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Bitcoin’s Price Falls 12%, to Lowest Value Since May

78 points by conover 12y ago

higherpurpose 12y ago
And this is NYT-worthy news?
- louhike 12y ago
  The bitcoin market is worthwhile $6.3B at the current time so its value is not that negligible and might have an economical impact. NB: I'm saying that "it may have" not that "it has".
  - corin_ 12y ago
    Not massively useful, but interested me enough to look it up: $6.3B is more than the market cap of 40 companies in the FTSE 100
    - arethuza 12y ago
      I suspect you may have forgotten to do the USD to GBP conversion - I make it ~12 companies :-) http://en.wikipedia.org/wiki/FTSE_100_Index http://en.wikipedia.org/wiki/FTSE_100_Index
    - tomkarlo 12y ago
      Yeah, but a 12% decline in the stock price of a company worth ~$6bn probably wouldn't rate an NYT story unless there was some additional element to the story (like fraud or scandal.) Look at the ~10 companies on the NASDAQ between ~6bn and ~6.5bn -- I've only ever even heard of one (Flextronics), much less seen NYT articles about them. (Use Google stock screener, I can't seem to generate a link to the screen.)
      - jim-greer 12y ago
        If it were a $6bn company that didn't exist a few years ago it's quite likely that it would be covered...
  - Retric 12y ago
    Assuming every bit coin created still exists is a mistake. Nakamoto might still be in possession of roughly one million bitcoins. But if they where lost then it's a 6.0B commodity. It might just qualify as part of the S&P 500, but that's not really a major hurdle. PS: If bitcoin wants to be a stable currency it may be well served by invalidating any wallet without transactions for a long enough period of time aka 10 years. Otherwise, in the long term there is going to be a lot of possibly 'dead' coins which makes reasoning about the market difficult.
    - mcherm 12y ago
      > in the long term there is going to be a lot of possibly 'dead' coins which makes reasoning about the market difficult. Why is it difficult? No one "invalidates" US paper currency that hasn't traded for 10 years. A certain amount of US currency has been burned up in fires or lost to washing machines, yet no one seems concerned. Instead, they use surveys and other forms of statistical analysis to determine the amount in circulation, rather than relying on the US Mint's records of what was ever printed. The same would work for Bitcoin.
    - wyager 12y ago
      Suggesting "invalidating wallets" indicates a lack of understanding about the underlying system. Wallets are an abstraction; they do not exist in the Bitcoin protocol. And why should we work to make the Bitcoin market easier to analyze? Our first priority should be to have a strong long-term (well over 10 years) store of value.
      - lucb1e 12y ago
        > Suggesting "invalidating wallets" indicates a lack of understanding about the underlying system It might be a wording mistake rather than a lack of understanding, but I see your point. If you think about it though, it's technically easy to do and maybe a good thing too. Since you can see any transaction ever done, you can easily lookup the last transaction done by any address with value (valueless addresses can be discarded from memory anyway). If that transaction is more than, let's say, 50 years ago, you could say that it can be discarded from memory too (no longer included in the block chain to preserve space). People may want to store coins for over 10 years in cold storage (hot storage would simply be able to do a transaction to itself every few years) so maybe that's too short, but 50 years seems like a reasonable time. Looking at the future of Bitcoin (and I mean 100+ years), even though storage will get cheaper and cheaper, it might be smart to discard really old addresses. Of course this is all just an idea, I'm not saying it really surely would be a great thing to do. It's just that it's possible and not just a dumb remark from Retric.
- matthewbauer 12y ago
  Well New York Times blog worthy at the very least.
beedogs 12y ago
This isn't the end of it either. In a month or two, 475 dollars will look nice.
- chollida1 12y ago
  > In a month or two, 475 dollars will look nice. Based on what? Serious question. When people say this about stocks they are either: 1) pulling it out of their ass.. 2) They have done some quantitative analysis, based on some sort of CFA teachings. I'm assuming you are in camp 1 here. Not that there is anything wrong with a "gut feeling", I"m just not going to invest based on it:) As a question to anyone, what sort of analysis can one do on bitcoin to derive a proper price for it? I'd be open to any quantitative analysis techniques here! My wheel house is market microstructure, but I'd love to work on a model to value bitcoin with someone if they had any ideas.
  - ThomPete 12y ago
    Based on the same principles that lead us to think it's ok to pay 2000 for rent when it used to be 200. There is always a new normal. Edit: Why the downvote?
    - jlillyreed 12y ago
      So.. going with camp 1 then, eh?
      - ThomPete 12y ago
