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BitCoin Value Collapses, Possibly Due To DDoS
hydrofix writes "The Bitcoin-to-USD exchange rate had been climbing steadily since January 2013, from around 30 USD to over 250 USD only 24 hours ago. Now, the value bubble seems to have burst, at least partially. The primary trading site MtGox reported a drop in value all the way down to 140 USD today, a loss of almost half in real value. With many sites unreachable or slow, there are also news of a possible DDoS attack on MtGox: 'Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.'"
We really need a corollary for Godwin's Law adapted specifically to Bitcoin discussions: as soon as you say, "The US dollar doesn't have any intrinsic value either!", you lose.
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The solution's the standard one: take the long-term view. If you think Bitcoins are actually going to be worth that much long-term, don't sell. Hold onto them, and buy during the drops. If you think Bitcoins aren't worth their current value long-term, sell before another drop happens and don't buy back in. The speculators (because that's what's driving any manipulation) depend on people dumb enough to do short-term trading while lagging behind the curve. They're professionals with all the tools, so as a non-professional the only way you can win is to not play their game.
Rule of poker: there's always a sucker at the table. If you look around and don't see one, it's you.
To illustrate this, take a dime from 1942, you could buy a gallon of gas with it back then. But you can still buy a gallon of gas with the same dime _because_ it is made out of silver.
Do it. Nine times out of 10 or more, I'll bet the attendant will say "Nice try buddy. That's a dime. It's worth 10 cents. Now pay up!"
Fiat currency works both ways. You want to get your $1.99 out of the dime, melt it down and take it to somebody who buys silver. Less fees and commissions. If it's a collectable dime, you might get more selling it to a numismatist, but the "value" of the dime will be in in its collectability, not in its silver content.
Even in 1971 the idea that everything in the world had a gold equivalent was absurd. These days we have computers and big-screen HDTVs that no amount of gold could give you back then. For a little while, these items may be worth hundreds or thousands of dollars, despite being made from inexpensive materials, then their value will plummet as something newer and better comes along. The amount of gold is limited and so, too is the value of the goods and services you can buy with it. If you owned all the gold in the world and spent it, you would still not own most of the world.
Value is what people give to things, not what things inherently have. To a parent of starving children, the only value gold has is if you can convince someone to accept it in exchange for food.
Some of your argument is interesting, but the idea that something's value is equal to the effort that it takes to obtain/create the thing is certainly not the case. There are lots of things that are very difficult to create and/or duplicate that have no value. If I have my computer hash random strings until I get a hash that includes my name in it, even though it might take 10 hours to do (and would take another 10 hours to duplicate), it doesn't make that random string valuable.
Value is the benefit I get from having a good or service (http://en.wikipedia.org/wiki/Value_(economics)). While often times it is correlated with the difficulty in obtaining something, they are not equivalent.
That being said, your argument could still (sort of) work like this: there SHOULD be a cap on the value of a bitcoin.... the $ cost in computing power to mine a new coin. Whenever the price rises much above that, there should be an economic incentive to spend the money mining a new coin instead of buying the coin on the market. Of course, this price isn't a HARD cap, since there is still a capital expense in buying the hardware to mine the coin (or the opportunity cost of not using that hardware to do something MORE valuable), but it shouldn't get too high above that cost.
Of course, the fact that the cost to mine a bitcoin increases with each previously mined coin makes this even more complicated..
For every $1000 in deposits, that means they can lend $10,000 at 5% above their costs and payouts, or more, yielding a $500 profit... wow!
1: It's $1,000 in assets. That includes a whole bunch of things beyond deposits, such as certain bonds.
2: That's $500 in revenue, not profit. From that revenue, they need to pay for all of their bills, and their payroll, and account for losses due to uncollectable accounts and outright thievery.
This $500 is spent by them eventually, and helps dilute the value of your original $1000 by inflation... so your "savings" loses value, as they leverage against it in multiple manners....
3: Inflation is a feature, not a bug. The work you did picking tomatoes last year is less valuable to the species than the work you did picking tomatoes today. The species would be better served if you used that same frugality to horde useful items instead of tokens, which is why the market rewards investment over savings.