On a seemingly normal June day in 2011, Bitcoin went from being the leading cryptocurrency to being nearly worthless in a matter of minutes. The price collapsed from $32 to $0.01 – a 99% drop – shaking the early crypto community and causing panic among traders.
It wasn’t just a market dip, it was a chaotic, irreversible turning point caused by security failures, poor oversight, and one of the most infamous hacks in the space’s history. The crash exposed just how fragile and unprepared early Bitcoin infrastructure really was.
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How MtGox Set the Stage for Collapse
By mid-2011, MtGox was the main place to trade Bitcoin. Based in Tokyo, it processed around 70% of all BTC transactions. But beneath the surface, things were falling apart. The exchange was riddled with security holes and completely lacked basic operational standards. Hackers had already stolen thousands of bitcoins in separate incidents earlier that year.
On 1st March 2011, an attacker walked away with 80,000 bitcoins by accessing the platform’s wallet file. Then, on 22nd May, another 3,000 were taken after someone got into an unencrypted wallet left out in the open. Just one month before the big crash, MtGox lost access to 300,000 bitcoins but managed to recover most of it after the thief surprisingly returned almost everything except a 1% “fee.”
Despite these warning signs, MtGox continued operations without updating its systems or responding meaningfully to user concerns. Traders began reporting suspicious activity and unauthorized logins as early as June 2011, but MtGox didn’t halt trading or investigate the claims.
The Flash Crash Day – 19 June 2011
Around 3 a.m. Tokyo time on 20 June (which was 19 June in other parts of the world), a massive sell order hit the MtGox order book. Bitcoin, which had been hovering at around $17.50, nosedived to just $0.01. For several tense minutes, the price stayed there before recovering. After the crash, many feared the Bitcoin network itself might be broken.
As it turned out, a hacker had gained access to an account belonging to Jed McCaleb, MtGox’s original founder. Though McCaleb had sold the exchange to Mark Karpeles three months earlier, the account still had admin access.
With control over the system, the intruder manipulated account balances, created a massive sell wall, and tried to withdraw as many coins as possible – all while operating within the $1,000 daily withdrawal limit.
Read also: From a Zip File to Catastrophe: Radiant’s $50M Hack Explained
Bitcoin Withdrawal Limit to the Rescue
MtGox’s $1,000 withdrawal cap was intended to stop massive heists. But it was tied to the market price of Bitcoin on the exchange itself. So when the price dropped to a cent, that $1,000 suddenly meant someone could withdraw up to 100,000 BTC in one go.
Thankfully, the exchange also had a little-known bitcoin-based withdrawal limit that capped actual bitcoin outflows. As Mark Karpeles said in the MtGox IRC chat:
2011-06-20 00:16:43 MagicalTux the btc withdrawal limit saved us.
He later claimed that only 2,000 bitcoins were actually withdrawn. At the time, people doubted that number. But later analysis suggested it might have been fairly accurate – especially when compared to later losses that reached hundreds of thousands of bitcoins.
What Bitcoin Learned from Its Worst Day
The 2011 flash crash left a lasting imprint. It showed how quickly fortunes could turn in the crypto space. It taught early investors to never trust an unregulated exchange blindly. And it opened a harsh spotlight on MtGox’s internal failings, from basic oversight to security and customer communication.
In hindsight, the crash wasn’t just a one-day disaster – it was the beginning of a long unraveling. By 2014, MtGox would be completely insolvent, with hundreds of thousands of bitcoins gone and thousands of users left holding empty bags.
Read also: What Happens When All Bitcoins Are Mined?
