Bitcoin Plunges By Nearly $30 As Largest Market Suffers Outage(mashable.com)
mashable.com
Bitcoin Plunges By Nearly $30 As Largest Market Suffers Outage
http://mashable.com/2013/04/03/bitcoin-value-plunges/
114 comments
I don't understand why a Magic the Gathering site is the big exchange still...
I think you answer your own question:
...an exchange (which is inherently... a natural monopoly)
MtGox would have to stumble very, very hard to create an opening for another exchange, which would have high start-up costs (because of those interesting security and technical challenges). If you were sufficiently deep-pocketed and bullish on Bitcoin, sure, but most are chasing lower-hanging fruit without an incumbent leader in a natural monopoly role.
I'd agree that wallet provision is a weak opportunity, except perhaps as part one of some deeper strategy.
I think some are attempting to take on MtGox obliquely: Ripple/OpenCoin via its network's distributed books and TradeHill via its recently-restarted professional investor services.
I think you answer your own question:
...an exchange (which is inherently... a natural monopoly)
MtGox would have to stumble very, very hard to create an opening for another exchange, which would have high start-up costs (because of those interesting security and technical challenges). If you were sufficiently deep-pocketed and bullish on Bitcoin, sure, but most are chasing lower-hanging fruit without an incumbent leader in a natural monopoly role.
I'd agree that wallet provision is a weak opportunity, except perhaps as part one of some deeper strategy.
I think some are attempting to take on MtGox obliquely: Ripple/OpenCoin via its network's distributed books and TradeHill via its recently-restarted professional investor services.
The security and technical challenges aren't as high as most people seem to think and are pretty familiar to people who work on the technical side of trading in the financial world. I would imagine though that most of the people with the knowhow are already in jobs lucrative enough that theres little incentive to write a BTC exchange.
Or at least that's how my calculations go - while I've got the technical and financial background to make me tempted to write a derivatives platform for BTC, I already make a decent salary and my perceived risk vs profit calculation doesn't work out to a number that would make it worth my while. Unless I get bored enough to do it anyway!
Or at least that's how my calculations go - while I've got the technical and financial background to make me tempted to write a derivatives platform for BTC, I already make a decent salary and my perceived risk vs profit calculation doesn't work out to a number that would make it worth my while. Unless I get bored enough to do it anyway!
Exactly! Your unwillingness to solve those challenges on the cheap, against an entrenched and well-funded leader, is what creates the "high start-up costs".
I don't think they'd be quite as hard to displace as people assume either. I've not spent very long looking at MtGox but I'm sure that all the usual tricks that real-world exchanges use to boost usage would work against MtGox as well - offering tighter spreads, lower transaction fees, encouraging market makers with incentives such as refunded fees as long as they're covering the market for a certain portion of the month, etc.
I'd fight for a position which has a natural monopoly even if there's an incumbent in the space if the incumbent isn't particularly strong. If BTC becomes 100x bigger, MtGox's current position doesn't matter much. If BTC (or other cryptocurrency in general) doesn't get 100x bigger, it doesn't matter and both MtGox and a new competitor will fail/be irrelevant.
I suppose it all hinges on how 'particularly strong' you think the incumbent is. I think MtGox is quite strong: they've survived a number of trials-by-fire, they've grown with Bitcoin, they're the most-linked place in 'how to buy' guides, they're the default source of 'the price'. People who view 'the oldest' as 'the safest' (a popular and not bad folk heuristic) will always lean toward MtGox.
The transition to CoinLab management is a risk factor, but is likely invisible to most people. If it goes off without a hitch, the new links with silicon valley capital will mean any well-funded assault would be answered with a well-funded defense.
The transition to CoinLab management is a risk factor, but is likely invisible to most people. If it goes off without a hitch, the new links with silicon valley capital will mean any well-funded assault would be answered with a well-funded defense.
> MtGox would have to stumble very, very hard to create an opening for another exchange
That's not true. Largest BTC2PLN exchange bitomat.pl lost it's wallet about two years ago. Mtgox bought them with their customers, covered for the mishap and started trading in PLN with very convenient PLN money transfers. In the meantime another exchange was created bitchange.pl but after bitcoin price crash it was closed. It was reborn with same software as pln.bitcurex.pl and now has larger volume of BTC2PLN trade than mtgox. It doesn't take fee on trades though.
So multiple exchanges are possible.
That's not true. Largest BTC2PLN exchange bitomat.pl lost it's wallet about two years ago. Mtgox bought them with their customers, covered for the mishap and started trading in PLN with very convenient PLN money transfers. In the meantime another exchange was created bitchange.pl but after bitcoin price crash it was closed. It was reborn with same software as pln.bitcurex.pl and now has larger volume of BTC2PLN trade than mtgox. It doesn't take fee on trades though.
So multiple exchanges are possible.
Of course they're possible... but they'll be fighting for scraps compared to the market leader with the deepest book and longest history.
The existence of an exchange operating without fees, at a domain (pln.bitcurex.pl) I can't currently resolve, based on software that once lost the operators' wallet, doesn't seem like a MtGox-killer to me.
The existence of an exchange operating without fees, at a domain (pln.bitcurex.pl) I can't currently resolve, based on software that once lost the operators' wallet, doesn't seem like a MtGox-killer to me.
