On February 28, 2014, Mt. Gox, the oldest Bitcoin exchange, filed for bankruptcy reorganization under Japanese law, toppling from its place in the Bitcoin community to insolvency. This filing confirmed rumors of financial troubles spawned by Mt. Gox’s sudden suspension of trading on February 25 and focused increased legal scrutiny on Mt. Gox’s business practices.
Mt. Gox’s downward legal spiral began in May 2013, when the Department of Homeland Security seized $5.5 million in funds held in its U.S. subsidiary’s processing accounts for failure to register as a U.S. Federal Money Services Business. Until then, despite having experienced other losses due to security breaches and other technical failures, Mt. Gox had enjoyed a rapid rise in popularity to become the largest Bitcoin exchange in the world, at one point handling as many as 80% of Bitcoin trades worldwide. The negative press and loss of consumer confidence from the government seizure of Mt. Gox’s funds, combined with the rise of several strong market competitors cut down Mt. Gox’s market share significantly. However, despite its challenges, Mt. Gox continued to conduct approximately 34% of all Bitcoin exchange transactions in early February 2014.
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