once. But like most bitcoin businesses, Gox says that it keeps most of its funds in offline cold wallets. If that's true, then there's only so much that any hacker could take before Mt. Gox administrators would have noticed.

Antonopoulos laid the blame for the crisis in confidence with Mt. Gox CEO Mark Karpeles. "I strongly believe that we don't have a solvency issue. This is simply a CEO who is in way over his head and doesn't know how to do communications." On its website, Mt. Gox says it's still working on the problem, though it won't say when it will again allow bitcoin withdrawals.

But if the company is insolvent, investors are responding appropriately. Should the company go bankrupt, it may indeed be easier to get dollars out of the company than bitcoins, says Mark Thompson, a retired bankruptcy lawyer based in New York. "You wouldn't want to be the first guy to walk in front of a bankruptcy judge with a novel issue," he says.

According to Thompson, the U.S., bankruptcy courts are likely to favor dollar liabilities over bitcoin liabilities. But he doesn't know what would happen in Japan, Mt. Gox's home, and he believes that bitcoin debts could still create some problems in the U.S. For example, courts deal with government backed currencies all the time, but as they're liquidating assets, how do they figure out what any owed bitcoins are worth? If investors truly think Gox is going out of business and that the price of bitcoin is going to crash because of Gox's problems, it could make sense to lock in their U.S. dollars right now.

The bitcoin world often moves in mysterious ways. But ultimately, it's like any other market. People want to maximize their investments.