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Recent Developments in the Rapidly Changing Bitcoin Market

On February 27, 2014, Fitch Law Partners LLP posted a blog article regarding the volatile market for Bitcoin and the rapid rise of the cryptocurrency over the past two-three years.  Over the past month, there have been several important new developments.

First, after experiencing widespread difficulties and reporting that it had lost nearly $500 million dollars worth of customers' Bitcoins, troubled Bitcoin exchange MtGox.com filed for bankruptcy on February 28, 2014. (1) The same day, an investor filed a class action lawsuit in the U.S. District Court for the Northern District of Illinois, alleging that Mt. Gox failed to properly secure customers' accounts. (2)

Surprisingly Mt. Gox announced in late March that it had discovered 200,000 Bitcoins in an old-format e-wallet, which was in use prior to June 2011. (3) Based on current exchange rates, the found coins are valued at approximately $114 million. (4) The fact that Mt. Gox could abruptly find over $100 million in Bitcoins it previously thought lost raises further troubling questions about the security policies and procedures enacted by the failed exchange.   

In another notable Bitcoin-related development, a local company, Liberty Teller, has recently installed two local Bitcoin "ATMs" - which the company describes as kiosks that allow consumers to insert cash into the machine and load Bitcoins onto a virtual wallet.  The first Liberty Teller Bitcoin ATM was opened in Boston's South Station in late February and drew "more than 500 customers in less than three weeks," according to one of the co-founders of Liberty Teller. (5) The second Bitcoin ATM was opened in mid-March at Clover Food Lab in Harvard Square in Cambridge. (6)

In the wake of the installation of the Bitcoin ATMs, the Massachusetts Department of Consumer Affairs and Business Regulation issued a Consumer Alert entitled "Buy Bitcoins at Your Own Risk." (7) The Consumer Alert explained some of the basic properties of Bitcoin before detailing several risks consumers should be attuned to. (8) The Consumer Alert noted several prominent risks of investing in Bitcoins, including the high volatility, the risk of virtual wallets being hacked and Bitcoins being stolen, and the lack of consumer protections. (9) The Consumer Alert unequivocally advised consumers: "if you can't afford to lose the money you have, you should not buy bitcoins." (10)

Despite its risks, the cryptocurrency continues to trade at approximately $580.00 per Bitcoin. (11) Fitch Law Partners LLP will continue to monitor developing events in the Mt. Gox litigation and the regulatory environment for Bitcoin.

For more information about our banking law practice, please visit our banking law page.

1 Yoshifumi Takemoto and Sophie Knight, Mt. Gox files for bankruptcy, hit with lawsuit, Reuters, available at: http://www.reuters.com/article/2014/02/28/us-bitcoin-mtgox-bankruptcy-idUSBREA1R0FX20140228.

2 Id.

3 Rachel Abrams, Mt. Gox Says it Has Found 200,000 Bitcoins Worth About $114 Million, N.Y. Times Dealbook,March 21, 2014, available at http://dealbook.nytimes.com/2014/03/21/mt-gox-says-it-has-found-200000-bitcoins-worth-about-114-million/?_php=true&_type=blogs&_r=0.

4 Id.  

5 Matt Rocheleau, 2nd local bitcoin ATM installed in Harvard Square, Boston.com, March 18, 2014, available at: http://www.boston.com/business/technology/2014/03/18/local-bitcoin-atm-installed-harvard-square/VqkDRb9xr3t0pazDEZzjfK/story.html.

6 Id.

7 http://www.mass.gov/ocabr/media/advisories/bitcoin-advisory.html.

8 Id.

9 Id.  

10 Id.

11 Paul Vigna, BitBeat: China Rumor (Since Refuted) Drops Bitcoin Prices, Wall Street Journal Money Beat, available at: http://blogs.wsj.com/moneybeat/2014/03/21/bitbeat-china-rumor-since-refuted-drops-bitcoin-prices/.

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