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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

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.

milesskorpen 14y ago
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?
dhosek 14y ago
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.
jjcm 14y ago
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.
- dmiladinov 14y ago
  Yes, thanks, this makes a lot of sense.
jacob019 14y ago
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.
danielparks 14y ago
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…).
DavidSJ 14y ago
Value is the intersection of supply and demand. Supply may be fixed, but demand is highly volatile.
jellicle 14y ago
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.
- dmiladinov 14y ago
  No, I suppose not. Thanks for your feedback! I'm really glad for all the discussion in response to my question!
elemeno 14y ago
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.
jussij 14y ago
> 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.

milesskorpen 14y ago

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?

dhosek 14y ago

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.

jjcm 14y ago

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.

dmiladinov 14y ago
Yes, thanks, this makes a lot of sense.

jacob019 14y ago

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.

danielparks 14y ago

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…).

DavidSJ 14y ago

Value is the intersection of supply and demand. Supply may be fixed, but demand is highly volatile.

jellicle 14y ago

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.

dmiladinov 14y ago
No, I suppose not. Thanks for your feedback! I'm really glad for all the discussion in response to my question!

elemeno 14y ago

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.

jussij 14y ago

> 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.