Bitomat lost its wallet and got bought by mtgox.Bitchange just closed an got reborn with same software as bicurex after a while. And it has more volume in PLN than mtgox. Probably due to the lack of trade fees (there are only small fees on withdrawals). It's also faster to get your money out of bitcurex than mtgox.
IIRC, the founder of Mtgox, the Bitcoin exchange, is not the same person as the founder of the "Magic the Gathering Online Exchange." The domain was transferred.
from http://www.theverge.com/2013/4/1/4154500/mt-gox-barons-of-bi...
"Karpeles bought the site in 2011 from its founder, Jed McCaleb, also known for developing the infamous video-sharing site eDonkey. McCaleb originally started Mt. Gox as an exchange for Magic: The Gathering playing cards, which explains its odd name, but his growing interest in Bitcoin soon surpassed his affinity for Magic. Seeing the need for a central exchange where users could match buy and sell orders, he converted Mt. Gox to a Bitcoin exchange in 2010."
MtGox is supposed to be replaced by CoinLab (which will still be called MtGox but will apparently be a completely different backend) any day now.
I'd be concerned about the legal angle of running an exchange. Can you just create one or are they regulated? I know it would be different for each region, but at what point does it change from being a web app to something of significant interest a country's financial regulators?
As has been said, a wallet is easy and could be run with minimal effort as a side project. I think you'd need a lot more than technical knowledge to be able to manage an exchange.
As has been said, a wallet is easy and could be run with minimal effort as a side project. I think you'd need a lot more than technical knowledge to be able to manage an exchange.
I could do a fully US licensed one (via CFTC, not SEC) for $500k in legal compliance and ~$2-3mm in dev/ops costs. Costs would be about 25% of that overseas (again, fully licensed by local regulators; at minimum a "no action" private letter ruling that you're not a banking institution (since you don't make loans/take deposits), but just a financial service provider like a traditional currency exchange, but much more ideally a fully recognized financial market with participants).
(IANAL of course, and IANAS7)
(IANAL of course, and IANAS7)
I really don't understand how MtGox's trading engine "lag" gets up to hundreds of seconds. How is matching up buy/sell orders at all a computationally difficult problem? The volume is tiny compared to normal stock exchanges.
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I feel a bit silly writing essentially the same comment twice in a week, but...
Holy cow. Bitcoin was at $145? I wrote a comment 6 days ago expressing shock that it was at $100, since the last time I checked it had been at $60.
If a 45% rise in one week coming on the heels of a 300% rise in one month doesn't raise your eyebrows, I don't know what will.
I continue to watch this unfold, fascinated, popcorn at the ready.
Holy cow. Bitcoin was at $145? I wrote a comment 6 days ago expressing shock that it was at $100, since the last time I checked it had been at $60.
If a 45% rise in one week coming on the heels of a 300% rise in one month doesn't raise your eyebrows, I don't know what will.
I continue to watch this unfold, fascinated, popcorn at the ready.
I lost money in the last bitcoin crash because I bought right before it all went downhill.
It's obvious people aren't using bitcoin to shop, but instead using it as an investment.
In one quick moment heard mentality will respond by "cashing out" their bitcoins for money (something that is actually accepted and can be used to by things) and this will create a chain reaction. One by one everyone will flip out, won't want to miss out on their cash, and start purging their bitcoins for ever lower numbers until the currency is devalued.
There will be another crash, people will forget or think "things will be different this time", and will once again start building the next bitcoin bubble. I think I might actually buy some during the crash when they're real cheap. Every year bitcoin's popularity rises and more people get suckered into it.
It's obvious people aren't using bitcoin to shop, but instead using it as an investment.
In one quick moment heard mentality will respond by "cashing out" their bitcoins for money (something that is actually accepted and can be used to by things) and this will create a chain reaction. One by one everyone will flip out, won't want to miss out on their cash, and start purging their bitcoins for ever lower numbers until the currency is devalued.
There will be another crash, people will forget or think "things will be different this time", and will once again start building the next bitcoin bubble. I think I might actually buy some during the crash when they're real cheap. Every year bitcoin's popularity rises and more people get suckered into it.
You only lost money if you sold your bitcoins. If you bought bitcoins at the instant before the last crash, you'd still have more than doubled your money even now after the $30 drop. Bitcoin may crash to $1 tomorrow; who cares? The real question is where will Bitcoin be a year from now, and 10 years from now?
I don't think I can have 100% confidence that I would be able to cash out of bitcoins in an efficient manner 10 years down the line, so you have to discount for that risk (whether it be technology, new regulation, etc).
As much as I like the idea of BTC, it lacks fundamental structural features that would allow it to not eventually be revealed as a sham.
It doesn't have to be "revealed as a sham", it has to simply not be worthwhile to continue using. I see the speculators as being far more harmful to its long term viability than any nation-state.
As counterexample I bought bitcoins just before the previous crash. I haven't sold them an I kept them for nearly two years an I recently sold them with better profit then I could get anywhere besides actual casino.
I don't quite understand the reasoning here -- it seems like you're advocating a long-term buy and hold approach with bitcoins, based solely on the fact that they've recovered from every crash thus far? While bitcoins certainly have a lot going for them as a currency, I think it's the "bitcoins will keep going up, buy the dips" mentally of the true believers that makes this sound like a bit of a tulip craze.
I'm not advocating buying and holding bitcoins necessarily. I'm saying short-term buying and selling of bitcoins in an attempt to outsmart the market is a bad idea. If you're going to buy, do it because you think bitcoins are valuable over the long term, or because you want to pay for something with bitcoins. Otherwise, don't buy.