        Is there any other camp? And does it matter? The question asked was to this "In a month or two, 475 dollars will look nice."
  - yebyen 12y ago
    Well, if you're willing to ignore the existing base of bitcoin already mined (and even in some cases the sunk cost of buying hardware that can be used to mine them) go ahead and do your calculation based solely on the price per unit energy as a starting point. If you use this calculator[1] you can see that if your 50GH/s array spends 300w which you had to pay for, you are burning about $0.48/day at the current price, assuming all of that from before. This is not top-of-the-line, but it is some relatively modern ASIC equipment from BFL. Previous generation miners, 5 and 10GH/s "Jalapenos" from the 65nm fab. They are supposedly rolling out 28nm "Monarch" now which are at least 10x as powerful and certainly more than just marginally better at power efficiency. If you look at this chart[2] you can see an estimate of the next difficulty and adjust your calculations for next week, it becomes pretty clear that more people are turning on their Gigahashes than turning them off, even if that was only marginally the case two weeks ago. You have to imagine those people are mostly those with newer equipment. I don't have a graph of price overlaid with difficulty, but it can't be too hard to find one. A few months ago it was possible to scale them and demonstrate a relatively good fit where price and difficulty were roughly correlated, but since difficulty shows no signs of falling yet, I suspect that fit is not so good anymore. [1]: http://www.bitcoinx.com/profit/ http://www.bitcoinx.com/profit/ [2]: https://bitcoinwisdom.com/bitcoin/difficulty https://bitcoinwisdom.com/bitcoin/difficulty
gbachik 12y ago
I love how this is news when BTC value used to change by 40-60% a day lol...
matthewbauer 12y ago
I don't like the reasons this article gives for the decrease. I mean if regulations had been the cause of this price drop we would have seen this sort of thing happening in July. My best guess is that this is caused by fear-based speculators who were trying to get rich on Bitcoin.
- patio11 12y ago
  It was almost certainly caused by microstructure of the Bitcoin market: at least two exchanges allowed people to buy Bitcoins on margin, and published widely distributed statistics of how much aggregate margin was outstanding on a day to day basis. It did not take much Excel modeling to figure out the approximate price points for Bitcoin where the exchanges' published margin requirements would trigger cascading margin calls. [+] If you can predict a cascading margin call in advance, that's tradeable. There is a fairly straightforward way to predict the timing of one. [+] I'm using a bunch of words here which may not be common hacker jargon, though they're table stakes for trading. Margin is a loan securitized by assets kept with your broker (exchanges, in the Bitcoin world, since they don't separate functions) which allows you to employ "leverage", magnifying the gains if you trade well and the losses if you trade poorly. Margin makes it possible to lose more value than you started out with, something which is not possible when buying instruments like stock or Bitcoins outright. To avoid the problem of traders leaving the broker with the risk in the event of their position getting moved against, brokers do "margin calls", obligating customers to either a) post more collateral or b) liquidate positions involuntarily if their position is moved against in such a way that the equity threatens to go negative. If you're using margin to buy Bitcoins, a margin call forcing liquidation causes you to sell Bitcoins. This will tend to decrease the price of Bitcoins in the next few seconds. Decreasing prices cause other people to hit margin calls. This causes a "margin cascade" feedback loop as the market rapidly de-levers and a lot of over-margined traders lose their shirts. For an example of someone who correctly predicted this outcome in advance, see the Bitcoin Talk thread entitled "The Bitfinex Credit Bubble Cannot End Well." https://bitcointalk.org/index.php?topic=667105.0 https://bitcointalk.org/index.php?topic=667105.0 Another example of people correctly picking the outcome in advance would be the surge in BTC swaps (i.e. margin used by people shorting Bitcoin, expressing strong confidence that it will fall in price in the short term) in the 48 hours prior to the flash crashes. (I'm not necessarily saying that those folks intentionally precipitated the margin cascade.)
StavrosK 12y ago
Goddamnit, my $50 is only worth $44 now...
nhaehnle 12y ago
This is pretty much a cheap and default comment, but I would be so happy if everybody (especially websites calling themselves the "DealBook") would start plotting prices on a logarithmic scale.
- rsynnott 12y ago
  Why? Highly misleading if you don't know what you're looking at, and of dubious value for prices of most things even if you do.
  - ars 12y ago
    Did you reply to the wrong person? Did you mean to say that a non-logarithmic graph is highly misleading? Because a logarithmic graph is the only way to see the true value of anything financial that has price changes.
  - 3pt14159 12y ago
