JPMorgan Slams Bitcoin as Exchanges Halt Withdrawals
First Mt. Gox, then Bitstamp: Two of the three largest Bitcoin exchanges by trading volume have halted withdrawals in the past week, following a "massive and concerted attack" by a bot network that has exploited the method by which the Bitcoin network confirms transactions. As a result, Bitcoin exchange BTC-e, which rounds out the top three, announced possible delays in crediting transactions.
Bitcoin's core developers, who are charged with managing the open-source software that underlies the Bitcoin ecosystem, are working rapidly to fix the problem, while exchanges work to improve their internal systems. No funds were lost to the attacks, which essentially disrupted the back-end accounting systems of the targeted exchanges.
Nevertheless, the currency has lost a significant chunk of its exchange value in the past week. As of 12:36 p.m. EST on Wednesday, the price of Bitcoin was $668 on Bitstamp, $657 on BTC-e and $556 on Mt. Gox, which has suffered the most, according to Bitcoincharts.com.
According to the Bitcoin Price Index, which provides an average of Bitcoin prices across top exchanges around the world, a single bitcoin was worth $837 on the night of Feb. 5, before the slide began. CoinDesk, which publishes the Bitcoin Price Index, removed Mt. Gox from the index following its decision to halt withdrawals.
These troubles add bite to a deeply negative assessment of the cryptocurrency given in a report, "The Audacity of Bitcoin," released Tuesday by JPMorgan. In the report, John Normand, the company's head of forex strategy, calls Bitcoin "incredibly illiquid" and "extremely volatile."
"At the risk of sounding like a Luddite, Bitcoin looks like an innovation worth limiting exposure to," Normand says in the report. "As a medium of exchange, unit of account and store of value, it is vastly inferior to fiat currencies."
While admitting that Bitcoin's price swings over the past year -- which have added up to tremendous growth overall -- "may represent simply normal volatility for a start-up currency," Normand concludes that its price uncertainty "make[s] it impossible to seriously consider Bitcoin as a unit of account or store of valuefor an material amount of corporate or investor exposure."
In his analysis, however, Normand neglects to mention services, such as those offered by Coinbase and BitPay, that allow merchants to accept payment in bitcoins while limiting their exposure to the digital currency's volatility by instantly converting it into U.S. dollars. Jonathan Johnson, the executive vice chairman of online retailer Overstock, which recently began accepting Bitcoin as a payment method, discussed his company's partnership with Coinbase last month at hearings organized by the New York Department of Financial Services.
Bitcoin could allow businesses to add two to three percent to their bottom line by eliminating credit card transaction fees, Johnson said. He also noted that payments in bitcoins arrive instantly, unlike credit card payments.
Already, some 21,000 merchants are using Coinbase to accept customer payments in Bitcoin. Overstock announced its acceptance of the digital currency on Jan. 9, and by the end of January the retailer had received nearly 3,000 orders in Bitcoin, with a total value of more than $600,000.
As for the halted exchanges, Andreas Antonopoulos, the chief security officer of Blockchain.info, one of the most popular Bitcoin wallet providers, told CoinDesk that withdrawals should be "flowing again within 24 and 72 hours, and in the meantime, any withdrawals that were cancelled will reappear in customer account balances."
"The death of Bitcoin has been prematurely announced so many times already that the obvious conclusion is that bitcoin is far more resilient than its critics would like to think," Antonopoulos added. "I am confident that in a few days, those who predicted the death of Bitcoin will once again be proven wrong."