Amid Bitcoin's Bloodbath, Silence from Silicon Valley Press
realclearmarkets.com
realclearmarkets.com
http://www.bloomberg.com/quote/CHFUSD:CUR
Yeah, it's "only" 20-30% move (depending on currency cross) but in highly leveraged FX markets even 1% can wipe people out.
Personally I never cared about Bitcoin "value". In my mind it is a great medium of settlement and not a store of value (which it might also be; given long enough outlook).
First we need to grow the Bitcoin economy to a decent size and then we can talk about "price stability". Transaction volume at the moment grows rather slowly. The rest is just speculators.
The CHF spike did wipe people out.
For example the world's largest currency broker FXCM; http://uk.businessinsider.com/fxcm-currency-broker-news-2015...
(okay they're not entirely wiped out, only $300MM in the red...)
The money was under evaluated by the BNS for years. This was bound to happen.
The main difference between this and bitcoin volatility is that this was the direct result of a central bank's action. Bitcoin has no central bank, yet still manages to have extreme volatility.
Bitcoin is way more volatile than that on many more periods. As someone mentioned, there was a 20% change in value over a few hours in BTC. Considering that transactions are not instant, that is enough movement for price to change significantly just while validating your transaction.
Instead, what we're looking at with the recent price decline is simply a reflection of how people feel about bitcoin - and in this case, that opinion has everything to do with factors that are irrelevant to the technology (failed exchanges, criminal activity, etc). If bitcoin were a public company, of course those kinds of things would matter (it doesn't matter if public opinion is wrong; it can still ruin your business), but since bitcoin's usefulness and underlying value do not rely on public opinion, it remains unaffected at the core by any of these recent events.
Actually, "an exchange made it look like someone bought a coin." https://willyreport.wordpress.com/
Bitcoin probably can't ever prevent good old insider manipulation, because every exchange affects every other exchange due to arbitrage. A price jump of $20 on BTC-e will swiftly travel to Bitstamp and everyone else. So if BTC-e decides to do something similar to what Mt. Gox did, there's nothing stopping them. All it takes is one shady popular exchange.
Bitcoin's dependency on exchanges is its greatest strength and weakness. Without exchanges, you probably wouldn't be able to sell bitcoins locally except in a sporadic way. There wouldn't really be an agreed-on price. But with exchanges, herd dynamics are always in full bloom, and you won't ever escape them.
EDIT: People buy and sell bitcoins at current market rate, and current market rate is defined by exchanges. That means if an exchange decides to make their own price artificially jump up, then everyone else's price will jump up too. That means bitcoin's price will be defined partly by whatever insider manipulation is going on at the time.
If I go the the store I am told "this is going to cost you $1" not "you set the price by buying that for $1"
For a real example, read this :
http://mechanicalforex.com/2015/01/trading-a-real-market-wha...
An alternate explanation is that supply is holding out, demand is spooked, and existing trading activity has little relation to supply and demand. Economic liquidity is not equal to book liquidity and trading volume isn't equal to the health of a market (especially when Bitcoin holders can generate fake volume at a very low cost). This is why buying assets headed south--called "catching a falling knife"--is a classic trap for amateur traders.
This is going to be especially true for Bitcoin because there's no viable way to short it that I know of--no way to depress trading demand unless you're unfortunate enough to own some already. There's nothing that can try to force Bitcoin to it's supply-demand equilibrium price, nothing except time.
There are believers in the Bitcoin platform who are investing significant time and capital in improving it.
Then there are the traders, many of whom could care less about the underlying technology. They are in it for pure speculation, and care only about the flaws of the Bitcoin ecosystem because as long as it impacts their investment. This subpopulation is really not much different than the people who trade (and shill for) penny stocks.
The question should be: Does it have any value in the first place? It is essentially a really cool monopoly money system. Bitcoin is taking pokemon cards.
A bitcoin is essentially a fancy cell on a very secure distributed excel file. Great, but that doesn't mean it will be currency.
>underlying value do not rely on public opinion
Oh very much so. A bitcoin's value is 100% based on what the public values it at.
So just like any other currency and commodity then? Intrinsic value doesn't exist. Everything is relative to where you are and what you're trying to achieve.
