5 ms·

Bitcoin layperson here. What's the deal with the volatility?

imd23 13y ago
While it is really volatile, it is always going up and up. At least that seems to be the trend. This is a revolution. This is total free market. The rules are new and might not be near similar to any other trading.
- Tarang 13y ago
  Yeah but its not all that good. People can use bitcoins for more than speculation. They go up and then no one wants to sell. If you check out certain areas on localbitcoins you'll find the sellers have disappeared. It's not good for liquidity. Imagine if it was doing a spike down and there were no buyers? Markets are two way streets.
- grey-area 13y ago
  It's different this time?
  - jafaku 13y ago
    I don't know why people keep asking this question, other than to try to sound smart or experienced without much effort. Yes, it's pretty damn different this time. Else tell me: when was the last time you saw a decentralized distributed crypto-currency be born and take over the world?
    - grey-area 13y ago
      Markets, particularly unregulated or opaque ones, are often subject to volatility, exponential network effects, irrational exuberance, etc, and the most common excuse for that is 'this time it's different', which is your argument and that of the OP. Often, the explanation is just that crowds follow each other and/or those with a stake attempt manipulation. As a store of value, gaining value exponentially is a sign of danger, because it is clearly unsustainable, even in the short term. While it gains though it seems a one way bet and lots of people will take it, as they did during the south sea bubble, the railway bubble, the dotcom bubble, housing bubbles, tulips etc. Each time it was different, and we'd achieved a new paradigm where old rules no longer applied (and in some sense in each case this was true, but people got carried away). As a currency, volatility over hours, days and months is deadly - who wants to transact in a currency when you can't tell what the value of what you hold will be tomorrow or later today? As a currency, gaining value rapidly all the time is also difficult - who wants to transact in such a currency instead of just holding on to it and spending other currencies or bartering? It becomes more an investment than a currency (see gold when paper money is available). Still it's an interesting currency and I certainly wouldn't discount it (though it has not taken over the world just yet!) - just wary of irrational explanations for its huge rise in value over the last few months.
      - jafaku 13y ago
        It's not a sign of danger in this case though, it's a sign of exponential adoption, which is exactly what's happening and is perfectly understandable for such a technological feat like Bitcoin. The same happened with many startups like Facebook: A lot of volatility in the beginning, exponential growth, IPO, stabilization. > As a currency, gaining value rapidly all the time is also difficult - who wants to transact in such a currency instead of just holding on to it and spending other currencies or bartering? That's another argument that keeps popping up and doesn't make sense, it's basically a myth. Economists and opinionologists dread this imaginary situation where people will starve before spending their deflationary coins. Hint: The world did just fine for thousands of years using gold. And no one starved to death with Bitcoin either yet. If you have other currencies to spend or stuff to sell, you could have used them to buy more Bitcoin, and use Bitcoin to buy whatever you need at whatever price it is at the moment, so not spending Bitcoin and spending other things instead doesn't make any sense either.
M4v3R 13y ago
It's just law of the market. Bitcoin has limited supply (only 21M will ever be "mined" and even less in circulation due to lost wallets) and ever growing demand. Most recently Chinese got interested in Bitcoin, so the demand grew even more, while the supply stayed the same. So simply put when there are less people that want to sell than people that want to buy [3], the prices rises. Also, as other person here suggested, Bitcoin mining difficulty has risen dramatically in past few months [2] thanks to new specialized hardware (ASICs) finally arriving to its buyers. This, while does not affect the price directly, shows that there is much faith put in the system by miners, which in turn encourages people to buy even more. It's also worth noting that the $400 price is only on MtGox, which is not considered as market leader anymore. What's more, the withdrawals from MtGox are counted in weeks or even months , so it's not a viable trading platform. If you want a reliable Bitcoin price, head over to BitcoinAverage [1] which does what the name implies - averages (and takes volume into consideration) the price over all major exchanges. They even have a button to exclude MtGox price from the calculations, as MtGox is always 10-20% higher than the rest. As of writing this post, the average price including MtGox is $380. [1] https://bitcoinaverage.com/ https://bitcoinaverage.com/ [2] http://bitcoin.sipa.be/speed-lin.png http://bitcoin.sipa.be/speed-lin.png (network hashrate now approaching 5 Terahash per second) [3] http://blockchained.com/depth_mtgox_15d.png http://blockchained.com/depth_mtgox_15d.png (on bottom chart: orange line is sum of all offers from people wanting to sell, green one is for people wanting to buy)
- leokun 13y ago
  > only 21M will ever be "mined" and even less in circulation due to lost wallets But you can break bitcoins down into smaller increments than just 1. That must be significant in some way.
  - hcal 13y ago
    It is as significant as dollars breaking down into pennies. It allows for finer control in deals where the currency is the unit of account.
    - deanclatworthy 13y ago
iSnow 13y ago
Basically is is a very narrow market (~3.5b cap) and completely unregulated. So there is any amount of market manipulation. Furthermore, bitcoin holds the prospect of being deflationary - and this leads to a deflationary spiral right now.
TomGullen 13y ago
It's got a pretty small 'market cap' (not strictly the correct word regarding Bitcoin from what I understand but this is moot for your question) All Bitcoins are worth in the region of $4.5bn: http://blockchain.info/charts/market-cap http://blockchain.info/charts/market-cap Twitter is currently worth in the region of $23bn: http://uk.finance.yahoo.com/q?s=TWTR http://uk.finance.yahoo.com/q?s=TWTR (As a side point, this either makes Twitter look ridiculously over priced or Bitcoin ridiculously under priced...) Smaller valued assets are generally more sensitive to exterior influences. Bitcoin really is venturing into the unknown as well which means the news around Bitcoin can in itself be more volatile (you can have some very bullish news followed by some very bearish news on the same day). A lot of speculators in Bitcoin are amateurs as well (me included!). This lends itself to higher volatility as well as the owners of Bitcoin are more susceptible to act emotionally and induce a panic sell or greed driven buying frenzies. It's a nervous market that isn't worth a huge amount yet. Once more is known about it and once it reaches higher valuations it will bring more stability.

