Is Mt. Gox the Pets.com of Bitcoin?

Daniel Cawrey
Mar 5, 2014 at 13:32 UTC
Updated Mar 5, 2014 at 19:16 UTC

History has a funny way of repeating itself. When it comes to technology, its self-destructive nature can also feel repetitive.

Someday, perhaps everyone will think nostalgically about the life, times and ineptitudes of Mt. Gox. What an exciting and eventful moment. That wistfulness will likely be tinged with the regret of money lost, never to be returned.

These events serve as a reminder of a vicious circle that exists during the teething stages of new industries. The Internet itself experienced similar problems on a large scale fifteen years ago.

Hopefully, the Mt. Gox saga can serve as a warning call for what hype and hyperbole can do in the early days of a new technology. Remember, the dotcom era was full of bigger busts than Mt. Gox.

Online pet supplies

Remember the late 90s? At that time, the Internet was hot stuff. There were tons of burgeoning startups getting into the web game. It seemed as though every company was scrambling to get a fancy new .com address – which appeared to be the ticket to vast (albeit undetermined) riches.

You could come up with an idea, say, delivering pet supplies – and investors would go for it. Sometimes, when optimism is high, ideas will fly.

"We have no strategy for making money."“We have no strategy for actually making money.”

But sometimes, even though the economic realities eventually come into play. With Pets.com the hype seemed real – they even had a Super Bowl ad.

People will no longer go to pet stores, they said. Customers will sit at home and purchase that stuff from their sofa.

Mt. Gox could be compared to Pets.com as an early experiment in an emerging industry. Trying to sell pet supplies? Online? Who would have thought. Actually, it wasn’t a bad idea. But it was ahead of its time.

Gox versus Pets

Any new technology will bring early adopters who will slowly bring concepts to the mainstream. Both Gox and Pets.com worked off of this ideal. The problem was the execution in between.

Pets.com had a marketing slogan that supposedly explained its business to people: “Because Pets Can’t Drive!”

 

Of course, pets don’t pay for their own food, either. The company, without any inkling of profit, went on a spending spree. Using money it raised, the company built warehouses and hired people for a service people didn’t yet want.

By comparison, Mt. Gox was building a coffee shop on the ground floor of its offices. What was the assumption there? That people who stood protesting outside the company’s Tokyo office would need a caffeine boost?

The exchange had engaged in a series of mishaps over the years. It’s ability to run as a cutting edge platform for obtaining bitcoin was questionable at best.

Yet, people still invested in Mt. Gox. Its price premium proved to be too enticing, even though it was one of the most volatile exchanges.

Navigating bubbles

The Internet craze was a bubble back in the late 90s.

Is the race to get a bitcoin address reminiscent of the scramble for domain names? Some say a bubble can’t be seen ahead of time, but that it can only be viewed when looking back.

However, at this stage there doesn’t seem to be the gold-rush mentality in bitcoin that you normally would see with an investor craze. Bitcoin is still new, and still appears to the general public as a risky investment. That’s a good thing.

It means that some of the early, antiquated bitcoin businesses can self-destruct on their own. They need to: creative destruction is necessary to go forward. Sometimes, in order to grow, things have to change.

The losses

The failure of Pets.com was swift. In less than a year after its initial public offering, the company was forced to liquidate its assets. But its $82.5m IPO was a sign that there was financial support behind the company. The fact that it lost over $300m (in 2000 dollars) shows it had no idea what it was doing.

Mt. Gox as a company never would have seen such investor interest. It had serious financial problems of over $60m it was trying to hide from users, and had its banking funds seized in the United States.

Was that part of the fall of Mt. Gox? It certainly didn’t help. CEO Mark Karpeles has said that the financial system was impeding Mt. Gox to do its business:

“The pressure we got from banks and governments makes things very hard.”

Despite this, the exchange kept operating. And despite documents suggesting that Mt. Gox was trying to sell in the final hours, there were no takers.

The final days. Source: Bitcoin ChartsThe final days. Source: Bitcoin Charts

In the end, no one wanted anything to do with the poor operational execution that Mt. Gox was renowned for. There wasn’t a company within the cryptocurrency industry interested in helping to resuscitate it.

No doom

Timothy Lee of the Washington Post recently wrote: “The failure of Mt. Gox doesn’t doom bitcoin any more than the failure of Pets.com doomed the Internet.”

He’s right. A fair comparison can be made that both Pets.com and Mt. Gox went down while totally screwing their investors. Mt. Gox, like Pets.com, has no future. Both companies were too early in the game. They were also too grossly mismanaged to ever be saved.

The exchange’s website recently announced “A Procedure of Civil Rehabilitation” plan. The statement even comes complete with a call center for angry investors to dial. But it’s too little, too late for Mt. Gox.

Pets.com burned through its cash irresponsibly because that’s what was done in those days. It dumped millions into marketing an idea that never required a business plan for investors to put money into.

Interestingly enough, Pets.com now redirects to PetSmart. That public company sells pet merchandise both online and in retail stores, profitably.

The only question now: What will MtGox.com redirect to in the future?

Pets image via Shutterstock.

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