Bitcoin2Bitcoin is melting. Not terribly surprising, considering that the fundamentals of bitcoin have been shown to be in error.

Mt. Gox cut off transfers to other exchanges. Funny thing though. Nobody else did. (Well, a couple of the other small, old-timer exchanges did, but you get the picture. And it’s ridiculously easy to fix that bug.)

So why would Mt Gox do this?

Maybe it’s all software problems. Maybe. But hey. Look at the arbitrage that has opened up. Today, (Feb 15, 2014) prices on Mt. Gox were as low as $395 while Coinbase sits at $600+.

Mt Gox banner this evening.

  • Last:$280.00
  • High:$540.006f67b-ohmycartoon
  • Low:$270.00
  • Vol:77,754 BTC
  • W.Avg:$348.87

Coinbase this evening.

Buy Price $652.08   Sell Price $651.30

$112.08 in arbitrage if you bought high on Mt. Gox and sold on Coinbase. More realistically, $303.21 in arbitrage per coin on Mt. Gox.

Mt. Gox, more thinly traded, is lower. Yeah. But 54% lower?!  Now. What does cutting off transfers outbound from Mt Gox accomplish? It traps everyone at Mt. Gox. That forces prices lower still. And …

Ta da! The guys running Mt. Gox can buy up all the bitcoins sold on Mt. Gox themselves. And then transfer them to Coinbase or Kraken, or wherever, and sell them all at a 150% or more of their costs basis.

That is a completely rational strategy to pursue if you know the ship is sinking and the game is over. Because that is not what an exchange would do if they thought bitcoin had a future. We should watch carefully where Mt Gox goes.

Big question though. Is it legal? At the very least it is unethical as hell. Since at least one court has classed bitcoins as both money and a security, the SEC does have jurisdiction. And I suspect that Mt Gox may be way off into felony territory right now. There is a big difference between an exchange not being responsible for ordinary losses. It is quite another thing to play games in order to score off the customers by fooling them. We shall see.

Maybe Mt Gox is really just temporarily shut down bitcoin transfers outbound to fix a real software problem. Maybe. But I doubt it. I really do. I think they are more likely burning the furniture boys and girls.

But hey, Mt Gox has always been a roach hotel. This is the roach hotel modus operandi all over again.