Thursday, March 28, 2024
HomenetnetBitcoin's back to the wall as it fights to survive

Bitcoin’s back to the wall as it fights to survive

Bitcoin suddenly finds itself in a battle for survival, caught in a worst-nightmare scenario of technical snafus that threaten not only billions of investor dollars but also overall integrity.

The struggles raise questions about whether this is the point where the cryptocurrency fades into cybernerd hobbyist oblivion, as many of its detractors have long suggested, or goes forward as a true alternative to global currencies.

Currency experts say this doesn't have to be a death knell, but it will be up to bitcoin's brightest brains to rebuild the infrastructure so confidence can return.

"This is a threat to bitcoin and digital currencies on the whole because it is something that could erode the trust in the overall idea," said Chris Vecchio, currency analyst at DailyFX. "There's no liquidity in the bitcoin market. There's no more trading activity. Quite frankly, it speaks to a problem with this whole idea of bitcoin as a unit of wealth."

Bitcoin's nightmare began a week ago with word that its most prominent exchange, Mt.Gox, which formerly served as a trading platform for playing cards in Magic: The Game, had experienced a technical problem and wasn't allowing customers to cash in their bitcoins.

Since then, negative headlines have piled up, with Tuesday bringing statements from Mt.Gox reaffirming that it wasn't conducting further transactions. The exchange noted negative publicity and "potential repercussions" but offered no further clues as to the nature of the disruption and when or if business would resume. Reports swirled that the exchange was on the brink and couldn't meet its obligations.

(Read more: Mt.Gox: All transactions closed 'for the time being')

At the very least, bitcoin faces a huge credibility gap which it must try to bridge.

Indeed, bitcoin supporters likely were circling the wagons in trying to figure a way out of the crisis.

"Everybody who runs an exchange is huddled in a corner with security people reviewing everything from top to bottom," said Nick Colas, who has watched bitcoin developments closely as chief market strategist for ConverGex. "What happened at Gox is very opaque, and nobody wants to be the next Mt.Gox."

(Read more: Mt.Gox CEO: Bitcoin exchange at 'turning point')

Surprisingly, the cryptocurrency's price held up fairly well considering the circumstances. According to the newly launched Winkdex—an aggregation of prices hosted by bitcoin supporters Cameron and Tyler Winklevoss—the price Tuesday afternoon was $515. That was a nearly 8 percent drop, but fairly typical of the undulations bitcoin has seen since rising to prominence over the past year or so.

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