    Because a straight line means constant compounding gains.
  - grmarcil 12y ago
    A log scale plot shows fluctuations of equal percentage with equal visual size, so it is particularly useful in the case of bitcoin, where you may be interested in comparing price swings at $100 levels and $1 levels. Eg. A log scale plot shows a $1 to $2 increase as the same vertical hight as a $100 to $200 increase. In a linear scale plot, all you notice is the $100 to $200 increase and the $1 to $2 swing looks like nothing.
    - rsynnott 12y ago
      Bitcoin's no longer really fluctuating at such a rate that this feature is valuable enough to offset potential confusion in a news article for general consumption, though.
      - ars 12y ago
nfriedly 12y ago
Awesome, my bot got me some while they were cheep :)
- nfriedly 12y ago
  Ouch, -4 points - what's with the down votes?
danbruc 12y ago
This price fluctuations will not end until the destiny of Bitcoin has been decided, either fail and drop to zero or succeed and rise probably well above 1000 dollars. It's kind of remarkable that it did not die within the first 5 years if you consider all the small and big disasters but in my opinion Bitcoin is still in is infancy and it is far from clear where the journey will end. Compared with other means of payment Bitcoin still plays no important role at all - its still a very nerdy thing only a tiny fraction of people know about and the hand full of opportunities to do something meaningful with your Bitcoins besides speculating with them is not even a drop in the ocean of the world's economy.
- sunir 12y ago
  The fluctuations will never end unless bitcoin itself ends. Its nature prevents a dampening force like a central bank to control wild price swings.
  - danbruc 12y ago
    Wouldn't mass adoption help? If the market capitalization was for example 10,000 times the current one, it seems to me it would be quite hard to move the market as much as it happened in the past.
    - sunir 12y ago
      No because it is a deflationary currency. Gold also had huge fluctuations. Silver too. The counter argument (google "bitcoin deflationary") is that people won't hold Bitcoin because it is a payment system but I think that is ridiculous because the whole notion of bitcoin is that it is fungible property. Empirical reality obviously demonstrates people are hoarding bitcoins. Bitcoins are more like the condominium market. You can make more condos but a diminishing number more a year. You can buy condos speculatively and not inhabit them (eg buy bitcoins and not spend them). Condo prices are also an unstable market. (Not to mention lots of interesting organized crime stories.)
kolev 12y ago
I think the true colors of Bitcoin "believers" become pretty obvious when they are all so very preoccupied with the price per piece. I read some pretty ridiculous explanations that volatility is good, because it attracts "investors", and this is supposed to be good for it.
- TomGullen 12y ago
  Volatility will attract traders, the only benefit traders offer is liquidity (a marginal benefit).
  - kolev 12y ago
    I'm not discussing the validity of the ridiculous statement, just quoting "believers" who would find all excuses for their beloved Bitcoin. The term of the week is "flash crash"! The longer people repeat it (i.e. validating it's not a "flash crash" as time passes by and the price is not recovering), the more ridiculous it gets!
  - kasey_junk 12y ago
    Traders can also reduce the bid/ask spread.
gexla 12y ago
And I'm happy to be someone about to jump fully on the Bitcoin train and never have to think about the price of Bitcoin. As a U.S. citizen living abroad, Bitcoin is now at the intersection of cheapest, fast (but not instant) and most convenient for receiving my money. There are exchanges here which work automatically and have lots of options for me to receive my money. At this point, I can't say there is a better method available for me. I'm getting the pathways setup (accounts mostly) and then all of my money transfers will be going through Bitcoin. When people like me who don't care about the price, but get real utility out of Bitcoin (beyond just the gimmick of merchants accepting payments in Bitcoin which make up less than 1% of sales but much more than that in marketing publicity) then the prices will really start to take off. But, we still won't care about the prices then. Edit: That said, Ripple or Stellar may be an even better option for moving money. Once Cryptocurrency becomes so widely used that Bitcoin is just another option, then Bitcoin could drop massively. But we still won't care about price. ;) Edit2: I would NOT be holding Bitcoin. I would only be using it as a transfer medium.
- gexla 12y ago
  You guys have got to be kidding me. I write a comment about transferring money to a 3rd world nation, which is one of the greatest possible uses of Bitcoin in the future and my comment is getting attacked? Of course people in 3rd world nations won't hold Bitcoin. Low income workers can't afford any volatility and they often can't afford to hold anything anyways. What I'm trying to say is that Bitcoin is emerging as the best remittance option. This is one of the most exciting uses of Bitcoin. But it's not quite there yet for most people in the world. In the Philippines, it's here! If an option is good for remittances, it's also good for an expat to remit money to him / her self. In this scenario, we don't care about what the price is. What's the problem with that?
