The Epic Fall Of Mt. Gox: The Increasingly Illiquid Bitcoin Exchange

January 28, 2014 23:00 UTC
Here’s a quote you haven’t seen in awhile.

Some time between June 22nd, 2013 and July 23rd, 2014 Mt. Gox finally removed that quote from the front page of their website.  In fact, long before summer of 2013 and even before the light bubble pop of April 2013, Mt. Gox was no longer processing 80% of all Bitcoin trade… Thus began the epic fall of Mt. Gox.

Today, according to Bitcoincharts, Mt. Gox is currently the 2nd largest exchange by volume having fallen behind Bitstamp in the last year.  One of the major events that has shifted consistent volume away from Mt. Gox is Coinbase switching their main exchange of choice away from Mt. Gox and towards BitStamp.  In the same year many more Bitcoin exchanges have stepped forward and proven themselves trustworthy at least in their users’ eyes.  Hell, even Mcxnow is back! Although, the value of McxFEE’s will never quite be the same…

Mt. Gox users have been experiencing fiat withdrawal issues since mid 2013.  As a result, many Mt. Gox users with USD tied up in Mt. Gox’s system had no choice but to buy Bitcoins and transfer those out, even if they had been put off by the April 2013 crash and were seeking their USD back.  Ironically, Mt. Gox’s withdrawal delays may have forced some investors to stay in the market long enough to catch Bitcoin’s meteoric rise in the latter half of 2013.

By and far, the largest event that every Bitcoiner has heard about and every Bitcoin newbie has been warned about is Mt. Gox’s liquidity issues.  In fact, the fiat liquidity at Mt. Gox is what sustains their trading volume much in the same way that a 0-fee structure drives volume at Huobi, and as it previously did at BTC China.

Recently, Mt. Gox has required that users must become verified before they can withdraw even Bitcoin, causing many to wonder why Mt. Gox is still leading the USD/BTC exchanges in exchange rate.  However, as many will remember from the previous run up in exchange rate led by China, the fiat price of Bitcoin on Chinese exchanges actually outstripped that of Mt. Gox’s for long periods of time, leaving Mt. Gox without even the price leader position.  Even now with Mt. Gox’s recent rise to above $1,000 USD which prompted headlines in mainstream media, and CCN as well, spikes in volume (and Bitcoin exchange rate) at Mt. Gox are often attributed to players leaving Mt. Gox in favor of other exchanges.

Massive delays in fiat withdrawals for verified customers coupled with massive delays in the actual act of verifying customers provides for an incredibly not-liquid Bitcoin exchange.  As users finally manage to navigate the verification system and eek out withdrawals, we will continue to witness the epic fall of Mt. Gox.


Caleb is a graduate of the University of Virginia where he studied Economics, East Asian Studies, and Mathematics. He is currently pursuing his MSc in Digital Currency at the University of Nicosia.