And Like That, Japan's Bitcoins Were Gone

Blame Japan if you must, but which country really knows what to do with Bitcoin? Certainly not the U.S., which can't decide if it's a currency, a commodity or a Ponzi scheme.
As good as gone? Photographer: Tomohiro Ohsumi/Bloomberg

Observing the mystery over the collapse of the Tokyo-based Bitcoin exchange Mt. Gox and the disappearance of 750,000 Bitcoins, I keep thinking about "The Usual Suspects."

The so-called virtual currency was supposedly invented by someone or some group of people named Satoshi Nakamoto. Newsweek claims to have tracked him down, fingering Los Angeles resident Dorian S. Nakamoto. But we've been here before. In 2011, the New Yorker excited the cyberworld in similar fashion. Newsweek's supposed Nakamoto, a 64-year-old physicist, denied involvement before leading reporters on a bizarre multi-vehicle car chase.

QuickTake The Rise of Bitcoin

Fact is, we still don't know for sure who Satoshi Nakamoto is or if this person or people are even Japanese. Depending on one's viewpoint, Nakamoto remains either this sordid financial drama's Keyser Soze or its Kobayashi. We're all looking forward to the final scene, when we'll find out if the Bitcoin creator is a ruthless crime lord, his fixer or perhaps even the Wizard of Oz.

That goes double for Japan's Financial Services Agency. Japanese regulators had this murky tale dropped in their laps, and they seem utterly baffled by the plot unfolding around them. Personally, I think they deserve a bit of a pass.

Blame Japan if you must, but which country really knows what to do with Bitcoin? Certainly not the U.S., which can't decide if it's a currency, a commodity or a Ponzi scheme. Certainly not China, which one moment looks askance at Bitcoin and the next eyes it as an intriguing geopolitical tool to supplant the dollar. Thailand and Taiwan have said no to Bitcoin, while Singapore, like Japan, is treading cautiously. When Mt. Gox blew up last month, I had visions of Taro Aso, Japan's 73-year-old finance minister, typing "What is Bitcoin?" into Google's search engine.

This week, Aso's ministry stated that Bitcoin isn't considered a currency under Japanese law and said it might start taxing transactions or capital gains. The reason is simple: If you don't really know who issues something, who protects its integrity and value, or, more generally, what to do with it, it's not really a currency.

The hipsters who created Bitcoin and its champions, including the Winklevoss twins (who claim Mark Zuckerberg stole Facebook from them), have always shied away from having regulators set up market parameters and infrastructure. And now that their speculative bubble has popped, they suddenly wonder why the government wasn't protecting them. It reminds me of all those U.S. politicians who abhor the existence of the Federal Emergency Management Agency and cut its budget only to decry its failure to prepare when disaster strikes.

The borderless, government-free economy is cool until you need a cop -- or customer service. YouTube and Reddit are awash with lost-in-translation calls to Mt. Gox: Befuddled gaijin who thought it was more conventional bank than futuristic casino are now begging for their money back from ultrapolite Japanese women who don't speak their language. Just a word to the wise: Entrusting your money to a company you know little about in a country where you can't communicate and where you don't know how the bankruptcy laws work isn't the brightest idea.

Hollywood's most creative minds couldn't make this stuff up. The Bitcoin plot thickened with the recent possible suicide of American Autumn Radtke, chief executive officer of another virtual currency exchange, First Meta, in Singapore. It speaks to the absurdity of our times when satirists such as HBO's Bill Maher offer greater insights than financiers do. As the comedian said on Feb. 28: "If you invested all your money in virtual currency, don't be surprised when it virtually disappears. Who could have predicted this? Virtually everyone."

Could Japanese regulators have done a better job? Sure. There were ample red flags: security cracks; questionable stoppages in trading; breach-of-contract lawsuits; delayed or refused withdrawals. And basic size and scope should have made Tokyo more curious. Why, regulators might have asked, is some French guy in Shibuya at times handling 70 percent of all Bitcoin traffic? They are asking now. Something else should worry Bitcoin aficionados: If this kind of meltdown could happen in conservative, rules-obsessed Japan, it could happen anywhere, and on a much grander scale. What a great way for Chinese or North Korean hackers to get massively rich.

All this comes at a bad time for Prime Minister Shinzo Abe as he tries to bolster Tokyo's status as a financial hub. But Japan is right that this is a multilateral issue, one above the pay grade of Tokyo regulators. Let the International Monetary Fund or Group of 20 nations chew on this one. A group decision really must be made about what Bitcoin is to keep the usual suspects from losing their fortunes. Well, virtually.

(William Pesek is a Bloomberg View columnist. Follow him on Twitter at @williampesek.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.