  - dragonwriter 12y ago
    > In this scenario, we don't care about what the price is. You don't, but you rely on people who do on both ends, which means that the long-term viability in the use case you are interested in is dependent on the viability of Bitcoin to people who do care about the price, even if the people using it for your use case do not directly care about that.
TomGullen 12y ago
Price drop was most likely caused by cascading margin calls. As exchanges add more sophisticated features (such as trading on margin) amateurs continue to suffer and learn expensive lessons. Many Bitcoin advocates will heave at the idea of any form of regulation, Bitcoin unfortunately appears to be most attractive to libertarians. Yet their fellow advocates are suffering all around them for it. As an example, any leveraged trading instrument regulated by the FSA in the UK is plastered with warnings about leveraged trading, in a (admittedly probably lacking) effort to warn amateurs of the dangers. I see no such warnings on Bitcoin exchanges offering leverage.
- STRML 12y ago
  Part of the issue is that most exchanges will liquidate your entire position in the event of a margin call, rather than simply liquidating enough to bring you back above maintenance margin.
  - GregorStocks 12y ago
    Why do they do it that way? Just because it's simpler to implement?
- dreamdu5t 12y ago
  Are you one of these amateurs? Do you have these anecdotes sourced somewhere or did you just make them up? The price fell so that means we should have warning labels on the website because clearly everybody trading this thing is an amateur? Can you produce one person who trades on margin without knowing what a margin is? Give me a break.
- smrtinsert 12y ago
  Can't wait till they allow derivatives!
  - STRML 12y ago
    You joke, but that's coming soon (shameless plug - I co-founded BitMEX, https://www.bitmex.com/app https://www.bitmex.com/app, currently in a competitive simulation), and we completely understand the risk to casual users. Bitcoin has a remarkably low barrier to entry compared to most forms of investment, and the average user can easily get swindled. Leverage is a powerful but dangerous thing, but it is needed for legitimate business use, such as hedging held BTC. I agree that there needs to be a big warning on the box. We're working on a series of articles explaining margin trading to the layperson as well as an interactive introduction, but above all, investors need to take responsibility and be aware of what they are doing when they put their money on the line.
avyfain 12y ago
At the end of the article the guy says: “What really defines the price is its reputation and expectations for the future.” But isn't that true of any currency? Isn't that why a green piece of paper with Benjamin Franklin's face on it is worth anything at all, just because we believe in the US government's stability?
- breadbox 12y ago
  Perhaps a better comparison than US currency would be with currency with a nation that had only recently formed, and that many people doubt that it will be around in 20 years. The volatility of their currency may attract people into making short-term purchases, but long-term investors will be harder to find.
- uiri 12y ago
  One thing which government-issued fiat currencies have going for them which cryptographically secured fiat currencies do not is taxes. Someone who lives in Windsor and commutes to Detroit every day will have to pay taxes in US dollars for the work performed in the US and then pay taxes in Canadian dollars because that person lives in Canada. They need to have some amount of US dollars and some amount of Canadian dollars even if they can do all of their shopping, rent, utility bills, etc. in Bitcoin. Since taxes are done in the local government-issued fiat currency, local businesses need to hold some amount of that currency anyways. It is simpler and cheaper for local businesses to do all of their business in that currency not to mention it sidesteps the issue of dealing with currency risk.
- ohashi 12y ago
  And its ability to enforce its value.
- Karunamon 12y ago
  Perhaps, but the USD has a relatively strong history of stability. Not a word I'd ever associate with Bitcoin (or really any cryptocurrency) at any point since its launch.
- pingburg 12y ago
  It's an interesting question. I would argue that it isn't about the U.S. government's stability, but more about the confidence that you can use a dollar to buy x. And I don't think its a binary decision like the dollar will ultimately not be able to purchase x. Instead it will be how many dollars it takes to buy x and if the number of dollars increases rapidly, you get a sudden erosion of confidence.
nickthemagicman 12y ago
I shyed away from bitcoin after finding out about the group that captured 51% of the blockchain. Just knowing that's a possibility is a big nope for me

