Bitcoin, Litecoin, Tulips and Deflation

Bitcoin virtual currency is on verge of collapse

The closure of the world's largest bitcoin exchange triggers a massive sell-off and may have scared investors away from it for good.

It was supposed to revolutionize the global monetary system. Instead, the bitcoin virtual currency that has captured the imagination of investors and financiers is on the verge of collapse.

In a stunning blow to a novel way to buy products and services, the world's largest exchange for trading bitcoin currency shut down Tuesday, triggering a massive sell-off and sending many prospective investors away — perhaps for good.

"This is extremely destructive," said Mark Williams, a risk-management expert and former Federal Reserve Bank examiner. "What we're seeing is a lot of the flaws. It's not only fragile, it's fragile as eggshells."

Yet another Bitcoin exchange implodes: Vircurex will freeze accounts tomorrow

Vircurex is the latest company to join the growing list of insolvent Bitcoin exchanges, according to a statement issued on its site today.

Vircurex announced that it will immediately stop withdrawals of Bitcoin, Litecoin, and other virtual currencies, reports The Next Web. Starting tomorrow, Vircurex plans to freeze all user accounts.

Plagued by two hacking incidents last year, Vircurex previously pledged to cover its users’ losses via its own income. Due to “large fund withdrawals in the last weeks,” Vircurex claims it has taken the above actions to prevent the service from shutting down entirely.

   “Unfortunately we had large fund withdrawals in the last weeks which have led to a complete depletion of our cold wallet balance and we are now facing the option of either closing the site with significant unrecoverable losses for all or to work out a solution that allows the exchange to continue to operate and gradually pay back the losses.”

This news follows the catastrophic shutdown of Mt. Gox, once the largest Bitcoin exchange in existence, on Feburary 25. Other prominent exchanges have ended in sudden shutdowns, including Flexcoin on March 5, and Crypto-Trade on February 27.