The following appeared in a Los Angeles Times editorial:
The sudden collapse of the Mt. Gox bitcoin exchange Tuesday demonstrated to the public just how risky the virtual currency can be. Prosecutors have rushed to investigate, and regulators in the U.S. and Japan, where Mt. Gox was based, are mulling how to extend their purview to bitcoin trades. One senator even called for a ban on the currency. Investors have long been keenly aware of the perils associated with the volatile commodity. While the currency is in its infancy, those with little appetite for risk should stay away. It's too early to write bitcoins off or treat them like a banking system in dire need of oversight.
As with gold, bitcoins are in limited supply, and their value rises or falls with the demand from investors. They are bought and sold electronically through online exchanges and stored in digital wallets that only their owners can open. The strong security built into the technology also deters counterfeiting, which is one reason online merchants are starting to accept them in lieu of credit cards.
Those are the pluses. On the other side, the anonymity bitcoin provides has made it popular among those who buy and sell guns and illegal drugs online. The currency has also been prone to bubbles. Three times since late 2012, the value of bitcoins has skyrocketed, only to plummet days or weeks later. The most recent bust, triggered when Mt. Gox's customers sought to empty their accounts, led the exchange to shut down.
Why Mt. Gox foundered remains a mystery, and investigators should find out whether financial crimes played a role. But its failure should not be seen as a death knell; prices stabilized quickly after Mt. Gox shuttered. Bitcoins may have lost half their value since last year's peak, but they're still selling for 56 times the price they were in early 2013. Meanwhile, venture capitalists have poured over $98 million into bitcoin-related start-ups.
It's appropriate for governments to guard against bitcoin-related crime. But rather than trying to regulate away bitcoin's financial risks, governments should let the small community of users absorb growing pains.