78 points by conover 12y ago

higherpurpose 12y ago

And this is NYT-worthy news?

louhike 12y ago
The bitcoin market is worthwhile $6.3B at the current time so its value is not that negligible and might have an economical impact. NB: I'm saying that "it may have" not that "it has".
- corin_ 12y ago
  Not massively useful, but interested me enough to look it up: $6.3B is more than the market cap of 40 companies in the FTSE 100
  - arethuza 12y ago
    I suspect you may have forgotten to do the USD to GBP conversion - I make it ~12 companies :-) http://en.wikipedia.org/wiki/FTSE_100_Index http://en.wikipedia.org/wiki/FTSE_100_Index
  - tomkarlo 12y ago
    Yeah, but a 12% decline in the stock price of a company worth ~$6bn probably wouldn't rate an NYT story unless there was some additional element to the story (like fraud or scandal.) Look at the ~10 companies on the NASDAQ between ~6bn and ~6.5bn -- I've only ever even heard of one (Flextronics), much less seen NYT articles about them. (Use Google stock screener, I can't seem to generate a link to the screen.)
    - jim-greer 12y ago
      If it were a $6bn company that didn't exist a few years ago it's quite likely that it would be covered...
- Retric 12y ago
  Assuming every bit coin created still exists is a mistake. Nakamoto might still be in possession of roughly one million bitcoins. But if they where lost then it's a 6.0B commodity. It might just qualify as part of the S&P 500, but that's not really a major hurdle. PS: If bitcoin wants to be a stable currency it may be well served by invalidating any wallet without transactions for a long enough period of time aka 10 years. Otherwise, in the long term there is going to be a lot of possibly 'dead' coins which makes reasoning about the market difficult.
  - mcherm 12y ago
    > in the long term there is going to be a lot of possibly 'dead' coins which makes reasoning about the market difficult. Why is it difficult? No one "invalidates" US paper currency that hasn't traded for 10 years. A certain amount of US currency has been burned up in fires or lost to washing machines, yet no one seems concerned. Instead, they use surveys and other forms of statistical analysis to determine the amount in circulation, rather than relying on the US Mint's records of what was ever printed. The same would work for Bitcoin.
  - wyager 12y ago
    Suggesting "invalidating wallets" indicates a lack of understanding about the underlying system. Wallets are an abstraction; they do not exist in the Bitcoin protocol. And why should we work to make the Bitcoin market easier to analyze? Our first priority should be to have a strong long-term (well over 10 years) store of value.
    - lucb1e 12y ago
      > Suggesting "invalidating wallets" indicates a lack of understanding about the underlying system It might be a wording mistake rather than a lack of understanding, but I see your point. If you think about it though, it's technically easy to do and maybe a good thing too. Since you can see any transaction ever done, you can easily lookup the last transaction done by any address with value (valueless addresses can be discarded from memory anyway). If that transaction is more than, let's say, 50 years ago, you could say that it can be discarded from memory too (no longer included in the block chain to preserve space). People may want to store coins for over 10 years in cold storage (hot storage would simply be able to do a transaction to itself every few years) so maybe that's too short, but 50 years seems like a reasonable time. Looking at the future of Bitcoin (and I mean 100+ years), even though storage will get cheaper and cheaper, it might be smart to discard really old addresses. Of course this is all just an idea, I'm not saying it really surely would be a great thing to do. It's just that it's possible and not just a dumb remark from Retric.
matthewbauer 12y ago
Well New York Times blog worthy at the very least.

beedogs 12y ago

This isn't the end of it either. In a month or two, 475 dollars will look nice.

