U.S. and Japanese regulators launched investigation on the collapse of the world’s largest platform for trading bitcoins, the virtual currency that has grown in popularity among technophiles for buying products and services online.
A source familiar with the probe said on Wednesday that Manhattan U.S. Attorney Preet Bharara has sent subpoenas to numerous businesses, including MtGox, once the largest bitcoin exchange, as well as other firms that did business with the Tokyo-based company to seek information on how they handled recent cyber attacks.
In the attacks – known as distributed denial of service attacks – hackers overwhelmed bitcoin exchanges by sending thousands of phantom transactions. At least three exchanges were forced to halt withdrawals of bitcoins on February 7, including Mt. Gox, which was the largest at the time, Reuters reports.
The failure of the Tokyo exchange, which may have included the theft of almost 750,000 bitcoins worth more than $300 million, was seen by critics as derailing prospects for the virtual currency. But several high-profile bitcoin investors came forward in its defense Wednesday.
“Mt. Gox had to die for bitcoin to thrive. Its former role from early bitcoin days has been supplanted by better, stronger entities,” said Marc Andreessen, a Web browser pioneer whose venture firm Andreessen Horowitz has invested about $50 million in bitcoin start-ups. “Every important new technology has birthing pains. PC did, Web did, bitcoin does.”
Mark Williams, a risk management expert who teaches finance at Boston University, said the investigation is a positive step in regulating virtual currency.
“If bitcoin is going to be a currency then it needs to actually play by the rules,” Williams said. “At this point, there’s been no regulation in this sector.”
Williams also stated that, “They’re done, they’re toast, they’re Enron – they can’t resurrect themselves,” in reference to the behavior of Mt.Gox and the issue of broken trust.
Mt. Gox never resumed service before going dormant on Tuesday, leaving customers unable to recover their funds. The Tokyo-based company’s chief executive, Mark Karpeles, said earlier on Wednesday that he is working with others to solve the problems.
“As there is a lot of speculation regarding Mt Gox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues,” Karpeles said in a statement posted on the Mt. Gox website.
A second source familiar with the case said U.S. federal law enforcement is investigating Mt. Gox. A third source said the U.S. Federal Bureau of Investigation was monitoring the situation. Sen. Joe Manchin III (D-W.Va.) went one step further and called for a ban. Manchin made his case in a letter to several agencies, including the Treasury Department, the Federal Reserve and the Securities and Exchange Commission.
“This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy,” he wrote. “I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.”
On Wednesday, a spokesman for the Japanese government told the Wall Street Journal’s Takashi Mochizuki that the government would make “a proper assessment” on the regulation of bitcoin. The spokesman alsoconfirmed that the government was working with the country’s police to collect information on MtGox and was prepared to “take action”.