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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.
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.
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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.
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.
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.
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.
Scratched Emulsion
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.
Some drink at the fountain of knowledge. Others just gargle.
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...
"Convictions are more dangerous enemies of truth than lies."
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.
Have gnu, will travel.
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).
Palm trees and 8
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.
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.
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.
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.
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.
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.
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.
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.
"The state is that great fiction by which everyone tries to live at the expense of everyone else." - Bastiat
Bitcoin now at $11.01, down from $28.92 at Friday's open. No further comment necessary.