World’s Largest Bitcoin Exchange Out $10 Million

If you think that keeping the world’s most popular Bitcoin exchange up and running is easy, think again.

Mt. Gox, the Japanese-run online trading floor that had $5 million seized by federal agents earlier this year, says that it’s out another $5.3 million, fallout from the company’s legal dispute with its former U.S. partner CoinLab.

At the end of February, Mr. Gox chose CoinLab as its North American agent. The idea was that customers in the U.S. and Canada would be able to use CoinLab as a gateway to the Mt. Gox exchange. But the relationship didn’t last long. By April, it had devolved into a messy $75 million lawsuit.

According to Mt. Gox, its customers deposited about $12,800,000 into CoinLab bank accounts, and while CoinLab has handed over most of that money, it’s still sitting on $5.3 million. CoinLab’s attorney Edgar Sargent declined to comment on the allegations in Mt. Gox’s filings, and Mt. Gox did not respond to requests for comment.

If the allegations are true, it means that Mt. Gox is out more than $10 million this year. The news is yet another reason to wonder about the future of Bitcoin, which continues to be squeezed by the country’s banks and regulators.

Ten million dollars is a significant chunk of the total revenues Mt. Gox is thought to have earned since it was founded in 2010. The company has earned between $8 million and $9 million in U.S. dollar trades, and another 250,000 bitcoins from digital currency transactions, says Greg Schvey, head of research with The Genesis Block, a Bitcoin analysis firm that has looked at Mt. Gox’s trading data. Although we don’t know how many Mt. Gox has retained, a quarter-million bitcoins would be worth about $32 million at today’s rates, by the way, more than enough to weather Mt. Gox through its current woes.

In fact, 250,000 bitcoins would be worth more than $35 million on Mt. Gox’s exchange, where bitcoins cost about 10 percent more than the rest of the world. Observers say that bitcoins are at such a premium there because it’s currently so hard for customers to get paid out in U.S. dollars.

“People doing this trade are implying that there’s a one-in-10 chance that they won’t get their money back,” says Donald Marron, director of the Urban-Brookings Tax Policy Center. He blogged about this phenomenon a few weeks back.

For months now, it’s been next to impossible for Mt. Gox to get money into the U.S. Bitcoin discussion forums are filled with complaints by Mt. Got customers, who have been unable to get their money into the U.S. Banks don’t want to do business with the Japanese exchange — or bitcoin companies in general — because they fear the glare of regulatory scrutiny.

If the Bitcoin community seems remarkably calm about Mt. Gox’s problems, that’s because they’ve been through rough patches with the exchange before. In 2011, Mt. Gox was shut down briefly after it was hacked. “These are some of the difficulties of building a financial market from nothing,” says The Genesis Block’s Schvey. “If you’ve been around for awhile, you have tolerance for everything not going perfectly.”

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