Friday's Big Swings, Mostly Down, Illustrate Bitcoin Value Volatility

An anonymous reader writes "As cool as Bitcoin is, it looks like it lost 1/3 of its value in the last 24 hours. Lots of big sells, complaints of liquidity, and pissed off nerds." The linked article goes on to explain that the value rose again, so the aggregate loss was considerably less. The author also helps defuse claims that Bitcoin is untraceable or otherwise especially well suited to nefarious activities.

Comments

I don believe in it.

[For a Free Internet]

I think it is weird and irrational that we should let our lives be determined by a totally imaginary thing, this "value," where all wants and needs are collapsed into one measure, "value" and its accumulation. Now if you ask me, I will stick to real value like dollars which is the natural measure of Man and all his works, not some silly thing on the internet that is really just an electron representing some fucked-up historically determined concept for which millions starve and a few prosper.

Re:I don believe in it.

[baldass_newbie]

I have some tulips for sale.

Re:I don believe in it.

[History's Coming To]

So if I buy some of your tulips for $10 there will be somebody else who will buy them from me for $100? Clever!

Think it'll work with houses too?

Re:Volatility

[drinkypoo]

Aren't there still relatively few bitcoins in existence? Shouldn't this particular problem become less severe with time?

Just one exchange

[richie2000]

Even though MtGox is the largest BTC exchange, this dip in value seems to have affected only that one exchange. Tradehill for example was completely unaffected. Bitcoin is still a pretty small currency so these kind of events should be expected until more people buy into it to create stability. If nothing else, it may attract daytraders. :-)

Bitcoin is imaginary

[dadioflex]

I keep waiting for someone to jump out and shout "April Fool!"

Yes, yes, all currency is imaginary. But there's imaginary and frigging deluded.

Re:Bitcoin is imaginary

[betterunixthanunix]

The US dollar is backed by the need American citizens have to pay their taxes, since the Treasury only accepts dollars for tax purposes.

Re:Bitcoin is imaginary

[betterunixthanunix]

Yes, yes, all currency is imaginary.

Not true; currency is a tool used by governments to manage the exchange of goods produced by citizens for services provided by the government. We pay for government services with taxes paid in currency (issued by the government), and the government pays for private sector goods and services will currency. Currency has value because citizens are required to pay taxes; you cannot opt out of paying for government services (one might argue that by virtue of being a citizen, you are receiving those services [e.g. the government is defending you from foreign enemies], and not paying would amount to theft).

Before currency, of course, taxes were collected by government agents taking goods directly from the citizens -- say, 2 head of cattle, or perhaps some fraction of the grain produced by your fields, etc. Currency is much more convenient, since government agents do not have to judge whether or not a piece of gold or some paper money or a check is healthy and disease-free (they would have to do this with cattle, of course). Currency also allows the government to provide a much broader array of services, because it simplifies the system of paying the cost of those services -- salaries paid in currency are a lot easier to compute than salaries paid in physical goods.

I know, in high school we are all told that currency gets its value because everyone in society agrees to it, as if some magical process occurred. The agreement is simply an part of the broader agreement to be governed; there is no magic here, just politics and economics.

Re:roller coaster ride

[ka9dgx]

Wow... my $1.59 equivalent of bitcoin just became $1.00 equivalent.... if I can ever spend it for something.

On the other hand my US Dollar (The real kind, coined in 1901) is worth $28.00 in Federal Reserve "Notes"

I'll keep stacking both kinds, as they each have their appeal to me.

Dollars... real dollars

[ka9dgx]

What years were your dollars coined in? ;-)

Don't you just love that silvery ring when you hold them in the center, and tap the outer rim?

Re:Dollars... real dollars

[For a Free Internet]

Yeah exactly! Heavy, shiny metals were made by God to count and represent our worth to society and ourselves. It is so obvious that it requires no proof. Whereas wood pulp, that is fake value, it only exists in your head, I don't care WHOSE picture they print on it, even if it was Jesus giving George Washington a handjob while Abraham Lincoln and Adam Smith watched from behind a peephole!

