Huge price difference between mtgox and others - why?

Question

I know mtgox is imposing halts of withdrawals at the moment but i just cant understand this chart (see bellow - taken on 21.2.14 21:37 GMT), surely if i can buy btc on mtgox and

A) Then spend them

B) Keep them

When mtgox allows withdrawals they will be at c.$400-500, why are they listed at c.$100 on mtgox at the moment ? Am i missing something or is there a huge opportunity here (ie. why are people selling at $100 when elsewhere they are going for $500) ?

Or is the price artificial ie. its just a price but no coins are changing hands ?

Answer 1

Observations

Mt.Gox is currently offering neither fiat withdrawals, nor Bitcoin withdrawals.

No withdrawals means that the Mt.Gox price is completely decoupled from the Bitcoin market, as there can be no arbitrage to close the gap.

Precursors

Mt.Gox has handled the Malleable Transaction issue poorly, and squandered the trust of a lot of its users. Since shutting down withdrawals on February 10th, they have pointed fingers about an issue that was known since 2011, which they did not take into consideration when implementing their exchange software. They promised on Februar 17th that withdrawals would recommence "soon", which still hasn't happened yet, instead on Februar 20th they announced further delays. They have also not made any statements about how strongly they were affected by the issue and whether their customers money is safe. For comparison Bitstamp.net immediately communicated that all deposits were safe, and had their service fixed and secured against Transaction Malleability within a few days.

Idle Speculations (=ramblings, certainly not investment advice)

I am seeing two scenarios possible at the moment:

1. Mt.Gox is insolvent. This could have happened due to them unwittingly double-sending many withdrawals of a total immense amounts due to the Malleable Transaction issue.

   • They cannot recommence withdrawals, as the bank run would immediately take all their room for maneuvering. At the moment they can still earn a fee on every trade and enough trade just might lift them back to business.
   • First lawsuits are imminent. People holding fiat on the exchange might have better chances of getting some money back.

2. Mt.Gox actually is just communicating poorly and, being more strongly affected by the issue, requires more time to sort out all their transaction history.

   • Once withdrawals resume, the market will settle to somewhere between current market value and Mt.Gox value through arbitrage. Mt.Gox' market share would probably still drop significantly.

I'd be surprised if they were actually insolvent, as they would have to be making a good amount of money from exchange fees every day.

Answer 2

As my comment says, if you were to buy any BTC on Mt. Gox, you have no way of transferring it elsewhere or spending it. All outbound transfers are turned off, and people have no way of knowing if or when transfers will resume.

There's a belief that Mt. Gox is insolvent or will be shortly. Whether that is true remains to be seen.

But if Mt. Gox does indeed go bankrupt, there is a school of thought that says you are better holding fiat currency in Mt. Gox than holding Bitcoin. There is an established body of law in Japan and elsewhere about companies that go bankrupt while holding customer funds. There is very little precedent about what to do when a company goes bankrupt holding customer accounts in Bitcoin.

Since you cannot get either out of Mt. Gox at this time, people are hesitant about holding BTC. That's just one of the factors contributing to the current pricing.