chollida1 12y ago
> In a month or two, 475 dollars will look nice. Based on what? Serious question. When people say this about stocks they are either: 1) pulling it out of their ass.. 2) They have done some quantitative analysis, based on some sort of CFA teachings. I'm assuming you are in camp 1 here. Not that there is anything wrong with a "gut feeling", I"m just not going to invest based on it:) As a question to anyone, what sort of analysis can one do on bitcoin to derive a proper price for it? I'd be open to any quantitative analysis techniques here! My wheel house is market microstructure, but I'd love to work on a model to value bitcoin with someone if they had any ideas.
- ThomPete 12y ago
  Based on the same principles that lead us to think it's ok to pay 2000 for rent when it used to be 200. There is always a new normal. Edit: Why the downvote?
  - jlillyreed 12y ago
    So.. going with camp 1 then, eh?
    - ThomPete 12y ago
      Is there any other camp? And does it matter? The question asked was to this "In a month or two, 475 dollars will look nice."
- yebyen 12y ago
  Well, if you're willing to ignore the existing base of bitcoin already mined (and even in some cases the sunk cost of buying hardware that can be used to mine them) go ahead and do your calculation based solely on the price per unit energy as a starting point. If you use this calculator[1] you can see that if your 50GH/s array spends 300w which you had to pay for, you are burning about $0.48/day at the current price, assuming all of that from before. This is not top-of-the-line, but it is some relatively modern ASIC equipment from BFL. Previous generation miners, 5 and 10GH/s "Jalapenos" from the 65nm fab. They are supposedly rolling out 28nm "Monarch" now which are at least 10x as powerful and certainly more than just marginally better at power efficiency. If you look at this chart[2] you can see an estimate of the next difficulty and adjust your calculations for next week, it becomes pretty clear that more people are turning on their Gigahashes than turning them off, even if that was only marginally the case two weeks ago. You have to imagine those people are mostly those with newer equipment. I don't have a graph of price overlaid with difficulty, but it can't be too hard to find one. A few months ago it was possible to scale them and demonstrate a relatively good fit where price and difficulty were roughly correlated, but since difficulty shows no signs of falling yet, I suspect that fit is not so good anymore. [1]: http://www.bitcoinx.com/profit/ http://www.bitcoinx.com/profit/ [2]: https://bitcoinwisdom.com/bitcoin/difficulty https://bitcoinwisdom.com/bitcoin/difficulty

gbachik 12y ago

I love how this is news when BTC value used to change by 40-60% a day lol...

matthewbauer 12y ago

I don't like the reasons this article gives for the decrease. I mean if regulations had been the cause of this price drop we would have seen this sort of thing happening in July. My best guess is that this is caused by fear-based speculators who were trying to get rich on Bitcoin.

patio11 12y ago
It was almost certainly caused by microstructure of the Bitcoin market: at least two exchanges allowed people to buy Bitcoins on margin, and published widely distributed statistics of how much aggregate margin was outstanding on a day to day basis. It did not take much Excel modeling to figure out the approximate price points for Bitcoin where the exchanges' published margin requirements would trigger cascading margin calls. [+] If you can predict a cascading margin call in advance, that's tradeable. There is a fairly straightforward way to predict the timing of one. [+] I'm using a bunch of words here which may not be common hacker jargon, though they're table stakes for trading. Margin is a loan securitized by assets kept with your broker (exchanges, in the Bitcoin world, since they don't separate functions) which allows you to employ "leverage", magnifying the gains if you trade well and the losses if you trade poorly. Margin makes it possible to lose more value than you started out with, something which is not possible when buying instruments like stock or Bitcoins outright. To avoid the problem of traders leaving the broker with the risk in the event of their position getting moved against, brokers do "margin calls", obligating customers to either a) post more collateral or b) liquidate positions involuntarily if their position is moved against in such a way that the equity threatens to go negative. If you're using margin to buy Bitcoins, a margin call forcing liquidation causes you to sell Bitcoins. This will tend to decrease the price of Bitcoins in the next few seconds. Decreasing prices cause other people to hit margin calls. This causes a "margin cascade" feedback loop as the market rapidly de-levers and a lot of over-margined traders lose their shirts. For an example of someone who correctly predicted this outcome in advance, see the Bitcoin Talk thread entitled "The Bitfinex Credit Bubble Cannot End Well." https://bitcointalk.org/index.php?topic=667105.0 https://bitcointalk.org/index.php?topic=667105.0 Another example of people correctly picking the outcome in advance would be the surge in BTC swaps (i.e. margin used by people shorting Bitcoin, expressing strong confidence that it will fall in price in the short term) in the 48 hours prior to the flash crashes. (I'm not necessarily saying that those folks intentionally precipitated the margin cascade.)