Fool me once, shame on etc.
Bitcoin only gets so many chances in the public eye.
It's broken through enough that enough people are paying attention to Bitcoin. And it's just in time to watch the textbook crash--(https://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png).
"Where will Bitcoin be a year from now?" Oh--isn't that that one currency that people lost a lot of money in 2013? Litecoin? BitBucks?
Good luck getting anyone to take it seriously again.
Bitcoin only gets so many chances in the public eye.
It's broken through enough that enough people are paying attention to Bitcoin. And it's just in time to watch the textbook crash--(https://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png).
"Where will Bitcoin be a year from now?" Oh--isn't that that one currency that people lost a lot of money in 2013? Litecoin? BitBucks?
Good luck getting anyone to take it seriously again.
You could say the same re the stock market about various swings etc
In my opinion the current volatility is more a sign of the immaturity of the investors rather than the underlying concept being flawed (many markets are conceptually flawed and absurd from an independent viewpoint however human psychology maintains some weird interest in them that keeps them afloat)
The current volatility is clearly a bubble and the best explanation that I like is that all these computer nerds across the world who haven't been involved with stock markets before have dropped their cash on bitcoins and facilitated the bubble and are unaware of the law of bubbles; that is; that they pop
In my opinion the current volatility is more a sign of the immaturity of the investors rather than the underlying concept being flawed (many markets are conceptually flawed and absurd from an independent viewpoint however human psychology maintains some weird interest in them that keeps them afloat)
The current volatility is clearly a bubble and the best explanation that I like is that all these computer nerds across the world who haven't been involved with stock markets before have dropped their cash on bitcoins and facilitated the bubble and are unaware of the law of bubbles; that is; that they pop
The stock market has at least some value in the equity owned, bitcoins are the ultimate castle in the air investment. That doesn't mean people shouldn't use them, but they're a pretty poor investment.
Bitcoins have at least some value on the Deep Web, the stock market is the ultimate castle in the air investment. That doesn't mean people shouldn't use it, but it's a pretty poor investment.
I continue to watch the Wall Street bubble unfold, fascinated, popcorn at the ready. In the end it'll be like sending herds of cattle through a cheese grater.
I continue to watch the Wall Street bubble unfold, fascinated, popcorn at the ready. In the end it'll be like sending herds of cattle through a cheese grater.
"No one ever went broke underestimating the intelligence of the...public." -HL Mencken
Observing the last about 1 year of data (N = 363), BTC/USD has had an annualised daily volatility of 6 880 bps (100 bps = 1 percentage point). This is more volatile than the most volatile U.S. stocks.
What does this mean, practically? A Gaussian distribution is a bad fit for the data. Using the more appropriate Normal Inverse Gaussian (NIG) distribution [1], we find that this is an event that would be expected once every 3 1/2 years. Still seems high since just last August we saw a -24% day.
[1] http://www.unc.edu/~maguilar/UNCNCSU/NIG_EGW.pdf
What does this mean, practically? A Gaussian distribution is a bad fit for the data. Using the more appropriate Normal Inverse Gaussian (NIG) distribution [1], we find that this is an event that would be expected once every 3 1/2 years. Still seems high since just last August we saw a -24% day.
[1] http://www.unc.edu/~maguilar/UNCNCSU/NIG_EGW.pdf
This is what I want to happen. I want to market to crash so I can join it. I want to use bitcoins in personal projects. I want to try it out shopping, see what can be made with it, play with the projects that have done something with it.
Just not for 150 bucks.
Just not for 150 bucks.
You can join the market with $1, or $10, or $20... nothing says you have to buy at least 1 BTC. If Bitcoin continues appreciating, it may be $1000 US per BTC next year. That won't stop people that only want to spend $5 from transacting in it; it's designed to be divisible. You can hold and spend a fraction of a bitcoin. We don't round transactions to the dollar even in USD.
yes, but if I was gonna do that, I might as well tap bitcoin faucet or take a cruddy graphics card I have laying around and join a mining pool for a week.
I want to try buying things. No one's selling for 0.6 µBTC
I want to try buying things. No one's selling for 0.6 µBTC
Yes they will, everyone selling actual goods in BTC sells at the USD equivalent, if you previously wanted to play with X dollars of whatever currency you use, you can still play with X dollars of whatever currency you use.
If bitcoin will crash, I will definitely BUY.
I think there are a lot of people like me, and therefore I doubt it can crash really hard. There is no panic moment because I can afford to lose all my "investements".
I think there are a lot of people like me, and therefore I doubt it can crash really hard. There is no panic moment because I can afford to lose all my "investements".
It's basically (at least given the current climate of EU periphery countries) an instrument to place bets on consumer/investor confidence in the Euro. Now similar speculative behavior exists in other markets including currency, fixed income, etc, but bitcoins have such low transaction volumes compared to other avenues that its Beta (basically the "gain" in engineering terms) is going to be sky high.
On the other hand, I am sure that there are many waiting for this crash, looking to buy in, or buy more.
There's always a new entrant into any bubble, thinking this would be "the" ideal time :)
That said, I love the concept of BTC and could see using it at some point for some thing or other, the "investments" just give me such a sour taste that I don't even want to own any at any minor cost.