Re:Dollars... real dollars

[fuzzyfuzzyfungus]

But what if it was the Maries(Virgin and Magdalene, respectively) performing a sapphic poledance on the cross for an appreciative crowd of early american revolutionary notables? Surely that would give even the hollowest of hyperinflated fiat currencies some value?

Re:Volatility

[mmcuh]

You can transfer tiny fractions of a bitcoin, so the number of bitcoins in existance isn't that important for liquidity. It's not like a stock.

Pick your poison.

[bahface]

The US dollar has lost over 95 percent of its purchasing power since its inception. No one seems to notice. Pick your poison.

Re:Pick your poison.

[hedwards]

I used to buy into that fairytale as well, but it's not true. There is no correlation between inflation and economic health beyond the number being relatively stable. Modest inflation or deflation is a tolerable evil, but one is not better than the other and certainly neither is more desirable than being rid of both completely. You're not going to do that with a fiat currency ever, a fiat currency will tend towards a small amount of inflation.

Inflation itself has been the means of stealing from the poor to give to the rich. In the US we've had insufferably low interest rates on the types of accounts that the poor can afford to have, whereas we've had insufferably low taxes on capital gains for the rich. Leading to a perverse situation where the banks are taking the money from the poor and paying it out as dividends and capital gains to the rich.

If you really want to encourage investment or savings in savings accounts over currency hoarding, then there are better ways to do that. Such as preventing the federal reserve from giving low interest loans during boom times. People are going to spend when interest rates are lower than inflation and they haven't got enough money to properly invest. I'm not sure what other result one would expect. If you want interest rates to be low, then you pretty much have to eliminate inflation, and possibly even start destroying currency to bring yourself into a situation where that interest rate is somewhat higher than inflation.

Re:Pick your poison.

[angel'o'sphere]

While your posting is quite insightful this here: Modest inflation or deflation is a tolerable evil is not really correct.
A modest inflation is easy to handle and control by the federal banks (usually). The goal is to keep it at a low rate, getting it high is bad for the poorer people, getting ti to low opens the chance for deflation. Deflation is very very very bad for current economies/currencies. Say you have a contract to buy flour every month for your bakery chain. The contract is running out in 3 months. You are supposed to make a new one. But ... for what price? As your money (due to inflation) is increasing in value, the longer you wait with your contract, and the more short term your contract is, so more value you get for your money. In other words money is hoarded in deflation scenarios and trade is declining.

Still an ad

[Jiro]

The gst of the article is "Bitcoin is important. It's just like real money. See, it even has a market like real money, but the problems of the market aren't too bad." Despite the Slashdot headlne mentioning the volatility, the article goes out of its way to say to say that the problems aren't all that bad and goes on to emphasize how much it is like real money. It then goes for four sections (out of five total) explaining exactly what Bitcoin is, why people might want to have it, how it's being attacked for no fault of its own, and how some people don't like it but it's just paranoia.

It's a disguised ad It's like having an article whose headline says that a popular diet doesn't always work, then reading the text and finding that the reason it doesn't work is because it's too natural and some people refuse to obey the diet because they don't like natural things. Then followed by paragraphs of details about the diet, where to buy a book about it, and complaining about how the media doesn't like the diet.

Not a currency yet

[Phoenix Dreamscape]

These swings are fairly meaningless since Bitcoin hasn't achieved its goal of becoming a currency yet.

The markets have turned it into a volatile foreign exchange game, and people are just trying to make a quick buck playing the market. There currently isn't any 'currency' aspect to it, since there's damn near nothing you can buy with bitcoins.

Since they failed to achieve any intrinsic value of their own, they are currently just bad, unreliable representations of legal tender. As long as that is true, nobody will ever accept them as payment for real goods or services.