If and when bitcoin will be usable as a long term store of value we'll be a decade down the line at least, and if it hovers around $10 by then then I think it should still be considered a small miracle. The hardest challenge that bitcoin has is not to stabilize as a currency (because it isn't) but to simply stay alive. So far so good on that front.
I guess other way to say what you are trying to say would be: "Bitcoin is a very bad store of value for those with a low risk-preference."
To be a good store of value means that you have predictable recovery, which is the opposite of what you are say. BTC may or may not be a good (high risk) investment at the moment, but it isn't a good store of value.
Here's my simply hypothesis.
1. People got bored waiting for legitimate uses for Bitcoin that aren't in some way or another black market trade. I'm one of them.
2. The recent online black market busts made even those who were just betting on Bitcoin being a black market currency, uneasy.
I don't get why that stuff isn't being covered more in detail (the headline writes itself: "When will bitcoin exchanges stop screwing up?"), but the fact that some guy invested a bunch of money in BTC when it was worth 3 times as much? Get in line with literally everyone else with assets in it.
But the network reacts to that by making it more difficult, and thus more expensive, to mine. That's very much not the reason bitcoins become less valuable - assuming the same amount of money being poured into newer/faster mining equipment, it'll always cost the same to mine a block.
Anyone's bitcoins only represent a loss on a particular day if they actually choose to sell them or spend them. Same goes for people gloating when the price is up.
There's 3,600 bitcoins per day being generated creating a significant downward pressure on the price. But reward halving is ETA July 2016, marking a significant change in supply and probably the day-to-day price.
I can understand the schadenfreude for anyone who has watched people become very wealthy and watched other presumably greedy people subsequently 'lose' tons of money.
The majority of my holding will be likely to sit for 10 years or so and I will admit I was wrong if I've made a significant loss and I probably will sell them off. People can have their schadenfreude then. In return, I'll agree not to gloat if the price sky rockets.
The system will reach equilibrium when the revenue generated by mining is equal to the amount spent on mining. When the value of BTC goes down, mining generates proportionally less revenue (if miners are valuing BTC at market price, which they may not be), and the global hash rate will drop.
Imagine if the price plummeted, the hash rate dropped, and someone launched an attack on the network. At that point, consumer confidence in Bitcoin would possibly never recover, and its long-term viability would be severely damaged.
Yes there could be a crisis of confidence but I can't see it spinning out to completely cancel out its utility e.g. usefulness in international remittances. At the very least it will replace or significantly threaten the Western Union business model.
Where I think there may be cause for concern might be the irrational actors. People or organizations prepared to invest and lose money with the aim of bringing bitcoin down.
It gets a bit tinfoil hat to suggest that e.g. the Federal Reserve or world governments would want to spend billions on killing bitcoin, but it's at least an interesting thought experiment. I'd love to hear a defence from a strong bitcoin proponent against the 'irrational' actors. Irrational meaning not obviously acting in the interests of their own holdings. I've raise it before but not heard convincing arguments of how bitcoin would be safe against 51% attacks like that.
Bitcoin's volatility is structural (it goes well beyond the issues with the exchanges). Effective currencies have several mechanisms designed to protect their value and minimize volatility: Bitcoin lacks them and hence it's structurally fragile and volatile. So, Bitcoin cannot represent a reserve of value. Stable preservation of value is a key characteristic of a currency (this is one of the reasons inflation is monitored by central banks, for example), hence, if Bitcoin cannot work as a reserve of value, it cannot work as a currency.
Perhaps, other crypto currencies, in the future, may be structured with more robust mechanisms and work better.
Yes, government manipulation. I think many of the btc enthusiasts miss the point. You can't have a huge important currency without guarantees. Goverments have armies and taxes and so provide these guarantees. No world government/control of btc = no btc becoming the "global currency".
It's a speculative game for the first maybe decade or two. As the bitcoins gradually leave the early adopters as they cave in to whatever price is worth it for them there are bubble cycles. Once there is more general adoption, it will settle down though. As people gradually start to think less in e.g. Euros and consider not changing directly into local currency, but just to hold some for their day-to-day transactions because they are particularly useful in certain circumstances.