That said, I love the concept of BTC and could see using it at some point for some thing or other, the "investments" just give me such a sour taste that I don't even want to own any at any minor cost.
Price stability is the only way to lose the interest of the investment crowd. I think it will happen eventually, but it might be so far away that another similar currency might become preferred for exchange first.
s/investment/speculation/g
A crash today would effectively DDOS Mt. Gox. I don't think Mt. Gox would be able to stay up for the next crash. Hopefully... they're preparing for it.
>"I don't know what will."
The major exchange getting DDOS'd, a popular online wallet service provider getting hacked, and a plunge in the price of Bitcoins perhaps.
All of this days after the discussion around here was about BitCoins usurping major currencies. I don't get it.
The major exchange getting DDOS'd, a popular online wallet service provider getting hacked, and a plunge in the price of Bitcoins perhaps.
All of this days after the discussion around here was about BitCoins usurping major currencies. I don't get it.
It's the same as with any other non-fiat currency. consider bit coin mining as diamonds.
everyone is finding new mines and bandits are active on the more remote ones. So prices get crazy. Bit coin will be like that until we approach the ceiling limit for bitcoins.
when that happen we will have the stable diamond market we have today. but limited by the algo and not by some cartel owning all the mines and buying all the new ones that are discovered to keep diamond supply stable artificially.
until then, enjoy the roller coast!
everyone is finding new mines and bandits are active on the more remote ones. So prices get crazy. Bit coin will be like that until we approach the ceiling limit for bitcoins.
when that happen we will have the stable diamond market we have today. but limited by the algo and not by some cartel owning all the mines and buying all the new ones that are discovered to keep diamond supply stable artificially.
until then, enjoy the roller coast!
This demonstrates perhaps the largest real threat to the bitcoin ecosystem right now: the exchange markets are heavily concentrated. Confidence in the system is, right now, heavily based on the perception that Bitcoins can be traded readily for something (pizza, drugs, dollars, quatloos...). Anything that alters that perception will, of course, have a big effect on the price.
In fact, exchange risk could lead to something akin to a bank run - the exchanges only keep a small reserve of national currencies and Bitcoins to handle orders and are essentially acting as market makers. But a big swing in the demand for either Bitcoin or real currencies could push the exchanges into a tight spot. If they don't have enough Bitcoin, obviously, the price rises until the demand for Bitcoin subsides. But if they don't have enough (say) dollars, then the price must fall. And there's a natural death spiral: as the price falls, particularly after such a big run up as has happened recently, people might suddenly decide that it's time to get out. But that only increases the demand for (scarce) dollars. And so the value collapses.
Here's the real Bitcoin security question: can someone precipitate this situation? Maybe someone who benefits from a collapse of the Bitcoin price (say a law enforcement agency that wants to affect the Silk Road business or, if you don't like that, then say any entity with a significant short position on Bitcoin exchange markets). This is not a question I've seen previously addressed in Bitcoin literature or even musings on the various Bitcoin forums. It's a security economics question. I'm interested in the answer.
By the way, my current favorite term for such a situation is the "Goldfinger attack" on the theory that while Goldfinger wanted to steal the gold from Ft. Knox (in the novel version), such an adversary wants to invalidate the coins in Mt. Gox.
In fact, exchange risk could lead to something akin to a bank run - the exchanges only keep a small reserve of national currencies and Bitcoins to handle orders and are essentially acting as market makers. But a big swing in the demand for either Bitcoin or real currencies could push the exchanges into a tight spot. If they don't have enough Bitcoin, obviously, the price rises until the demand for Bitcoin subsides. But if they don't have enough (say) dollars, then the price must fall. And there's a natural death spiral: as the price falls, particularly after such a big run up as has happened recently, people might suddenly decide that it's time to get out. But that only increases the demand for (scarce) dollars. And so the value collapses.
Here's the real Bitcoin security question: can someone precipitate this situation? Maybe someone who benefits from a collapse of the Bitcoin price (say a law enforcement agency that wants to affect the Silk Road business or, if you don't like that, then say any entity with a significant short position on Bitcoin exchange markets). This is not a question I've seen previously addressed in Bitcoin literature or even musings on the various Bitcoin forums. It's a security economics question. I'm interested in the answer.
By the way, my current favorite term for such a situation is the "Goldfinger attack" on the theory that while Goldfinger wanted to steal the gold from Ft. Knox (in the novel version), such an adversary wants to invalidate the coins in Mt. Gox.
AFAIK MtGox is NOT a market maker but merely an order book.
For those wondering why we don't have a Bitcoin ETF, this is one reason. Making a reliable market in decentralised and pseudonymous Bitcoins without an exchange is very difficult. An ETF needs a reliably liquid underlying market to keep a lid on tracking error [def]. We need more competition in U.S. dollar Bitcoin exchanges, preferably a FinCEN-compliant one.
[def] http://www.investopedia.com/terms/t/trackingerror.asp
[def] http://www.investopedia.com/terms/t/trackingerror.asp
Why would anyone want an ETF? They can buy the currency directly at the exchange, and this way don't have to pay some intermediary's salary.
Same reason NYSEARCA:GLD and others exist, so you don't have to worry about securing the underlying (your broker/trading platform takes care of it), you can short it easier, etc.
Being able to buy BTC-ETF would be nice within your 401k/Roth IRA/etc.
