As Mt.Gox drops below $100, the speculators circle overhead

The situation on the troubled Mt.Gox keeps getting worse. Early Friday morning, the price of Bitcoin dropped to $91.50 on the Tokyo-based exchange, well below the $550 average seen across other major exchanges. Although prices on Mt.Gox have been declining steeply since the exchange locked down user transactions earlier this month, falling below the $100 mark seems to have crossed a “psychological threshold” for many in the Bitcoin community, adding to a growing concern that Mt.Gox is headed towards bankruptcy.

The price on Mt.Gox did recover slightly shortly after the major drop, and is currently selling at around $115. By comparison, Bitcoin was trading around $850 on Mt.Gox immediately before concerns about the “transaction malleability” bug prompted the site to lock down transactions.

Speaking with PC World, BitPay’s Jeff Garzik characterized the dropping price as “escape selling,” caused by desperate Mt.Gox customers hoping to reclaim some of their funds in fiat currency.

Fears that Mt.Gox is insolvent has created a new trend in Bitcoin speculation, namely a derivative product with striking similarity to a credit default swap. Speculators are buying rights to Mt.Gox-locked Bitcoins at bargain rates, betting that Mt.Gox isn’t in as bad of shape as it currently appears to the market.