Once it's passed a tipping point they will be more useful in more and more situations, to the point that it's easier to just have your smart phone and cursing cash or credit card only places. I'm sure there will be retro hipster bars that take cash only in the future.
Anyway, as for the remaining volatility, it may just be that bitcoins serve as gold and another somehow regulated cryptocurrency serves as ordinary money.
https://twitter.com/Hello_World/status/555454120258457601/ph...
But in my opinion you see it growing because a lot more are thinking about the blockchain protocol rather than the currency. But it purely based on a hunch not actual data.
There have been more, but smaller transactions.
edit: It should be noted the most active addresses are for known gambling sites: https://blockchain.info/popular-addresses
Despite a lot of VC money pouring into BTC startups, there just doesn't seem to be any traction. My guess is that Mt. Gox irrevocably destroyed faith in the system for the "common user", because even the biggest exchange couldn't bother with hiring some security people (well, at least bitstamp seemed like that, what exactly happened at Mt. Gox is still a mystery to me).
Assuming there was any faith in the system for the common user to begin with.
By pre-Mt. Gox," I of course mean "pre-manipulation."
That's my working theory. If true, the fact that bitcoin has slowly been resetting to pre-manipulated levels would be the first example of the market ever being rational that I'm aware of. (Besides, you know, the fact that insider manipulation of the market was successful in increasing the price, which is rational by definition. Just not in an open happy way that people normally associate with the phrase "market rationality.")
But there are all kinds of problems with that theory. It's something so simple that you want to believe it's true. There's no reason why someone else wouldn't also be trying to manipulate the market now, like BTC-e. There's a financial incentive to try to pump up the price, so why is it continuing to fall, or rather why are current attempts at manipulation failing? Could it really be true that Mt. Gox was the only manipulator ever to have had a significant effect on the price? Seems unlikely.
Maybe the true explanation is that there was all this pent-up unknown hype for bitcoin, which Karpeles' manipulation unleashed on the world like a crack that broke a dam, either to his joy at skyrocking the price or his shock and horror at skyrocking the price, and now everyone's resetting back to pre-hype levels.
I still think bitcoin has value. Even after being used and abused, and dragged through a meatgrinder that shred away every ounce of my bitcoin fanboyism. There is true value there, and that is its ability to get money from you to me in seconds, and then my ability to sell those coins on an exchange for fiat that's deposited into my bank account within just a couple days. In that scenario, it doesn't even matter what bitcoin's current price is. All that matters is that the exchange honors the agreement at the time the coins were sold, because the flow is that the coins go from you to me to being sold on an exchange/middleman within a few minutes. So the current price of bitcoin is whatever it is, and I'm still paid however much I was expecting from you.
And it seems like a solid upward trajectory could even be built on that foundation.
But it's going to take patience and time.
Maybe Mt. Gox's initial manipulation caused the price to curl upwards just enough to entice everyone else to jump onto the bandwagon back in August of 2013, but the manipulation probably wasn't the reason for the surge to $1,100. That was probably herd dynamics, like you said.
(To be clear, there's some pretty hard evidence that Mt. Gox was manipulating the market, so if you're asking whether any manipulation ever occurred, it seems pretty clear it did: https://willyreport.wordpress.com/2014/05/25/the-willy-repor...)
This article makes the point that the large round number trades could simply be large round number trades:
http://hackingdistributed.com/2014/05/27/mtgox-willy-markus/
A key statement: Slow, structured buys are designed to avoid, not cause, jumps in prices.
Note, I'm not defending Mt. Gox, just pushing back against a quick conclusion about what they did.
Again, my argument is "Be careful in ascribing moves in the price of bitcoin to the intentional acts of Mark Karpeles.", I'm not defending Karpeles or Mt Gox.
(I know you're not defending anyone, and I really appreciate having a good debate partner. Certainly not looking for an echo chamber. Just wondering how the simplest explanation isn't the best, in the absence of evidence.)
It isn't stable enough for that. The price has moved +30% within a few hours [1]. That's easily short enough to cause problems for both merchants and consumers. For consumers, they risk the bitcoin price falling after they've purchased bitcoins, but before they've purchased something with them. And even if you succeed in buying something with your bitcoins before the price has gone up in bitcoin terms, the store owner might lose if he doesn't cash out the bitcoins he has earned before the price falls.