(It would also be awesome to get a 401k to offer BTC, even if it has to be within a "self directed" fund. I think I know someone on hn who has family members in the 401k administrator business...)
(It would also be awesome to get a 401k to offer BTC, even if it has to be within a "self directed" fund. I think I know someone on hn who has family members in the 401k administrator business...)
Transaction fees are lower in standard financial outlets.
Can we just chip in to a graph in the top-right corner that shows the exchange rate of BTC vs. USD, and leave it at that? I'm sure someone could write an extension for that.
Saves us a lot of this. :P
Saves us a lot of this. :P
If this market isn't being manipulated then I'm a monekey's uncle. I've been watching it on and off all afternoon, and I keep seeing it move rationally (ie price changes are a function of the size of the trade) and then irrationally (sudden discontinuities on tiny trades). For example, I just watched it decline from ~126 to 115 over a few minutes, and then suddenly jump up by +10 on a 0.03 BTC trade. Maybe I'm misunderstanding the efect of lag here, but it looks shady as heck.
Edit: Also, spreads of over 10% among different markets? Yeesh.
Edit: Also, spreads of over 10% among different markets? Yeesh.
Wait a second... are we sure it was the Market Outage? I'd assume it was when Instawallet's hackers began cashing out on their attack?
Why would they dump large amounts of currency (and plunge the price) when they can just sell it slowly? There's no risk from holding stolen BTC long term.
Sure there is. If Mt. Gox goes down before you dump BTC, then you wouldn't be able to convert BTC back into dollars. Mt. Gox has been pretty unreliable recently too...
I'm curious, are there any academic level economic arguments that discuss Bitcoin and it's future? I'm really curious how economists are viewing Bitcoin.
Right now, it is clear that the rise in price is due to investors who see the potential of Bitcoin, thus they are hoarding Bitcoins in anticipation of future avenues that could accept Bitcoins.
All it will take to unleash liquidity in the Bitcoin market will be a major online retailer to announce they accept Bitcoins as a currency. Otherwise, the vast majority of Bitcoin transactions will be trading in iliiquid markets and paying for underground goods and services. Bitcoin isn't going to shake up the traditional goods and services market unless a major online retailer signs up.
... and with a very illiquid market and an immature set of market makers in the currency, it is going to be a while before Bitcoin is legit. Not to mention potential regulatory issues that WILL crop up at some point.
Bitcoin - good luck. I think it can work, but will it work is a whole different story.
Right now, it is clear that the rise in price is due to investors who see the potential of Bitcoin, thus they are hoarding Bitcoins in anticipation of future avenues that could accept Bitcoins.
All it will take to unleash liquidity in the Bitcoin market will be a major online retailer to announce they accept Bitcoins as a currency. Otherwise, the vast majority of Bitcoin transactions will be trading in iliiquid markets and paying for underground goods and services. Bitcoin isn't going to shake up the traditional goods and services market unless a major online retailer signs up.
... and with a very illiquid market and an immature set of market makers in the currency, it is going to be a while before Bitcoin is legit. Not to mention potential regulatory issues that WILL crop up at some point.
Bitcoin - good luck. I think it can work, but will it work is a whole different story.
> I'm curious, are there any academic level economic arguments that discuss Bitcoin and it's future? I'm really curious how economists are viewing Bitcoin.
Here, this may help: http://scholar.google.com/scholar?q=Bitcoin
Here, this may help: http://scholar.google.com/scholar?q=Bitcoin
MtGox just tweeted 5 minutes ago that they're being hit by a DDoS. Their site is essentially non-functional beyond the public cacheable static pages.
https://twitter.com/MtGox/status/319563995759652864
https://twitter.com/MtGox/status/319563995759652864
I might be mistaken here, but isn't Bitcoin the currency with an ultimately fixed amount, with a known, predictable rate of growth (of the number of Bitcoins in existence)?
How can this volatility then be attributed to Bitcoin, and not the other currencies it is valued in? I freely admit, I'm less than a novice when it comes to ForEx, but a statement like
> "The value of bitcoins, it turns out, is highly sensitive to media coverage," wrote Reuters' influential financial journalist..."
seems to me to be exactly the opposite, i.e. media coverage is causing other currencies to fluctuate and the Bitcoin valuations are just a reflection of this.
How can this volatility then be attributed to Bitcoin, and not the other currencies it is valued in? I freely admit, I'm less than a novice when it comes to ForEx, but a statement like
> "The value of bitcoins, it turns out, is highly sensitive to media coverage," wrote Reuters' influential financial journalist..."
seems to me to be exactly the opposite, i.e. media coverage is causing other currencies to fluctuate and the Bitcoin valuations are just a reflection of this.
I suppose when you leap up in the air, you can't prove that the universe and everything in it didn't just leap downward away from you, in a coordinated fashion to mimic a leap you might have made.
But Occam's Razor is not on your side.
But Occam's Razor is not on your side.
No, I suppose not. Thanks for your feedback! I'm really glad for all the discussion in response to my question!
Presumably because the purchasing power of the other currencies isn't fluctuating anywhere near as much. If Bitcoin were stable, you'd expect it to be able to buy basically the same amount of oil, gold, food, etc., no?
