The Mt. Gox bitcoin exchange in Tokyo is headed for liquidation after a court rejected its bankruptcy protection application.
Mt. Gox says that Tokyo District Court decided the company, which was a trading platform and storehouse for the bitcoin virtual currency, would not be able to resurrect itself under a business rehabilitation process filed for in February.
An administrator will try to sell the company's assets, and many creditors, including those who had bitcoins with the exchange, are unlikely to get any money back.
After Mt. Gox went offline in February, its CEO Mark Karpeles said 850,000 bitcoins worth several hundred million dollars were unaccounted for, blaming a weakness in the exchange's systems.
Later, Mt. Gox found 200,000 of the bitcoins, changing the estimate for the lost virtual currency to 650,000 bitcoins, although the exact amount is still under investigation. Mt Gox. has suggested the bitcoins were stolen. The company has not been able to confirm the bitcoin balances of its users.
Bitcoins were created in 2009 by a mysterious figure or group known as Satoshi Nakamoto and are used for transactions across borders without third parties such as banks. They have also become an investment craze.
Mt. Gox said in a statement that bankruptcy proceedings are likely to start in the US along with the action in Japan, but the timing is still unclear.
It said there may be a buyer for its business but that was still undecided.
The Mt. Gox mess has been a setback for the currency's image because its boosters have promoted bitcoin's cryptography as protecting it from counterfeiting and theft. But bitcoin proponents have insisted that Mt. Gox is an isolated case.
Japanese legal experts say it would be difficult to prosecute Mt. Gox because its business falls outside the boundaries of existing regulations.
US federal law enforcement agencies are scrutinising whether bitcoins are being used increasingly in criminal activity such as the now-defunct Silk Road illegal drug marketplace.
Newsweek claimed it had found the creator of bitcoins, but Dorian Satoshi Nakamoto, a California resident, denied in an interview with The Associated Press that he had anything to do with the digital currency.