Poocoin

[goombah99]

I Now if you ask me, I will stick to real value like dollars which is the natural measure of Man and all his works.

I'm now selling my poo as a currency. Like bit coin it can only be mined at a steady rate so it can't be manipulated. My Poo is marked with my DNA so it can't be forged for less than it costs to make. It's Natural, and a work of Man.

Now rather than transport it to you in all it's glory, I have established a Poo Reserve. The Poo holding company issues signed electronic Goombah Poo Reserve Demand notes ("poocoin") backed, as gold once backed the dollar, with Poo, redeemable on demand of actual Poo.

I am also setting up the first Poo National Bank. The bank will accept deposits of your electronic Poo Demand notes. It even pays interest on your deposits.

The Bank will also manke loans against it's deposits. So you can take out a loan at a very modest interest rate, all payable in Poo Demand Notes.

What happens next is easy to anticipate. People will Borrow Poocoin and pay off their debts for goods and services. The people paid off, will naturally want to earn some interest so they will pretty much all deposit the poocoin back in the bank to get that interest rate until they need to spend it on something. IN the mean time, with all those fresh deposits, the bank can now make new loans.

After a time T, the total poocoin deposited in the bank has now doubled. The total amount of Poo has not doubled. But what has happened is there are the Liabilities (Deposited Poocoin) and the Assets (borrowed poo coin), that cancel allowing the effective amount of Poocoin in circulation to have doubled.

And pretty much every time T after that the assets and liabilities both grow by the same amount. forever. the BM2 money supply grows without bound even the BM1 amount of the intiall Poocoin the bank had has not changed.

Everything is fine unless of course too many of the people want to withdraw their deposits at the same time. Then unless all the loans can both be called and people can pay them instantly, there is a collapse.

Just like bitcoin but more natural and actually backed by something real and tangible, not "electronic work". You can redeem poocoin for manure but you can't redeem bitcoin for anything.

Re:Poocoin

[ColdWetDog]

What a shitty idea.

Re:Poocoin

[platykurtic]

A much better name would be "Buttcoin"

Re:Volatility

[Anonymous Coward]

Any way you look at it, high price or low, I would have come out way ahead if I had.

This is the fallacy that gets people into so much trouble participating in speculative bubbles. "If only I had bought low, I surely could have sold high!"

The nature of speculative bubbles means that most of those who buy low don't sell high. The collapse may happen too suddenly. Or your attempt to sell may even trigger a crash before you can find a buyer. They always have to pop, for the exact same reason that pyramid schemes can't make the whole world rich. It's a kind of gambling game, like playing chicken vs. an invisible wall.

If you had put your $7 in, you might well be thinking now, "It's only $7. I can afford to lose that. But what if it goes to $1000? It's worth hanging on just in case." or when the value dips under what you paid, "Surely it will recover. It was a good bet when I bought in before (I could easily have cashed in for several times my investment, if I had wanted), so I might as well put $100 in -- I might become a millionaire!"

You might call these stupid moves, but there's no move more stupid than buying into the game in the first place. Inflation and collapse of the bubble are entirely unpredictable, and the odds are stacked heavily in the favor of the initiators of this scam.

Re:Volatility

[osu-neko]

You can transfer tiny fractions of a bitcoin, so the number of bitcoins in existance isn't that important for liquidity. It's not like a stock.

Right. The important number is the number of bitcoin traders. Stable markets are relatively stable because they have a large number of buyers and sellers. Liquidity isn't a problem when there's always lots of people looking to buy. When there's relatively few people in the market, it's easy for someone trying to sell to quickly chew through all the buy offers at or near the current rate. If they still want to sell more, price begins dropping precipitously as they can now only sell to people who put in relatively low buy offers, since they've exhausted everyone who wanted to buy near the market rate. Taken far enough, you can complete exhaust all the open buy offers, at which point your liquidity hits zero -- you can't sell if no one is buying. The problem is the size of the market...

