Another Huge Blow to Bitcoin Credibility and Viability

Banking, finance, and taxes

Published: February 10, 2014 12:00 pm

Bitcoin received a blow last week after the online exchange MtGox suspended withdrawals of bitcoins on its exchange. Now there is another foe that has arisen, and one that may seem a bit counterintuitive on the surface — Russia.

News was out on Monday and over the weekend that Russian authorities were moving to crack down on virtual currencies. This includes Bitcoin. Is it ironic that money laundering was one of the cited reasons? Financing terrorism was another reason for the crackdown.

One of the citations was that anonymous payment systems are money surrogates that should not be used by citizens or legal entities. The Russian ruble is supposed to be the only official currency and substitutes are illegal.

MtGox said regarding the limitations:

The problem we have identified is not limited to MtGox, and affects all transactions where Bitcoins are being sent to a third party. We believe that the changes required for addressing this issue will be positive over the long term for the whole community. As a result we took the necessary action of suspending bitcoin withdrawals until this technical issue has been resolved.

MtGox has detected unusual activity on its Bitcoin wallets and performed investigations during the past weeks. This confirmed the presence of transactions which need to be examined more closely.

MtGox shows that Bitcoin hit a low of $500 on Monday, half of its peak from the past month. The high was $700 on Monday, with the last print coming in at $599.90 as of 11:40 a.m. EST.

Bitcoin is an idea that the time has come to support, but perhaps something much more transparent and something much less hard to track is in order. For a system to work, central banks around the world will have to endorse it so that new funny money cannot just be created out of thin air — other than what they are printing that is.

The MtGox chart below has been compressed, but this will show you just how volatile this virtual currency has been. Real currencies do not trade this way.

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