There's a lot of buy-in right now with bitcoin. Because people are seeing the price skyrocket so much, it's made the entire market fairly unstable. People are running huge orders at prices that have never been seen before this week. Since bitcoin isn't backed up by any real-world entity, its valuation is purely what the community thinks it's valued at. Since it's value is tied directly to public opinion, media coverage has huge influences on the price of bitcoin. If forbes does an article stating that bitcoin is the most lucrative investment market, thousands of new orders get placed for bitcoins, driving the price up. If the media says that the bubble is about to pop, they create a self-fulfilling prophecy.
Yes, thanks, this makes a lot of sense.
It's not just supply — you have to account for demand, too. Demand is likely to change based on media coverage.
Even if it were just supply, the supply effectively changes all the time because not all bitcoins are on the market all the time. If I forget I have bitcoins, they're not part of the supply (of course, the rising dollar value might make me remember…).
Even if it were just supply, the supply effectively changes all the time because not all bitcoins are on the market all the time. If I forget I have bitcoins, they're not part of the supply (of course, the rising dollar value might make me remember…).
Except that the value of goods and services in those currencies have not fluctuated the way that they would if it were the currencies changing value and not bitcoins.
Because the daily volume of global FX markets is in excess of $4.5 trillion. The total value of all BTC in existence right now is in the low, likely single digit, billions of dollars.
A major volatility event in BTC will have an almost non-existent effect on FX markets - were every bitcoin exchanged for dollars in one day, it wouldn't even make up 1% of that day's FX trades globally.
A major volatility event in a major world currency (USD, GBP, EUR etc.) would have a massive effect on pretty much every market - it would effect FX, Futures, Fixed Income and Commodities markets, not to mention stock markets and derivatives markets.
Given the absence of the later, it's pretty safe assumption that the volatility is in BTC and not conventional FX markets.
A major volatility event in BTC will have an almost non-existent effect on FX markets - were every bitcoin exchanged for dollars in one day, it wouldn't even make up 1% of that day's FX trades globally.
A major volatility event in a major world currency (USD, GBP, EUR etc.) would have a massive effect on pretty much every market - it would effect FX, Futures, Fixed Income and Commodities markets, not to mention stock markets and derivatives markets.
Given the absence of the later, it's pretty safe assumption that the volatility is in BTC and not conventional FX markets.
Ultimately all currency, even gold, is fiat money given value only by use. It therefore seems difficult to decouple different stores of value. I think all the media coverage has indeed caused more people to use bitcoin and increase it's relative value. I have a hard time believing that the growth rate is predictable, there are so many unknown variables and it's so young.
> How can this volatility then be attributed to Bitcoin, and not the other currencies it is valued in?
Because if you were correct, that would meant the USD appreciated about 20% overnight which obviously it did not do.
Because if you were correct, that would meant the USD appreciated about 20% overnight which obviously it did not do.
Value is the intersection of supply and demand. Supply may be fixed, but demand is highly volatile.
First I want to remember that Bitcoin cost $10 less 24 hours before the $30 plunge than it did afterwards.
Having said that, I don't believe that it will go back up, most speculators will probably be ready to sell after today. It's also hard to say though, because it looks like the volume of bitcoins traded today are equal or less than other days. I can't say for sure, because Mt. Gox isn't loading properly and I'm looking at an unfamiliar set of graphs.
People keep talking about the bubble bursting. Most people don't realize that last time bitcoin flopped, it only lost 30-50% value initially, returning to a value that was still higher than just 2 months before the crash. Bitcoin spent 5 months in a steady decline, not 5 hours. Most early speculators made a profit, even if they couldn't sell until after the crash.
As much insanity as people are predicting, everything will probably be drawn out. If you have bitcoins and are nervous, now is a fine time to sell. If you think bitcoin will keep going up and you bought more than 30 days ago, you will probably be able to come out ahead even if you are wrong.
But you have to appreciate that most of Bitcoin is speculation. Bitcoin seems safe because it is inherently deflationary. That brings an unproportionate amount of speculators to the currency, and causes the deflationary properties to exaggerate. After enough time, the currency will become clearly overvalued. The free market will take care of that in a cyclic fashion.
As long as Bitcoin is used by people for it's anonymous and cryptographic properties, it will be subject to this hyperdeflation/crash cycle. The exiting bits don't last long and ultimately don't make the currency gain or lose terribly extraordinary amounts of value. After a crash, I'm sure bitcoin will still be worth at least $60, which is still fantastic if you bought back when it was less than $15.
Having said that, I don't believe that it will go back up, most speculators will probably be ready to sell after today. It's also hard to say though, because it looks like the volume of bitcoins traded today are equal or less than other days. I can't say for sure, because Mt. Gox isn't loading properly and I'm looking at an unfamiliar set of graphs.
People keep talking about the bubble bursting. Most people don't realize that last time bitcoin flopped, it only lost 30-50% value initially, returning to a value that was still higher than just 2 months before the crash. Bitcoin spent 5 months in a steady decline, not 5 hours. Most early speculators made a profit, even if they couldn't sell until after the crash.
As much insanity as people are predicting, everything will probably be drawn out. If you have bitcoins and are nervous, now is a fine time to sell. If you think bitcoin will keep going up and you bought more than 30 days ago, you will probably be able to come out ahead even if you are wrong.
But you have to appreciate that most of Bitcoin is speculation. Bitcoin seems safe because it is inherently deflationary. That brings an unproportionate amount of speculators to the currency, and causes the deflationary properties to exaggerate. After enough time, the currency will become clearly overvalued. The free market will take care of that in a cyclic fashion.