Nefarious Activities?

[PPH]

The best currency is still Legislative votes. Untraceable and the people in charge of the tracing have a vested interest in keeping it that way.

Re:Volatility

[betterunixthanunix]

Right now, we are in a bitcoin speculative bubble. The bubble will burst eventually, and then bitcoins will be worthless, since there is no ultimate source of bitcoin value. Nobody can pay their taxes with bitcoins, and hence nobody needs bitcoin -- compare with the US Dollar, which America citizens need in order to pay their taxes, and which American bitcoin holders will likely try to trade their bitcoins for when tax season rolls around.

To put it another way, it is about demand, and the demand for bitcoins will not be very high in the long run (unless a government somewhere starts accepting bitcoins for tax purposes).

Bitcoin is not worthwhile as a currency

[Fnkmaster]

I discussed this in my post from May 19th:
http://slashdot.org/comments.pl?sid=2167958&cid=36176946

Still applies. That chart isn't the chart of a proper currency pair (USD/Bitcoin), it's the chart of the price of a speculative asset in a bubble.

The people who set up Bitcoin had some good ideas, but they didn't think things through properly and they need to start over. The way they set up the allocation of a fixed amount of bitcoin per day was bound to create huge value distortions as more people started trying to create bitcoins and entered the market for buying and selling bitcoins.

The value of a bitcoin is therefore actually not a direct function of calculation work performed, but rather a function of the number of users/number of total computing cycles used to compute bitcoins (because the number of bitcoins issued per day is nearly constant as workload to find them increases - it's not actually constant, but rather a gradually decreasing series over time, but the amount of computing power dedicated to it has grown much faster than this function).

This is completely nonsensical. It is making the asset more and more scarce and driving up prices, but also making it less and less likely that anybody real would ever want to accept the asset as a currency replacement.

Good computer science, bad economics. Bitcoin has already failed because of this. Nobody looking at these charts would ever want to accept this stuff as currency.

Re:Bitcoin is not worthwhile as a currency

[Smidgin]

IANAE, nor have I even properly studied economics, but it does seem like bitcoins by design can't help but become a bubble. I may not know much about economics, but it's telling that on seeing how increasingly slowly new coins were generated I had to resist the urge to buy up a bunch before adoption became widespread and they became valuable. A quick inspection of the bitcoin system reveals that since the number of bitcoins in existence is in no way related to the number of people using them, their value should go up as adoption goes up, which in turn leads some investors noticing this trait to try and buy up a bunch before they get valuable, leading to a bubble.

Also the amount of processing that goes into them seems a massive waste of electricity/energy. I understand the need with this generation system to make it not worthwhile to forge bitcoins, but the result has been massive amounts of kWh going in to farming bitcoins, generally costing nearly as much in electric bills as the value of the bitcoins. It's just such a ridiculously wasteful way of 'minting' currency, it makes me very skeptical of the whole p2p currency idea.

I'm not sure how their system could've been changed to avoid those problems - I expect it's extremely difficult to create a new currency without having a government to just say "We're using X". Maybe bitcoin could have worked if it adjusted better for the number of users to avoid the deflation bubble, or maybe any new currency needs to be backed by something until it gets off the ground.

I expect bitcoins will eventually go down in flames once the bubble bursts, and may well prevent any future better thought out attempts at the p2p currency thing from succeeding.

Re:Bitcoins teach us a lesson.

[For a Free Internet]

Yeah exactly! Why should the government try to regulate the market of values? Everyone knows that the market knows best because commodity production for the accumulation of value is bound to make everyone happy in the long run. It's human nature, after all. I learned that from Robinson Crusoe, which proves it. If the government would just let me beggar my neighbor in peace then we would all become wealthier, or at least as wealthy as we deserve to be. But now you've got these socialists in power who are all about fixing the game to help the poor against the rich, when everyone knows that they are poor because they are lazy and don't contribute to society, probably because they are genetically inferior or something scientific like that.