StavrosK 12y ago

Goddamnit, my $50 is only worth $44 now...

nhaehnle 12y ago

This is pretty much a cheap and default comment, but I would be so happy if everybody (especially websites calling themselves the "DealBook") would start plotting prices on a logarithmic scale.

rsynnott 12y ago
Why? Highly misleading if you don't know what you're looking at, and of dubious value for prices of most things even if you do.
- ars 12y ago
  Did you reply to the wrong person? Did you mean to say that a non-logarithmic graph is highly misleading? Because a logarithmic graph is the only way to see the true value of anything financial that has price changes.
- 3pt14159 12y ago
  Because a straight line means constant compounding gains.
- grmarcil 12y ago
  A log scale plot shows fluctuations of equal percentage with equal visual size, so it is particularly useful in the case of bitcoin, where you may be interested in comparing price swings at $100 levels and $1 levels. Eg. A log scale plot shows a $1 to $2 increase as the same vertical hight as a $100 to $200 increase. In a linear scale plot, all you notice is the $100 to $200 increase and the $1 to $2 swing looks like nothing.
  - rsynnott 12y ago
    Bitcoin's no longer really fluctuating at such a rate that this feature is valuable enough to offset potential confusion in a news article for general consumption, though.
    - ars 12y ago

nfriedly 12y ago

Awesome, my bot got me some while they were cheep :)

nfriedly 12y ago
Ouch, -4 points - what's with the down votes?

danbruc 12y ago

This price fluctuations will not end until the destiny of Bitcoin has been decided, either fail and drop to zero or succeed and rise probably well above 1000 dollars. It's kind of remarkable that it did not die within the first 5 years if you consider all the small and big disasters but in my opinion Bitcoin is still in is infancy and it is far from clear where the journey will end. Compared with other means of payment Bitcoin still plays no important role at all - its still a very nerdy thing only a tiny fraction of people know about and the hand full of opportunities to do something meaningful with your Bitcoins besides speculating with them is not even a drop in the ocean of the world's economy.

sunir 12y ago
The fluctuations will never end unless bitcoin itself ends. Its nature prevents a dampening force like a central bank to control wild price swings.
- danbruc 12y ago
  Wouldn't mass adoption help? If the market capitalization was for example 10,000 times the current one, it seems to me it would be quite hard to move the market as much as it happened in the past.
  - sunir 12y ago
    No because it is a deflationary currency. Gold also had huge fluctuations. Silver too. The counter argument (google "bitcoin deflationary") is that people won't hold Bitcoin because it is a payment system but I think that is ridiculous because the whole notion of bitcoin is that it is fungible property. Empirical reality obviously demonstrates people are hoarding bitcoins. Bitcoins are more like the condominium market. You can make more condos but a diminishing number more a year. You can buy condos speculatively and not inhabit them (eg buy bitcoins and not spend them). Condo prices are also an unstable market. (Not to mention lots of interesting organized crime stories.)

kolev 12y ago

I think the true colors of Bitcoin "believers" become pretty obvious when they are all so very preoccupied with the price per piece. I read some pretty ridiculous explanations that volatility is good, because it attracts "investors", and this is supposed to be good for it.

TomGullen 12y ago
Volatility will attract traders, the only benefit traders offer is liquidity (a marginal benefit).
- kolev 12y ago
  I'm not discussing the validity of the ridiculous statement, just quoting "believers" who would find all excuses for their beloved Bitcoin. The term of the week is "flash crash"! The longer people repeat it (i.e. validating it's not a "flash crash" as time passes by and the price is not recovering), the more ridiculous it gets!
- kasey_junk 12y ago
  Traders can also reduce the bid/ask spread.

gexla 12y ago

And I'm happy to be someone about to jump fully on the Bitcoin train and never have to think about the price of Bitcoin. As a U.S. citizen living abroad, Bitcoin is now at the intersection of cheapest, fast (but not instant) and most convenient for receiving my money. There are exchanges here which work automatically and have lots of options for me to receive my money. At this point, I can't say there is a better method available for me. I'm getting the pathways setup (accounts mostly) and then all of my money transfers will be going through Bitcoin. When people like me who don't care about the price, but get real utility out of Bitcoin (beyond just the gimmick of merchants accepting payments in Bitcoin which make up less than 1% of sales but much more than that in marketing publicity) then the prices will really start to take off. But, we still won't care about the prices then. Edit: That said, Ripple or Stellar may be an even better option for moving money. Once Cryptocurrency becomes so widely used that Bitcoin is just another option, then Bitcoin could drop massively. But we still won't care about price. ;) Edit2: I would NOT be holding Bitcoin. I would only be using it as a transfer medium.

