Bitcoin Trading Firms 'Slammed' as Currency's Price Whipsaws

Companies that trade the digital currency Bitcoin for dollars have suffered from disruptions and lags as the exchange rate has whipsawed.

On Wednesday, the price of a bitcoin rose to $266 on Mt. Gox, an exchange that handles about 70% of trades in the currency, before crashing to as low as $105.

BitInstant, a New York dealer of bitcoins, experienced such high order volume that for several hours its website stopped taking requests to deposit cash at retail locations.

"With all the popular media attention bitcoin has been getting lately… BitInstant [has] been slammed with new and return users alike," it said in a blog post.

Mt. Gox said last week it had been hit with distributed denial of service attacks by hackers. The exchange, which is based in Japan, could not be reached for comment Wednesday.

"Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can," the company said. 

Some exchanges have carried on as usual. Tradehill, an exchange based in San Francisco, said it had processed about $1 million worth of the currency Wednesday without disruption.

The second-largest bitcoin exchange, BitStamp, based in Slovenia, could not be reached for comment. Tradehill Chief Executive Jered Kenner said his company worked with BitStamp on Wednesday and it "seemed fine."

"Bitcoin can survive with or without formal exchanges, but when you have just one exchange that handles the majority of the transfers, like Mt. Gox now, that concentrates the risk," said Kenner. "This just emphases the need for more exchanges."

Kenner says the price of bitcoins has soared as it catches the attention of traditional investors. Tech investors in Silicon Valley were among the first to begin trading the currency, Kenner says, and now his company's clients include "more traditional finance guys in New York," including institutional investors.