I think it actually makes a lot of sense to keep bitcoin in such an institution in many ways. It turned out not to make sense to keep it in Mt. Gox because they were at best incompetent and possibly thieves, but it’s much easier to see that in hindsight.
I had some bitcoin at Mt. Gox that I assume is gone forever (though it’s not impossible that I’ll get some fraction of it back out of the bankruptcy proceedings).
I could have kept it in a wallet on my computer, but there’s a real risk that I’d screw up my backups, or that I’d lose the key, or that someone would hack my computer to get to it. Those risks exist with 3rd parties like Mt. Gox as well, but the same risks exist for all sorts of internet services. I don’t run my own email server or write my own backup software either. I rely on companies who presumably have much more expertise in those areas. It may have been foolhardy to assume that for such a young company, but, again, much easier to know that in hindsight.
I could have made a paper wallet, printed it out, and put it in a safe place. But how many hours would it have taken me to figure out how to do that, and to confirm to myself that it was actually working, and I basically have to trust that whoever wrote the software that generated it was honest. Yes, I could pull out the source and try to convince myself that it’s secure (not that that would likely do anything. I’m not a cryptographer) and compile it myself and so on, but again, that’s a huge investment of time and it’s not clear I’d be any better off.
For a currency based on lack of trust, bitcoin requires trusting quite a lot of people.
I knew that withdrawals had been problematic with Mt. Gox, but I interpreted that as the fraud-control growing pains of bitcoin. I assumed that it was an issue between Mt. Gox and banks, and since I wasn’t engaged in fraud and I didn’t really care about being able to withdraw money from Mt. Gox, that didn’t dissuade me from using them.
Apparently I should have been reading random bitcoin fora and known that there were many suspicions about Mt. Gox, but honestly, I don’t have the time to devote to that. I think that bitcoin is a cool and interesting new technological and social experiment, and I liked being a part of it, but I only have so many hours to go around. If I spent all that time checking into various bitcoin exchanges (which sounds really boring to me, and I don’t have any good way to determine that I’ve actually done a good job), I wouldn’t have as much time to spend on message boards.
Ultimately, I didn’t risk more than I could afford to lose, so the loss doesn’t have a major effect on me. I knew going into this that there was a very high chance that I would end up taking a complete loss.