When you think “Mt. Gox,” think “Enron.”
When something this devastating happens to the biggest exchange in an experiment designed by anonymous Japanese programmers, the industry is not going to recover rapidly. Other firms in this industry now have a real marketing problem.
The disappearance of the Mt. Gox bitcoins exchange is a major setback for the future of bitcoins. It will keep out serious money until the industry is regulated by major governments. The move toward regulation has already begun. This will accelerate it.
Representatives of surviving bitcoins firms assure us that this is just a minor setback. But it is not a minor setback. When the biggest bitcoins exchange in the world goes belly-up, and it takes an estimated $409 million worth of investors’ funds with it, the market cannot attract new investors easily. The sheep have now seen what can happen to them. The official assurances from rival firms do not deal with this fear: “It can happen again. Investors will be left with nothing.” How can the survivors prove this is wrong? No one even knows what happened. There is o recourse. It was all private. It was all based on trust. Those who trusted some kid have lost their money.
From day one, bitcoins were sold to libertarian investors on the basis that they are unregulated. This, we were assured by promoters, would make bitcoins into worldwide libertarian money. Now, the “new, improved” bitcoins will be regulated by the Securities and Exchange Commission and the Federal Reserve. Faith must be restored in bitcoins. The solution? Bring in the Feds!
The biggest promoters of bitcoins are the Winklevoss brothers, the guys who sued Mark Zuckerberg, and got rich doing it. They have bought shares in bitcoins companies. They are starting an ETF for bitcoins. They have decided to name it Winkdex.
These boys are not marketers. First, Winkdex sounds like something you clean your windows with. Anything that cleans your windows may also clean your clock. Second, for older people, it sounds like Winky Dink, a TV cartoon character of the 1950′s.
Nobody understood the whole bitcoins thing from the beginning. People understand gold. They do not understand algorithms. When an algorithm is created by a Japanese programmer or team of programmers with a fake name, you’re not going to get major support from the financial community. The financial community is not going to put its money into this, because an industry has to be regulated by the government to attract big money. You have to go to the Securities and Exchange Commission, as the Winklevoss brothers did last year. You have to come under Federal Reserve scrutiny. Plans are ready to create a market for bitcoins. Banks will be involved. The government will regulate it.
But what about the libertarians’ dream of bitcoins a separate currency outside the central banking systems? That was utter nonsense from day one. We are now seeing the federalization of bitcoins. No libertarians need apply.