Was bitcoin dealt a death blow with the closing of Mt. Gov.?

Yesterday The Wall Street Journal reported that federal prosecutors based in New York had served Mt. Gox with a subpoena earlier this month. The report, citing an unnamed person familiar with the matter, said the subpoena included an order for Mt. Gox to preserve certain documents.  Investors with bitcoins held at Mt. Gox have flown from as far away as the U.K. to protest outside the exchange’s offices. Some investors say they have contacted the Financial Services Agency, Japan’s banking watchdog, to ask regulators whether there are any rules protecting Mt. Gox customers. In Japan chief cabinet secretary Suga said authorities are gathering information on closure of Mt. Gox bitcoin exchange.

A recent article by Daniel Palmer summed it up pretty well – “Crypto currency bitcoin has been touted as the ‘world’s safest currency’ by its large band of supporters. Overnight, that illusion was shattered, as its former leading exchange – Mt Gox – went offline, seemingly never to return given reports of a sizeable theft and possible insolvency.” The news has the potential to bring the digital currency to its knees.

Rumors started flying about a week ago when Mt. Gov. the largest exchange for bitcoin stopped payments. Mt. Gov. blamed the problems on bitcoin and its programming and technology claiming there was a glitch in the software, but this might have just been a ploy to stall for time. Supporters of the currency insist bitcoin is fine; it was merely the exchange that was problematic. But the empty shell that is now the Mt Gox website will erode trust. And with it over $300 million worth of bitcoins may have been lost as speculation mounts of the theft of 740,000 bitcoins. Investors and holders are asking where are the bitcoins or where is the money? No one seems to be able to get an answer.

Authorities in Japan the headquarters of Mt Gov.’s are seemingly indifferent to the news. The Financial Services Agency in the Asian nation summed up the major problem with bitcoin: it actually isn’t a cash substitute as its use as a store of value and medium of exchange is, at best, trivial. “Bitcoin is not a currency; it is an alternative to currencies, like gold,” a spokesperson for the Financial Services Agency declared.

The website of Mt. Gox suddenly went down on Tuesday with no explanation and the company’s Tokyo office was empty. Mt. Gox CEO Mark Karpeles told Reuters in an email: “We should have an official announcement ready soon. We are currently at a turning point for the business. I can’t tell much more for now as this also involves other parties.” He did not elaborate on the details or give his location.

Bitcoin holders deposit their bitcoins in digital wallets at specific exchanges, so the Mt. Gox shutdown is similar to a bank closing its doors – people cannot retrieve their funds. The question now remains, how will bitcoin survive and would you invest your money in a digital currency?