imd23 13y ago

While it is really volatile, it is always going up and up. At least that seems to be the trend. This is a revolution. This is total free market. The rules are new and might not be near similar to any other trading.

Tarang 13y ago
Yeah but its not all that good. People can use bitcoins for more than speculation. They go up and then no one wants to sell. If you check out certain areas on localbitcoins you'll find the sellers have disappeared. It's not good for liquidity. Imagine if it was doing a spike down and there were no buyers? Markets are two way streets.
grey-area 13y ago
It's different this time?
- jafaku 13y ago
  I don't know why people keep asking this question, other than to try to sound smart or experienced without much effort. Yes, it's pretty damn different this time. Else tell me: when was the last time you saw a decentralized distributed crypto-currency be born and take over the world?
  - grey-area 13y ago
    Markets, particularly unregulated or opaque ones, are often subject to volatility, exponential network effects, irrational exuberance, etc, and the most common excuse for that is 'this time it's different', which is your argument and that of the OP. Often, the explanation is just that crowds follow each other and/or those with a stake attempt manipulation. As a store of value, gaining value exponentially is a sign of danger, because it is clearly unsustainable, even in the short term. While it gains though it seems a one way bet and lots of people will take it, as they did during the south sea bubble, the railway bubble, the dotcom bubble, housing bubbles, tulips etc. Each time it was different, and we'd achieved a new paradigm where old rules no longer applied (and in some sense in each case this was true, but people got carried away). As a currency, volatility over hours, days and months is deadly - who wants to transact in a currency when you can't tell what the value of what you hold will be tomorrow or later today? As a currency, gaining value rapidly all the time is also difficult - who wants to transact in such a currency instead of just holding on to it and spending other currencies or bartering? It becomes more an investment than a currency (see gold when paper money is available). Still it's an interesting currency and I certainly wouldn't discount it (though it has not taken over the world just yet!) - just wary of irrational explanations for its huge rise in value over the last few months.
    - jafaku 13y ago
      It's not a sign of danger in this case though, it's a sign of exponential adoption, which is exactly what's happening and is perfectly understandable for such a technological feat like Bitcoin. The same happened with many startups like Facebook: A lot of volatility in the beginning, exponential growth, IPO, stabilization. > As a currency, gaining value rapidly all the time is also difficult - who wants to transact in such a currency instead of just holding on to it and spending other currencies or bartering? That's another argument that keeps popping up and doesn't make sense, it's basically a myth. Economists and opinionologists dread this imaginary situation where people will starve before spending their deflationary coins. Hint: The world did just fine for thousands of years using gold. And no one starved to death with Bitcoin either yet. If you have other currencies to spend or stuff to sell, you could have used them to buy more Bitcoin, and use Bitcoin to buy whatever you need at whatever price it is at the moment, so not spending Bitcoin and spending other things instead doesn't make any sense either.

