Bitcoin’s Price Falls 12%, to Lowest Value Since May
dealbook.nytimes.com
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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.
Hedging bitcoin volatility risk is a major concern for its adoption.
How is it cheapest? You have currency conversion on both sides which is a lot more expensive than using the worst bank.
And if you hold bitcoin then the value does interest you.
Coinbase charges a fee to convert on their end, but the exchange has a much small fee on their end. Getting the money sent from the exchange to me can be free depending on the option.
Otherwise I have the currency exchange rate and the a mess of options. I simply pull money from my bank via the local ATM's and that costs me around $5 / pop plus the exchange costs. On top of that I'm usually getting paid via Paypal, which is another fee to get paid.
Other people use Western Union or Xoom, which is expensive.
Bank to bank transfers are tricky. The most direct route is a wire transfer, which is spendy. The other option is an e-transfer, but that's not straightforward since the U.S. isn't on the same system that the Philippines is on. There are certain banks here which can pull it off I believe, but you need for these banks to be located close to you. And that's if you can even get a bank account here. It's not a huge barrier, but not everyone can get one.
There are tons of options but most involve fees on top of the conversion costs. Then there is speed, which is also important for me.
Right now, Bitcoin is looking to be the best option available for a lot of people here.
Edit: Whoops, forgot to mention that I wouldn't be holding Bitcoin. I would be using it as a transfer medium.
What are you trying to do, how much money are you trying to move and how often?
I don't think I need to get into my personal money habits here. If you haven't been an expat, then you probably don't know all the funky quirks of moving money here.
Let's just put it this way. The Philippines is one of the most active countries in the world for receiving remittances and Western Union is huge here. Can you imagine that Bitcoin could be cheaper than Western Union?
There are certain cases where you can get pretty cheap if you live in certain areas and your recipient lives in certain areas. For example, in L.A. there is a large Filipino community and remittance services in the Philippines have setup offices there, but these aren't services you can access over the internet. You have to live there.
You brought up a good point about conversion rates though. I will have to see what the conversion rates actually come out to. It's different because you aren't converting a currency. You are cutting out some of the processes that converting one currency to another goes through. But I may still lose some money in the conversion though.
I would get hit with the Coinbase fee, but apparently Circle is looking to do conversions for free. So, that might be even cheaper whenever they hook me up with an invite.
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?
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.
People who are interested in holding Bitcoin probably aren't people I'm going to be interacting with. If you are holding, you aren't selling.
My use case will help Bitcoin by creating demand, and helping liquidity. I'm buying and then turning around and selling. I using up available liquidity and then selling to create more liquidity. That liquidity also helps other people looking to do the same as me. You then have a pool of Bitcoin which is basically just zipping between people who aren't affected by price.
People who are speculating on the very short term don't necessarily care about price either. They may only care about up and down movements. Just as day traders of stocks don't necessarily care about the name of the stock or even the history. All they see is movement. In this case, volatility may actually be good for these people (I don't know, I'm not a day trader.)
Sure they are.
> If you are holding, you aren't selling.
But if you are interested in holding, you are likely buying. And remittance use case requires you to interact with both a seller and a buyer.
> I using up available liquidity and then selling to create more liquidity.
Which is basically a net zero impact, but sure.
> That liquidity also helps other people looking to do the same as me. You then have a pool of Bitcoin which is basically just zipping between people who aren't affected by price.
Except that if you want those transactions to get processed, you need miners, who are interested in price, since they get paid in bitcoins (mining new blocks and/or transaction fees; over time moving from the former as the main reward to the latter.)
My best guess is that this is caused by fear-based speculators who were trying to get rich on Bitcoin.
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
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.)
Do you have a link? I didn't find those stats after a cursory look at the Bitfinex and BTCE sites.
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.
I don't understand how you can say that. A logarithmic graph is LESS confusing.
With a non-logarithmic graph you have to mentally "warp" the graph to learn anything from it - I doubt people can do that in their head. It makes little difference how much the value changes - that's the entire POINT of a logarithmic graph, it works perfectly for small changes and for large.
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.
You can also just fake the numbers if that's what you want. A non-logarithmically graph is just completely misleading.
If you see spikes on a logarithmically graph then you are talking volatile. Spikes on a non-logarithmically graph mean nothing whatsoever.
That's funny, because if you are doing historical analysis of, say, the dollar, you need a log scale or else the current value of the dollar is pretty much indistinguishable from zero.
That makes no sense at all. A logarithmic scale works perfectly for small fluctuations or large.
https://bitcoinhelp.net/know/more/price-chart-history?log=1
You can also toggle the chart to display a linear axis.
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.
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.
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.
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.)
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?
The US dollar is, like the existence of the US itself, supported by the collective belief of its citizens and quite a lot of people outside its borders. That belief carries quite a lot of weight because it's difficult to dislodge.
The reputation of bitcoin is shorter and less clear, and expectations vary.
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.
Just knowing that's a possibility is a big nope for me
NB: I'm saying that "it may have" not that "it has".
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.)
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.
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.
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.
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.
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.
There is always a new normal.
Edit: Why the downvote?
The question asked was to this
"In a month or two, 475 dollars will look nice."
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/ [2]: https://bitcoinwisdom.com/bitcoin/difficulty