As other places reported, MtGox failed spectacularly and ceased operations today. Some will blame this on a lack of regulation. Nothing could be further from the truth.

The main reason for this failure being so spectacular is a long history of lacking competition. Even though MtGox repeatedly faced problems like days of suspended trading, customers did not have many viable alternatives. In many countries, the legal costs of setting up a financial service website like a Bitcoin exchange are prohibitive. The Internet thrives on people being able to experiment – otherwise, sites like ebay.com, doodle.com or yahoo.com would never habe been created. I personally have repeatedly met motivated enthusiasts who wanted to setup their own Bitcoin exchanges. Unfortunately, regulation is holding them back. Had they been able to create their exchange websites, MtGox would have seen much more competition much earlier – giving customers the opportunity to diversify and reducing their exposure to a single operator.

However, in an ironic twist, the very regulation that seeks to protect customers potentiated their risks by preventing them from effectively diversifying. The financial services industry is in an ongoing vicious circle of market failures that make politicians enact more rigorous regulation, which stiffles competition, which again leads to more market failures and regulation.

– Written by Luzius Meisser, President of Bitcoin Association Switzerland