Re:Volatility

[Khyber]

This is known as the 'bull trap' period.

Re:Any small market will be volatile

[h4rr4r]

So how many troy oz does a wife cost?

So other than salt and child brides, what can you buy with gold?

Re:Not untraceable?

[TheRaven64]

The point is to make a lot of money for the people who got in early, mined 70% of the possible BitCoins, and then hyped the hell out of it.

Bitcoin bubble

[Animats]

Look at the Bitcoin price chart . This is a price-only 90 day chart. The site normally displays the price on top of the volume, which obfuscates the trend. Displayed in this form, the chart just screams "bubble".

Yesterday's drop takes the price back to where it was on June 6. Which is twice the price of June 1. Which is twice the price of May 1. Which is three times the price of April 4. Yesterday just happened to be the first big drop.

Patterns like that in something that doesn't generate revenue are usually associated with "High Yield Investment Programs" and Ponzi scams. One wonders how many Bitcoins the people behind this bought early.

Re:Don't feed the trolls

[betterunixthanunix]

There is no magic; currency is valuable because citizens of a country need that country's currency to settle their tax obligations and other debts to the government. The US Dollar is backed by the fact that most US citizens need to pay their taxes, and that the Treasury will not accept Bitcoins, Chuck-e-cheese tokens, hall passes, or 2 head of cattle as tax payments (but they will accept dollars).

Re:Bitcoin is worthless in the long run

[betterunixthanunix]

The ultimate value of the US Dollar is that the US government will accept it for tax purposes (and other debts). You may not pay taxes to the US government, but there are plenty of other people who do, and they create the demand for dollars. If there were no demand for dollars, you would not be able to buy anything with dollars anywhere.

The ultimate value of Bitcoin does not seem to exist; Bitcoin is only worth something right now because of speculation about its future value. Eventually, either Bitcoin will never get big and the speculative bubble will burst, or it will become big and people will start dumping bitcoins for the currencies they need to settle their debts with their respective governments, and Bitcoin will decline in value as demand is eroded.

The missing BTC

[dachshund]

One potential problem is that there are huge stores of Bitcoin floating around, and nobody knows who owns them. Some were created "back in the day" when the network was small and computation was easy. Others were probably picked up by curiosity seekers, who then lost interest.

Either way there are potentially plenty of Bitcoin that could come back on the market at any point, depressing the price and leading to a currency crash.

What the Bitcoin economy needs is an expiration date. Coins must see some transaction once every two years or they become invalid. Alternatively they could be rolled back to the community via through some new mechanism.

Re:The missing BTC

[dachshund]

Do you know how many USD have been lost or destroyed? Does that make using the USD "not ok"?

There aren't 21 million USD, there's an ever increasing supply. The gov't constantly monitors the money supply --- through the imperfect proxy of monitoring prices --- and uses its powers to create more. The goal is to maintain stability plus some inflation.

Thus while it's possible that there are huge hoards of USD left over from the early days of the republic, it's quite unlikely that their sudden introduction would significantly affect the value of the dollar. Thanks to inflation the face value of the hoarded notes just couldn't be that high. Even if it was, the Fed would take steps in response to an influx of money.

With Bitcoin, on the other hand, things go the opposite direction. Coins were easy to create in the early days, and the reward for conducting a transaction was highest. So vast sums were created, either hoarded or lost, but with full knowledge that BTC are likely to get more 'valuable' due to a combination of demand and limited supply. At some future date where a cup of coffee costs 0.0002BTC, someone could flood the market with 10,000BTC. At very least, everyone has to expect that this could happen, and hedge against it.

Coin expiration is probably not the best way to deal with this. But there needs to be some way, otherwise it will be very, very difficult to maintain a predictable BTC value and thus make the currency useful for transactions.

