Mt. Gox crumbles into liquidation, throws Bitcoin legitimacy into question

“I hate gold. But right now, I’d rather own gold than Bitcoins.”

This sentiment comes from investment firm Belpoint’s chief strategist David Nelson. In a call today with VentureBeat, Nelson discussed implications of the news that Mt. Gox, once the largest Bitcoin exchange on the planet, has been ordered by a Tokyo court to begin liquidation.

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The directive from the district court and the appointment of attorney Nobuaki Kobayashi as the bankruptcy trustee was announced in a document posted today on the Mt. Gox site. Last week, the Wall Street Journal first reported that Mt. Gox had asked the court for permission to liquidate.

While Mt. Gox’s ignominious end might raise doubts about the viability of the digital currency, Nelson pointed out that “some big names” are still investing.

As one example, he noted Bill Miller, who “managed the Legg Mason Value Fund for decades, has put money into Bitcoins.” This, he added, in spite of the fact that the currency is trading for about $488 per Bitcoin right now, down from more than $1,100 in December.

“This [price drop] is an enormous vote of no confidence,” he said.

Nelson characterized the demise of Mt. Gox, which was handling 70 percent of all Bitcoin transactions last year, as “more than a ripple but not quite a death blow.”

Since Mt. Gox and other exchanges have been having issues, he suggested Bitcoin owners might be better served by simply storing their investments on non-connected devices and going to the exchanges only when they need to liquidate.

Mt. Gox filed for bankruptcy at the end of February after suspending customer withdrawals on February 7. The exchange reported 750,000 Bitcoins had been stolen from customers’ accounts and 100,000 from the exchange because of a problem with the digital currency’s code. The missing Bitcoins were worth an estimated half-billion dollars.

The exchange currently has about 127,000 creditors, and Kobayashi has indicated he will investigate if Mt. Gox’s CEO, Mark Karpeles, bears any liability. A creditors’ meeting is scheduled for mid-summer.

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In early March, hackers posted information that purported to come from Karpeles’ Reddit account and personal blog and from a zip file allegedly taken from Mt. Gox servers. Said hackers said some of the Bitcoins which had been reported stolen had been kept by the exchange. Separately, the exchange said it discovered 200,000 of the missing Bitcoins.