I've been trading on MtGox since $2 BTC. Just want to give a layman explanation on how/why MtGox is trading at $250 while Bitstamp is still obove $600, and why the "no arbitrage theory" is not broken.

• Assumption is that MtGox lost some BTCs due to the malleability hack. If we assume that Silk Road 2.0 did in fact lose the BTCs due to a hack rather than fraud, its makes sense that MtGox also lost a fair amount of BTCs. Also, im sure a thorough analysis of blockchain can confirm how many BTCs were "stolen" from MtGox.
• So, if everyone withdraws all their BTCs at once from MtGox, there would not be enough BTCs for everyone.
• Big deal? MtGox can just use its own money to cover the difference, and everyone would be whole.
• So only real risk is that MtGox runs out of all BTCs and all fiat and is insolvent!
• As MtGox BTCs price drops relative to Bitstamp BTC, more BTCs will be bought/withdrawn on MtGox, and the cost to MtGox to make customers whole also goes up
• Its a vicious cycle, a snowball effect, and a game of chicken. Once prices started diverging, smart traders would "rather be in fiat, in case of insolvency". Also they can always buy even more BTCs with the same amount of fiat at a later date.
• Hence the "bank run" on MtGox BTC. End game is: MtGox shuts down and liquidates, and is short BTCs.

jaybny