Re:Volatility

[dachshund]

You can transfer tiny fractions of a bitcoin, so the number of bitcoins in existance isn't that important for liquidity. It's not like a stock.

There is a lower bound to the number of BTC you can transact. More importantly, the number of coins in existence is very important --- the value of 1 BTC is going to be determined, at least to some extent, by the number of BTC in existence. The worry is that people will hoard coins in the expectation that supply won't keep up with demand.

This throttles the market because (a) the value of BTC is now based on speculation, and (b) huge sums could be dumped at any moment, leading to currency instability.

I said this in another comment but I'll say it here too: BTC should have an expiration date, and be rolled back into the market when they're not used. Alternatively the limits on coin creation should be adjusted.

Re:Volatility

[betterunixthanunix]

Except that cars and units of work have economic value (diamonds do to some degree also, but nothing near what people pay for them; jewellery is a money sink, always has been). You can use a car to travel places, and "units of work" are valuable because the work creates something valuable. Aside from trying to play hot potato with bitcoins, what exactly makes bitcoins valuable? I can't take a bitcoin and turn it into energy, or use it to move things, or settle a tax debt.

Bitcoin has roughly the same real value as Chuck-e-cheese tokens do: you can take Bitcoins to a few stores that will accept them as payment, but for the most part they have no actual value. The only reason you can trade Bitcoin for other currencies is the speculation that surrounds Bitcoin. The only people who will profit from Bitcoin are the early investors; people who are getting into the game at this point will face significant long-term losses.

Bottom line, bitcoin is still rangebound

[argoff]

I don't know if bitcoin is a good store of value, but I do know that it is worth considering as a transaction currency, because it is unregulated and range-bound.

We all know bitcoins can't go to infinity, because there is a infinite amounts of goods out there, but we also should know that bitcoin will unlikely go to zero. In fact, I can guarantee that it will not go to zero, because I can take a few K of my own money and guarantee an exchange value for all the bitcoins in existence. Now, why would somebody do that? Well, because bitcoin can be useful as a private transaction currency. As long as it is useful for transactions, it will probably be worth it for somebody somewhere to back it, for something.

I don't know if it is in a bubble, or how volatile it will be, but as long as it's range bound, the market will be able to compensate for that and make it useful. Even if the nature of bitcoin makes it deflationary, and susceptible to wild fluctuation. As long as it's range-bound, and useful for transactions, I don't believe the market will fail. However, it may change its pricing structure. People may price their stuff dollars, euros, or gold, and then complete the transaction in bitcoins. Even if that's the best that bitcoin can do, its still a major improvement.

Another very important thing. When governments screw with the currency, they almost always accompany it with things like capital controls, legal tender laws, limited withdraws, forced exchange rates, and so on. Bitcoin has none of that getting in the way, meaning the market will probably be extremely flexable about bitcoin use.

Re:Bitcoin is worthless in the long run

[seanadams.com]

Sorry, citizen. This counts as barter which is taxable at its market value in US dollars.

Re:Silk Road

[demonlapin]

There's just one problem I can see with the anonymous website where you buy drugs: sooner or later, at least some of these guys will get busted (either for online or offline activities). And when they do, your address (hey, they had to ship it to you) is going to be on their computer. Hell, maybe some of these guys are setting themselves up to blackmail people who think they can get off easy by buying drugs online.

Traditional drug dealers may be harder to find, but you're just another anonymous face passing them cash.

$2MM+ worth of nerds just got played

[CPE1704TKS]

Someone just cashed out a large deposit of bitcoins, and these nerds and bitcoin miners just got played. 3 months ago, this thing was less than $1. Now it was $30? lolz Someone made some good money, and waited for there to be enough liquidity for them to be able to cash out and raped the order book. This is a classic accumulation/distribution (a.k.a pump and dump) pattern where a few buyers suck in a multitude of retail fools by slowing raising the price through accumulation, and then once retail fervor hits, they dump it and get out. It's so stereotypical, it's a cliche, and I guess bitcoin just fell for it as well. I only wish I could short this thing, it's going back to below $1.

