Bitcoin Plunges 20 Percent, Recovers Slightly Following Reported Software Glitch

To say virtual currency Bitcoin can be volatile is like saying stoves can be hot.

Add the possibility of a bug in the software that controls withdrawals and that could be bad news all-around.

As reported by CNBC Monday, Japanese Bitcoin exchange, Mt.Gox, said just such a flaw caused it to halt withdrawals, resulting in a 20 percent drop in Bitcoin’s value to about $680 Friday after having traded in the neighborhood of $850 most of the week, according to CoinDesk.

Early Monday, following the statement from Mt.Gox, Bitcoin fell to about $538 but recovered slightly a short time later.

As the third largest Bitcoin exchange in the world, Mt.Gox represented almost 14 percent of total Bitcoin trade last week, according to Bitcoinity.org. Bitcoinity said customers were still not able to transfer Bitcoins from a Mt.Gox wallet to an external Bitcoin address as of Monday.

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Bitcoinity, however, did add that Bitcoin transactions with any Mt.Gox Bitcoin address, and currency withdrawals would not be affected.

According to CoinDesk, Mt.Gox said it had identified a bug in Bitcoin software that made it possible for someone to alter transaction details within the network, making it appear that Bitcoins had not been sent to a Bitcoin wallet, when in fact they had.

In the statement Mt.Gox said, “Since the transaction appears as if it has not proceeded correctly, the Bitcoins may be re-sent. Mt.Gox is working with the Bitcoin core development team and others to mitigate this issue.”

Importantly, according to Mt.Gox, the problem is not limited to Mt.Gox but affects all transactions in which Bitcoins are being sent to a third party.

Mt.Gox added, "We believe that the changes required for addressing this issue will be positive over the long term for the whole community. As a result we took the necessary action of suspending Bitcoin withdrawals until this technical issue has been resolved."

Not everyone believed the issue was a simple software error. London School of Economics historian, Garrick Hileman, told CNBC the latest so-called error wasn’t really a new problem and he believed Mt.Gox might be using it as a delaying tactic.

According to Hileman, the real problem might be some internal technology complication, a regulatory issue, or even the solvency of Mt.Gox itself.

"A lot of people have really had it with Gox," Hileman said to CNBC via telephone.

In mid-morning action, Bitcoin was trading around $665 according to BitcoinityMarkets.org.

At the time of this writing, Jim Probasco had no position in Bitcoin.