Bitcoin value plunges as Mt.Gox halts withdrawals and Russia says 'nyet'

'Technical issue' keeping customers' coins locked away

The value of Bitcoins dropped sharply on Friday after leading Bitcoin exchange Mt.Gox suspended all withdrawals and the Russian Federation declared virtual currencies illegal.

The exact reasons why Mt.Gox isn't letting customers withdraw their Bitcoins remain murky. According to a statement released on Friday, the exchange had encountered a technical glitch when processing a higher-than-usual volume of currency withdrawal requests, but no further details were given.

"We apologize for the sudden short notice," the statement read. "All bitcoin withdrawal requests will be on pause, and the withdrawals in the system will be returned to your MtGox wallet and can be reinitiated once the issue is resolved. The trading platform will perform as usual for the needs of our customers."

Naturally, online Bitcoin forums have been in uproar over the situation. One Australian going by the online handle "CoinSearcher" was so miffed after repeated attempts to withdraw his Bitcoin from Mt.Gox failed on Wednesday, that he actually booked a flight to the company's Tokyo headquarters to protest – and he posted his story to Reddit.

According to CoinSearcher, he was told by a senior Mt.Gox staffer that the withdrawal problems were a "complex technical issue" and had no implications for the company's own solvency or the liquidity of customers' accounts.

"The BTC withdrawal issue is a technical one, and one that has previously affected the MtGox system, our engineers are working hard to resolve the problem," he was told – but he was unable to get anyone to explain the problem in any detail.

Mt.Gox has offered no guidance on when it will resume processing withdrawal requests, saying only that it will "provide an update" on Monday, February 10.

Meanwhile, a number of Russian Bitcoin exchanges have reportedly closed down after the General Prosecutor of the Russian Federation issued guidance clarifying that trading in Bitcoin and other cryptocurrencies – "kriptovalyuty", in your best Boris Badenov accent – violates Russian law.

"In accordance with Art. 27 of the Federal Law 'On the Central Bank of the Russian Federation', the official currency of the Russian Federation is the ruble ... Bitcoin are money substitutes and cannot be used by individuals and legal entities," reads a Google-translated version of the guidance.

The prosecutor's statement goes on to cite the usual concerns about money laundering, and that Bitcoin's price "is determined solely by speculative actions that entails a high risk of loss of value."

That last point was certainly proven this week, when news of Mt.Gox's withdrawals problem sent the real-world value of a single Bitcoin – which had been stable at more than $900 for some time – into a nosedive that bottomed out at $660 before recovering slightly to around $760. ®