M4v3R 13y ago

It's just law of the market. Bitcoin has limited supply (only 21M will ever be "mined" and even less in circulation due to lost wallets) and ever growing demand. Most recently Chinese got interested in Bitcoin, so the demand grew even more, while the supply stayed the same. So simply put when there are less people that want to sell than people that want to buy [3], the prices rises. Also, as other person here suggested, Bitcoin mining difficulty has risen dramatically in past few months [2] thanks to new specialized hardware (ASICs) finally arriving to its buyers. This, while does not affect the price directly, shows that there is much faith put in the system by miners, which in turn encourages people to buy even more. It's also worth noting that the $400 price is only on MtGox, which is not considered as market leader anymore. What's more, the withdrawals from MtGox are counted in weeks or even months , so it's not a viable trading platform. If you want a reliable Bitcoin price, head over to BitcoinAverage [1] which does what the name implies - averages (and takes volume into consideration) the price over all major exchanges. They even have a button to exclude MtGox price from the calculations, as MtGox is always 10-20% higher than the rest. As of writing this post, the average price including MtGox is $380. [1] https://bitcoinaverage.com/ https://bitcoinaverage.com/ [2] http://bitcoin.sipa.be/speed-lin.png http://bitcoin.sipa.be/speed-lin.png (network hashrate now approaching 5 Terahash per second) [3] http://blockchained.com/depth_mtgox_15d.png http://blockchained.com/depth_mtgox_15d.png (on bottom chart: orange line is sum of all offers from people wanting to sell, green one is for people wanting to buy)

leokun 13y ago
> only 21M will ever be "mined" and even less in circulation due to lost wallets But you can break bitcoins down into smaller increments than just 1. That must be significant in some way.
- hcal 13y ago
  It is as significant as dollars breaking down into pennies. It allows for finer control in deals where the currency is the unit of account.
  - deanclatworthy 13y ago

iSnow 13y ago

Basically is is a very narrow market (~3.5b cap) and completely unregulated. So there is any amount of market manipulation. Furthermore, bitcoin holds the prospect of being deflationary - and this leads to a deflationary spiral right now.

TomGullen 13y ago

It's got a pretty small 'market cap' (not strictly the correct word regarding Bitcoin from what I understand but this is moot for your question) All Bitcoins are worth in the region of $4.5bn: http://blockchain.info/charts/market-cap http://blockchain.info/charts/market-cap Twitter is currently worth in the region of $23bn: http://uk.finance.yahoo.com/q?s=TWTR http://uk.finance.yahoo.com/q?s=TWTR (As a side point, this either makes Twitter look ridiculously over priced or Bitcoin ridiculously under priced...) Smaller valued assets are generally more sensitive to exterior influences. Bitcoin really is venturing into the unknown as well which means the news around Bitcoin can in itself be more volatile (you can have some very bullish news followed by some very bearish news on the same day). A lot of speculators in Bitcoin are amateurs as well (me included!). This lends itself to higher volatility as well as the owners of Bitcoin are more susceptible to act emotionally and induce a panic sell or greed driven buying frenzies. It's a nervous market that isn't worth a huge amount yet. Once more is known about it and once it reaches higher valuations it will bring more stability.