There are plenty of risks to non-speculators. But in fact, the speculators, by providing liquidity, help the non-speculators enter and exit a bitcoin position quickly and with minimal losses (tight spread). Were it not for the speculators, services like Bitpay couldn't exist. Speculators continuously incur risk holding bitcoins, and market makers literally take on the risk of holding bitcoins, transferring this risk away from the consumer and merchant (who can quickly enter and exit the bitcoin market because there are constantly people willing to sell and buy bitcoins (among them market makers and price speculators)).
TL;DR: Have you thanked your local speculator lately?
Currently the only reasonable way to deal with this issue is to pay through an exchange (where they can validate internally), which isn't in itself a problem, but then it won't be anonymous (unless your exchange is participating in money laundering, they are legally obliged to verify your identity)
https://blockchain.info/charts/n-transactions-excluding-chai...
Honestly, whenever I look at these long-term growth charts, I'm sort of surprised there isn't more speculative pressure.
I think journalists are finally understanding that a big decline in Bitcoin's price is far from a sign of its "death" (since it always survives these drops), and is not even a shocking news anymore. That's why they don't write about it that much.
But how could this sharp minded journalist miss the real silicon valley scandal that nobody writes about?
Coffee is hot, millions of investors get burned every day!
"It is not a case of choosing those that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees."
(Keynes, General Theory of Employment Interest and Money, 1936).
Another article that seems to suggest that the blockchain has value with Bitcoin. I've heard others (pmarca in particular) promote this view, and I think it's far from validated. At the moment, BTC is the most important incentive to mine, and mining is the most important factor in establishing the blockchain's security.
It's true that, in the future, we might be able to come up with other incentive structures to encourage mining (the Bitmessage protocol is one such example). But if we want one blockchain, and we want it to be as secure as possible, how could we ever come up with an incentive that is as universally desirable and infinite as money?
Plenty of non-Bitcoin blockchains are secure.
The creation of new bitcoins is limited by the network adjusting the difficulty in case new bitcoins (blocks) are created too quickly.
The network hash rate has increased enormously over the past few years, by several orders of magnitude. Yet the average number of bitcoins created per 10 minutes is still only 28.7920673077, or around 15% above the target value of 25.
This is measuring from block 210,000 to the current block (339,357). This period has taken 780 days, so far, so the average number of blocks per 10 minutes is: (339357-210000)/780 / 24 / 6 = 1.151682692 (or 15.168% above the target of 1 block per 10 minutes).
Remember when Bitcoin crashed from ~$32 to near zero and everyone said that Bitcoin was dead? I do. THAT was a crash. Even I gave up on Bitcoin for a few days. The author of the article missed a chance to detail Bitcoin's crashes and its recoveries from those crashes.
Even if Bitcoin goes to zero because the network gets attacked, the blockchain itself is now just as much part of network technology as any other protocol.
Digital cash ain't going anywhere, be it Bitcoin or an improved version of the idea.
https://charlesmartin14.wordpress.com/2015/01/16/the-bitcoin...
Because of this uncertainty, Bitcoin has had a major PR problem since the moment it went mainstream. And since the perceived value of a (quasi-)fiat currency means a lot, it has been a net negative for the future of Bitcoin. It has suffered under the weight of tremendous doubt, however slight.
The drop in value is BECAUSE of the decline in press coverage, not the other way around!
Now this is not a lie. That particular day the S&P was up 2% (and it does indeed mention that the days before it was down 3% and 1%), but the point I'm making is there was little mention of downward market movement the days before.
It's weird. In every other reporting it's bad news that sells, and you have trouble finding good news. In market news only upward (or very large downward) movements get mentioned.
Bottom line: the bitcoin is trapped. The more goods can be bought with it, the more its value rises, the less people are actually willing to use it. And this cycle will go on forever, as the total value of goods will keep increasing at a high rate, while the number of bitcoins increases at an progressively lower rate until it stops completely at the cap of 21 million.
I will say that it's possibly less of a crime that the self interested unbridled optimism of its advocates.