gexla 12y ago
You guys have got to be kidding me. I write a comment about transferring money to a 3rd world nation, which is one of the greatest possible uses of Bitcoin in the future and my comment is getting attacked? Of course people in 3rd world nations won't hold Bitcoin. Low income workers can't afford any volatility and they often can't afford to hold anything anyways. What I'm trying to say is that Bitcoin is emerging as the best remittance option. This is one of the most exciting uses of Bitcoin. But it's not quite there yet for most people in the world. In the Philippines, it's here! If an option is good for remittances, it's also good for an expat to remit money to him / her self. In this scenario, we don't care about what the price is. What's the problem with that?
- dragonwriter 12y ago
  > In this scenario, we don't care about what the price is. You don't, but you rely on people who do on both ends, which means that the long-term viability in the use case you are interested in is dependent on the viability of Bitcoin to people who do care about the price, even if the people using it for your use case do not directly care about that.

TomGullen 12y ago

Price drop was most likely caused by cascading margin calls. As exchanges add more sophisticated features (such as trading on margin) amateurs continue to suffer and learn expensive lessons. Many Bitcoin advocates will heave at the idea of any form of regulation, Bitcoin unfortunately appears to be most attractive to libertarians. Yet their fellow advocates are suffering all around them for it. As an example, any leveraged trading instrument regulated by the FSA in the UK is plastered with warnings about leveraged trading, in a (admittedly probably lacking) effort to warn amateurs of the dangers. I see no such warnings on Bitcoin exchanges offering leverage.

STRML 12y ago
Part of the issue is that most exchanges will liquidate your entire position in the event of a margin call, rather than simply liquidating enough to bring you back above maintenance margin.
- GregorStocks 12y ago
  Why do they do it that way? Just because it's simpler to implement?
dreamdu5t 12y ago
Are you one of these amateurs? Do you have these anecdotes sourced somewhere or did you just make them up? The price fell so that means we should have warning labels on the website because clearly everybody trading this thing is an amateur? Can you produce one person who trades on margin without knowing what a margin is? Give me a break.
smrtinsert 12y ago
Can't wait till they allow derivatives!
- STRML 12y ago
  You joke, but that's coming soon (shameless plug - I co-founded BitMEX, https://www.bitmex.com/app https://www.bitmex.com/app, currently in a competitive simulation), and we completely understand the risk to casual users. Bitcoin has a remarkably low barrier to entry compared to most forms of investment, and the average user can easily get swindled. Leverage is a powerful but dangerous thing, but it is needed for legitimate business use, such as hedging held BTC. I agree that there needs to be a big warning on the box. We're working on a series of articles explaining margin trading to the layperson as well as an interactive introduction, but above all, investors need to take responsibility and be aware of what they are doing when they put their money on the line.

avyfain 12y ago

At the end of the article the guy says: “What really defines the price is its reputation and expectations for the future.” But isn't that true of any currency? Isn't that why a green piece of paper with Benjamin Franklin's face on it is worth anything at all, just because we believe in the US government's stability?

breadbox 12y ago
Perhaps a better comparison than US currency would be with currency with a nation that had only recently formed, and that many people doubt that it will be around in 20 years. The volatility of their currency may attract people into making short-term purchases, but long-term investors will be harder to find.
uiri 12y ago
One thing which government-issued fiat currencies have going for them which cryptographically secured fiat currencies do not is taxes. Someone who lives in Windsor and commutes to Detroit every day will have to pay taxes in US dollars for the work performed in the US and then pay taxes in Canadian dollars because that person lives in Canada. They need to have some amount of US dollars and some amount of Canadian dollars even if they can do all of their shopping, rent, utility bills, etc. in Bitcoin. Since taxes are done in the local government-issued fiat currency, local businesses need to hold some amount of that currency anyways. It is simpler and cheaper for local businesses to do all of their business in that currency not to mention it sidesteps the issue of dealing with currency risk.
ohashi 12y ago
And its ability to enforce its value.
Karunamon 12y ago
Perhaps, but the USD has a relatively strong history of stability. Not a word I'd ever associate with Bitcoin (or really any cryptocurrency) at any point since its launch.
pingburg 12y ago
It's an interesting question. I would argue that it isn't about the U.S. government's stability, but more about the confidence that you can use a dollar to buy x. And I don't think its a binary decision like the dollar will ultimately not be able to purchase x. Instead it will be how many dollars it takes to buy x and if the number of dollars increases rapidly, you get a sudden erosion of confidence.

nickthemagicman 12y ago

I shyed away from bitcoin after finding out about the group that captured 51% of the blockchain. Just knowing that's a possibility is a big nope for me