As long as Bitcoin is used by people for it's anonymous and cryptographic properties, it will be subject to this hyperdeflation/crash cycle. The exiting bits don't last long and ultimately don't make the currency gain or lose terribly extraordinary amounts of value. After a crash, I'm sure bitcoin will still be worth at least $60, which is still fantastic if you bought back when it was less than $15.
I don't think you're wrong on any particular point.
But all of this is what makes Bitcoin irrelevant to the global financial system.
A currency can't be used for daily purchases if you have to account for cyclical periods where you just shouldn't spend them!
Couple this with the fact that this time enough of the mainstream media is paying attention, and Bitcoin won't recover. I'd bet a Bitcoin that this is the highest valuation of Bitcoin over its career as a highly interesting experiment in economics.
But all of this is what makes Bitcoin irrelevant to the global financial system.
A currency can't be used for daily purchases if you have to account for cyclical periods where you just shouldn't spend them!
Couple this with the fact that this time enough of the mainstream media is paying attention, and Bitcoin won't recover. I'd bet a Bitcoin that this is the highest valuation of Bitcoin over its career as a highly interesting experiment in economics.
What are your terms on that bet?
My take on it is that it's a mistake to think it's a currency. It has a lot more in common with gold, but without the heavy lifting.
My take on it is that it's a mistake to think it's a currency. It has a lot more in common with gold, but without the heavy lifting.
If it's not a currency it shouldn't act like one.
My terms are: if I win, you pay me a (worthless) Bitcoin. If you win, I owe you a stupid amount of money.
It's meant to indicate my disregard for Bitcoin's chances of success.
My terms are: if I win, you pay me a (worthless) Bitcoin. If you win, I owe you a stupid amount of money.
It's meant to indicate my disregard for Bitcoin's chances of success.
I'll take that bet. Let's say, 2018-04-04 as the date, and use today's high of $147 USD as the crossover point.
If I lose, I owe you a BitCoin. If I win, you owe me one. Feel free to pre-purchase that coin. I'll stick a reminder in my calendar.
If I lose, I owe you a BitCoin. If I win, you owe me one. Feel free to pre-purchase that coin. I'll stick a reminder in my calendar.
I'm not going to buy a Bitcoin. I'll just go into tremendous debt if I lose, and if I win, well, you can just keep it ;)
Oh, and I wouldn't take today's high. I'm talking about this current hump. After it falls below 100, it won't make it back up to 100, is the bet I'd make.
Oh, and I wouldn't take today's high. I'm talking about this current hump. After it falls below 100, it won't make it back up to 100, is the bet I'd make.
all this volatility makes owning bitcoin feel like gambling.
A month or two ago, I spent $100 on Bitcoins. I figured this was an acceptable amount to 'gamble' like I was in Vegas. Might go up, might go down- but I found the risk to be acceptable for the amount.
If I was lucky enough to be in your situation I'd cash out my ~650usd and call it a day. I wouldn't feel remotely bad about it even if bitcoin kept going up. At this point it was a sound investment that paid out well.
I agree. I mined bitcoins for a few months early on (2010). I ended up with about 100 of them. I didn't transfer the wallet when I reformatted the drive a year later because I had completely forgotten about BTC.
My loss isn't $10,000, because there's no way I would have held on this long. Realistically, I probably would have sold them once they were 5 USD / BTC.
My loss isn't $10,000, because there's no way I would have held on this long. Realistically, I probably would have sold them once they were 5 USD / BTC.
probably because most activity is currently speculation/hoarding rather than actual use.
Bitcoin price should stabilize if there are more transactions.
Biggest issues now are slow payment time, hoarders and over-reliance on few exchanges. I think higher price and faster payment/withdrawal times would decrease the price eventually as bitcoin holders would have more incentive to spend/take profit while the price is high and exchanges would be forced to sell coins after a transaction for merchant withdrawals. For hoarding, if protocol can be updated to charge higher transaction fee for long-held coins, this should make it less profitable to hoard and increase number of transactions.
The conspiracy theorist in me suspects that the US Government may be involved, sinking their tentacles into MtGox and tracking every transaction.
I seem to recall a global Skype outage shortly after MS purchased the company, and this is eerily similar. I would haphazard to guess that most BTC transactions are USD->BTC so the USG would definitely be interested in that.
I seem to recall a global Skype outage shortly after MS purchased the company, and this is eerily similar. I would haphazard to guess that most BTC transactions are USD->BTC so the USG would definitely be interested in that.
Conspiracy theories are not necessary in this case. MtGox has had extensive know your customer procedures in place for a while. FinCEN recently issued explicit regulations for Bitcoin and MtGox indicated that they're already "overcompliant" with them. And MtGox is moving from Japan to the US just to be sure. There's no evidence that MtGox is sending every transaction to the US government, but it sure looks like they would voluntarily do so if asked; no hacking needed.
Why bit coin is a bad currency or store of value? If the grid is harmed then but coins may rise in value but if you still have access to your store, trading will be as reliable and fruitful as eating gold to survive. It's too susceptible to an EMP attack and war (which brings down the infrastructure or grid). Paper wealth only appears on paper.
Still worth more than yesterday.
Isn't this amount of volatility, even if it's trending upwards, a terribly worrying sign, and one that points to a probable bubble burst?
To add to that, it also illustrates the over-dependence of the bitcoin community on a single exchange site. What I was trying to show is that, despite those pretty major problems, Bitcoin is still massively popular. Hopefully it can come out on top in the end.
