The Mt. Gox Implosion Could Be the Ultimate Triumph of Unregulated, Free Markets

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ImplosionYes, you read that correctly.

How could the destruction of the single, largest chunk of the bitcoin economy be good for bitcoin, and good for free markets?

How can a market value of anywhere between 20% and 30% of the dollar value of entire bitcoin economy going up in smoke  prove, finally, beyond a shadow of a doubt that purely free markets, unregulated from government intervention are superior in all ways to  government regulated, centrally planned economies?

Our starting point, because people will go here almost immediately, is the utterly baseless assertion that had bitcoin only been regulated, this sort of thing would have never been happened.

We know this is false, because financial panics, scandals and meltdowns occur with (alarmingly increasing) frequency amongst the government regulated equities, bonds, currencies and derivatives markets. Some of these markets being the most regulated in the world. Over 7 trillion dollars of wealth vaporized during the Global Financial Crisis of 2008-2009, and the policy response to that was to create an almost textbook setup for year another crisis (sovereign debt, interest rates and massive money expansion) which could hit anytime.

Paul Krugman unveils template for Bitcoin bailout

Just kidding.

Now one of the twitter search suggestions for “bitcoin” is “bitcoin bailout” with most tweets referencing back to the Dealbook / New York Times article “No Bailout for Bitcoin Holders”

Some of the snarkier pro-regulatory fanboys are chiding  “don’t you wish you had a government regulating it now?”

Well, no, I don’t. I’m glad there’s no government regulation of bitcoin, I hope there continues not to be.

When I railed at the policy response the GFC in ’09 people asked me “but what’s the alternative?” To which I replied that if all banks who were insolvent were allowed to fail there would have been an enormous amount of pain for a short amount of time. I also went on to say that:

The shenanigans that created this mess would not be attempted again for 100 years.

And that is the reason you dont want government regulations and bailouts. David Stockman came out in The Great Deformation and said pretty much the same thing. More importantly what Dave Stockman observes about financial meltdowns in general is that left to their own devices, they are largely contained to the participating stakeholders, and they do not jeopardize the wider economy.

Yes there will be pain, but then the failures will be liquidated into stronger hands, the people who got burnt will be wiser for it, and life will go on.

When you let things like this run their course, you force the responsibility onto the stakeholders to do their homework and keep their eyes open.

Mt. Gox had been flashing bright red warning signals for over a year. I can’t understand why anybody still had money in there, but when everybody moves past this, we are all going to hold our bitcoin service providers to a higher level of accountability and transparency and that’s a good thing.

This episode will not kill bitcoin. Unless of course, the regulators step in and try to “fix everything”.


The comment thread on reddit suggests I haven’t made my point clear (I was somewhat rushed) so to sum up:

  • Shit happens.
  • Introduce government regulation: shit happens more frequently
  • Remove consequences through bailouts: shit happens more intensely
  • Add still more regulation in conjunction with bailouts: big shit hits fast fan, more frequently and with increasing intensity.

(My main business is still accepting bitcoin. In fact when this panic started we added on a 15% premium, meaning a further 15% discount for buyers on everything when paid in bitcoin. This is basically us going long and trying to sop up btc at what we feel are depressed prices).


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