Bitcoin continues to drop

[Animats]

Opened today at $23.95, current price $16.75.

I'd worry about getting a real currency out of the system. After you've "sold" BitCoins, you have to get settlement in another currency. This is done through rather flakey outfits like Liberty Reserve, which requires arbitration in Costa Rica, or Dwolla, Inc, which gives no business address on their web site but is incorporated in Iowa with a business address of 1312 Locust St, Des Moines, IA 50309 - a boarded up building in Google StreetView.

Re:Bitcoin continues to drop

[Animats]

Update: The main "BitCoin exchange", Mt. Gox, gives no information about the business entity behind the exchange, not even an address. The site has only "Tibanne Co. Ltd. (Japan)", which is an ISP in Tokyo.

Mt. Gox is a depository institution - you have to deposit BitCoins to sell them, and after the trade, you now have credit in some currency with Mt. Gox. Then you have to get the money out of Mt. Gox. The withdrawal process is slow. Also, on one forum, there's the comment from a Mt. Gox staffer (?) "If we have a lot of LR activity (like, about now), withdraws will be put on hold and executed later (ie. the next day) in the order they were received." That just screams "Ponzi scheme". They're an exchange; if they're honest, they should never have a cash flow problem.

The more I look at the BitCoin financial infrastructure, the more it looks like the High Yield Investment Program scams. Multiple offshore entities, withdrawal limits, unexpected delays in payouts, anonymous businesses. HYIP schemes are notable for being difficult to cash out of. They have to be, because they're Ponzi schemes.

Re:Bitcoin continues to drop

[Animats]

Why does an exchange need a physical location, apart from some hosting or colocation?

Because you need someone with identifiable assets whom you can sue. A "perception of trustworthiness" is not enough. Ponzi schemes have happy customers right up to the crash. See Bernard Madoff.

Re:Bitcoin continues to drop

[JesseMcDonald]

The delay is, indeed, a problem for MtGox to solve, with cooperation from Liberty Reserve—there is nothing the MtGox can do about LR transfer policies on their own. However, you were accusing them of delaying the transfers to further a scam, which is a very serious statement for which you have offered no compelling evidence. Moreover, there are already other means of withdrawing money from MtGox accounts which do not involve Liberty Reserve or their API restrictions; in fact, the preferred withdrawal system is Dwolla, not Liberty Reserve, and direct deposit is also available to EU accounts in the SEPA zone. It is unreasonable to blame MtGox for forcing users to employ Liberty Reserve, with its attendant limitations, when there are other options available.

Re:Bitcoin continues to drop

[Animats]

Bitcoin now at $11.01, down from $28.92 at Friday's open. No further comment necessary.

Re:Any small market will be volatile

[palfreman]

If you need paper dollars you can just sell your gold or silver. Gradually people will start accepting gold and silver directly though. It is the way these things always go.

Re:Volatility

[betterunixthanunix]

Scarcity does not create value. Case-in-point: the drawings I created in preschool are extremely rare, but nobody wants them and I doubt I could get a full penny for them.

Value is created by scarcity coupled with demand. The demand for money is ultimately created by people who need money to settle a debt with the government; for most people that is called "paying taxes." We used to use gold for this purpose because it is difficult to counterfeit, it is durable, and it is scarce enough to ensure that people would not just create money digging through their backyards. Now we use paper currency because we are good at fighting counterfeiting and know how to make durable paper currency, and paper money has an advantage over gold in that governments can issue it and destroy it as needed for an economic policy.

Bitcoin's value is flimsy at best: a few people will accept bitcoin as payment, mainly because they believe they can get their country's currency in exchange for bitcoins (and thus settle their own tax obligations). This is purely speculation, of course, and will ultimately spell doom for bitcoin.