No one loves Mt. Gox, but it's the biggest exchange...which is why it stays as the biggest exchange, because everyone wants to use the biggest exchange.
Highly volatile doesn't mean it's a bubble
If you look at the value of a bitcoin graphed over time, it looks an awful lot like a bubble. I sure wouldn't keep any assets in bitcoins. I've seen a lot of bubbles in my 44.5 years on this planet and this looks just like all the others (right down to the claims that "this time it's different"). The biggest difference here is that there is no underlying asset behind the bubble. Heck, even the lowliest failed dotcom had, at the least, some aeron chairs to liquidate when the share price hit zero.
Heck, even the lowliest failed dotcom had, at the least, some aeron chairs to liquidate when the share price hit zero.
This got me thinking about what is bitcoins value from a book/intrinsic standpoint. Something like:
(electricity to generate coin) + (perceived value of allowing anonymous, non-government transactions) - (liquidity hassle)
This got me thinking about what is bitcoins value from a book/intrinsic standpoint. Something like:
(electricity to generate coin) + (perceived value of allowing anonymous, non-government transactions) - (liquidity hassle)
I think you have the electricity on the wrong side of the minus sign.
So creating a BTC yields positive electricity?
No, but if I told you shining a flashlight on quarters made them more valuable you probably wouldn't agree.
And it is worse than that, each transaction consumes a bit of electricity (in a hand wavy sense anyway; the chain must go on for the coins to have any worth).
And it is worse than that, each transaction consumes a bit of electricity (in a hand wavy sense anyway; the chain must go on for the coins to have any worth).
Bitcoin is highly volatile and it's a bubble, but these seem to be unrelated problems. The volatility hurts people who are trying to sell alpaca socks and the bubble may hurt speculators.
Yes, that's what's troubling about it.
BitCoin is back at 131, still up since the Euro-crisis went to bed yesterday.
To think that last July it was at about $5.20, and I scoffed at buying when it reached $6 cause that was more money than I was willing to spend... I'd be rich by now.
That is pretty much everyone's thought that knew about Bitcoin since the beginning. Which should be 90% of people frequenting this website.
I mined for a week or so in 2011. I wish I had kept on going!
Everyone, sell your bitcoins, quick!
This might have been funny if hundreds of people didn't spam it every day in hopes of manipulating the price.
One of the worst part of the bitcoin community right now is the number of armchair speculators who have absolutely no idea what they're doing and think it's clever to go into the bitcoin IRC/forum and allcaps that people need to start selling their bitcoins because "ITS GUNNA CRASH" in a baseless hope that it will drive the price down.
One of the worst part of the bitcoin community right now is the number of armchair speculators who have absolutely no idea what they're doing and think it's clever to go into the bitcoin IRC/forum and allcaps that people need to start selling their bitcoins because "ITS GUNNA CRASH" in a baseless hope that it will drive the price down.
From my armchair I'll simply say : "It's gonna be volatile!"
I've stayed out of bitcoin because the market drivers are non-transparent. There are a lot of speculative investors in the market that are waiting for more gains before they close out their positions. Whenever these investors close out you have the potential of increasing the amount of liquid bitcoins in the market. Presuming demand is growing at a continuous clip this would drive the price down to a lower level.
Wash, rinse, repeat.
I've stayed out of bitcoin because the market drivers are non-transparent. There are a lot of speculative investors in the market that are waiting for more gains before they close out their positions. Whenever these investors close out you have the potential of increasing the amount of liquid bitcoins in the market. Presuming demand is growing at a continuous clip this would drive the price down to a lower level.
Wash, rinse, repeat.
Market corrections due to hacked wallets and DDoS, which is quite interesting to watch. I'm guessing those with heavy bitcoin reserves paid for the DDoS to keep the massive wallet theft from moving the market. Instead, it pushed the clueless speculators out, dropping the price. Whoops.
And what about the people holding lots of BTC who are going on about how it's going to be more stable than the dollar?
Reminds me of this life-cycle of a bubble [1].
I know this drop wasn't caused by a loss of confidence in the currency but in the exchange, still I wonder if this was the bull-trap.
[1] http://i158.photobucket.com/albums/t106/OnlyObvious/CDOs/bub...
[1] http://i158.photobucket.com/albums/t106/OnlyObvious/CDOs/bub...
I don't understand why a Magic the Gathering site is the big exchange still, and yet people keep creating wallet providers (which is kind of cookie cutter and inessential), vs. an exchange (which is inherently centralized, very technical vs. UI/UX centric, security sensitive, technically interesting, and a natural monopoly). There's some value in being a wallet provider with great funding/redemption options, but that's a hard business which touches a lot of regulation and legacy banking.
I think the big opportunities in BTC are: hardware/trusted wallets, trusted cloud-hosted wallets, an exchange provider, and most interestingly, derivative issues (currencies, instruments, contracts) with BTC as the underlying. Not "yet another web wallet provider".
A wallet provider is essentially retail. An exchange is where wallet providers should be going to offload risk, ideally with the exchange itself taking zero risk; let market makers do it. The only thing the exchange needs to do is publish prices and handle execution/settlement (which is trickier due to the lack of a "bitcoin-USD", "bitcoin-JPY", etc., but can be approximated by retaining USD, JPY, etc. balances on account.