The price of virtual currency bitcoin slumped 20 percent on Tuesday morning as one of its leading major exchanges, Mt.Gox, went offline amid fears that it is on the verge of bankruptcy.
Japan-based Mt.Gox's website was blank Tuesday morning and trading on it had been halted. This latest development comes after the exchange deleted all of its tweets from its Twitter account on Monday and its CEO Mark Karpeles resigned on Sunday from the board of the Bitcoin Foundation. The company also announced last week that it had moved offices due to "security problems."
Mt.Gox is one of the biggest bitcoin exchanges—online marketplaces where people can buy or sell bitcoins using different currencies. However, its customers have been unable to withdraw their bitcoins and convert them into U.S. dollars since the beginning of February. The exchange blamed the problem on a critical loophole—known as "transaction malleability"—in the cryptocurrency that it said leaves all exchanges open to hacking.
(Read More: Bitcoin investor fury at Mt Gox delays)
The exchange said the bug in software made it possible for people to use the bitcoin network to alter transaction details. That could give the false impression that bitcoins had not been sent to an online account—or "bitcoin wallet"—when in fact they had.
The issues at Mt.Gox caused anger in the bitcoin community with some customers taking to social media to express their dissatisfaction amid rumors that the company could be concealing financial difficulties. An unverified document circulating online claims that Mt.Gox has lost 744,408 bitcoins (worth around $350 million) due to theft related to the trading fault.
At 10 a.m. London time Tuesday, the source code for Mt.Gox's website changed, indicating an announcement could soon be uploaded.
Meanwhile, several other major exchanges from the bitcoin community released a joint statement on Monday, trying to restore confidence in the digital currency and distance themselves from the troubled Japan-based exchange. The statement initially featured details regarding the insolvency of Mt.Gox but were later removed.
"As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today. Mt.Gox has confirmed its issues in private discussions with other members of the bitcoin community," it said.
Bobby Lee, CEO of BTC China, one of the exchanges responsible for the statement, said it had been changed because of a lack of "verifiable evidence" by the organizations, even though he believed that it had reliable information to suggest that Mt.Gox was insolvent. Technology blog Re/code reported that a spokesperson for the group had confirmed that Mt.Gox "will file bankruptcy in private discussions with other members of the bitcoin community."
The Bitcoin Foundation, which aims to help promote and protect the alternative currency, issued a statement stating that it was shocked to learn about Mt Gox's "alleged insolvency."
(Read more: Bitcoin exchange to resume withdrawals after slump)
"While we are unable to comment on whether or not Mt.Gox's business operations employed operational best practices and reasonable accounting procedures, we can assure the public that the bitcoin protocol is functioning properly," it said. Mt.Gox was not immediately available to comment when contacted by CNBC.
The Wall Street Journal asked Karpeles last Monday about the company's solvency or protection for customers' funds. Karpeles replied that the matter is "confidential," adding that the company had discussed its business model with Japanese authorities "to ensure that we are operating within the law here."
The price of bitcoin fell to $425 by 6 a.m. London time, according to CoinDesk which tracks the price on a selection of major exchanges, after starting the day at $545, but rebounded shortly afterward. The price of the currency on Mt.Gox had fallen to around $100 before the exchange's website became inaccessible.
(Track the price of bitcoin here)
The Japanese company that started Mt.Gox as an online exchange for Magic The Gathering trading cards has been described as the "original" bitcoin exchange by fans of the digital currency and once claimed it handled around 80 percent of all global dollar trades for bitcoin.
It was, until its disappearance, the second-biggest bitcoin exchange in the world—representing around 18 percent of total bitcoin trade in the last week, according to Bitcoinity.org. However, this is not the first public relations problem Mt.Gox has run into.
It recently experienced lengthy delays when exchanging bitcoin into U.S. dollars and has previously experienced high-profile DDoS (distributed denial-of-service attacks) hacking attacks that slow down its user experience. Meanwhile, the U.S. Department of Homeland Security seized its bank account in May 2013, saying it had never properly registered as a money services company.
(Read more: Bitcoin plummets 20% after trading halt on Mt Gox)
There has been a small protest outside Mt.Gox's former offices in Tokyo since Feb. 15. Two Mt.Gox customers, including Kolin Burges a former software developer from the U.K. who gave up his job to trade bitcoin, traveled to the capital in the hope of retrieving their investments.
Burges, who has over 200 bitcoins stored at Mt.Gox, told CNBC via telephone that it was still a surprise to learn of the website's disappearance despite the rumors of insolvency. He added that he had been at the company's offices again on Tuesday and no Mt.Gox staff had been seen.
Garrick Hileman, an economic historian at the London School of Economics, told CNBC that there was a real risk that some people would never see their money again. "It's absolutely terrible for people that use Mt.Gox. ... There's been troubling signs coming out of Gox for close to nine months," he said.
Lee from BTC China warned that more Mt.Gox-style problems would happen unless better regulation of the industry was introduced. However, he was adamant that because bitcoin was a decentralized currency it would go unharmed by this episode and the price would slowly rise again over the medium term.
"Because (bitcoin) was not created by Mt.Gox it means that it won't drag it down with it," he said. "This is why I have been calling for more regulation."
—By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.