Mt Gox Halts Run on USD as Market Share Falls to New Low

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Today, Mt Gox announced they are suspending USD withdrawals for at least two weeks. This suspension was caused by a high volume of USD withdrawals from Mt. Gox’s bank accounts, with the company citing difficulty for their bank in processing transactions “smoothly.” This news comes one month after the announcement that the US Government seized their Dwolla bank accounts for failing to register as a Money Service Business (MSB). Two weeks ago OKPay, a long time partner of Mt. Gox wire transfers, suspended all operations with bitcoin customers.

mt gox usd suspended

Statement that Mt. Gox halted USD withdrawals – posted on June 20th

There will likely be two effects from this action: a temporary rise in USD/BTC value as holders use bitcoin to move their funds out of the Mt. Gox exchange; followed by a further decline in Mt. Gox’s market share of bitcoin exchanges. Following the May 14th announcement, there was a 10 day increase in the USD/BTC exchange rate as price increased from $115 to $135. This was followed by a 2 week decline down to $90. While other macro trends certainly had an effect on the exchange rate, the fear of further Mt. Gox account seizures is likely responsible for a significant effect.

mt-gox-usd-char-markupt

Daily USD/BTC Price, chart from clarkmoody.com

Following the Dwolla annoucement in May, Mt. Gox’s market share dropped precipitously from 80% of the total USD market by volume to and average of approximately 65% for most of the last few weeks. Bitstamp was the large winner after that announcement, more than doubling their market share from 10% to 20%.

BTC-USD Exchange Market Share v4

It is still unclear how this will affect merchant bitcoin payment processors that rely on Mt. Gox for rapid conversion of BTC to USD in order to reduce volatility risk. Hopefully we will see announcements from BitPay and Coinbase saying they have diversified away from Mt. Gox and their customers are unaffected. These services have become essential for many companies that process bitcoin transactions.

Most large players in the bitcoin community realize that bitcoin is more than its exchanges. It is healthy for the bitcoin eco-system to decentralize away from Mt. Gox as the primary exchange. They have been the dominant player for four years, and other startups have had trouble gaining the volume and liquidity that Mt. Gox provided. While this event may cause short-term instability in bitcoin markets, as events like these continue to transpire the diversification will make bitcoin stronger in the long run.

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