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Bitcoin Volatility Puts Miners Under Pressure

Posted by timothy on from the coulda-shoulda-woulda dept.

An anonymous reader writes "The virtual currency Bitcoin lost 21 per cent of its value yesterday, equating to a total loss this year of 44 per cent. Reports have suggested that this rapid fall is squeezing computer supporting systems and is raising alarm about its future viability. Bitcoin's value fell to $179.37, 85 per cent lower than its record peak of $1,165 at the end of 2013. In total, nearly $11.3bn has been lost in Bitcoin's value since its 2013 high. The decline has raised concern for Bitcoin 'miners' who support the transactions made in the digital currency, and whose profits become squeezed as its price falls against traditional currencies." The Coindesk article in the linked story gives a blow-by-blow on yesterday's valuation drop; right now, Bitcoin has jumped back up and stands at just over $216.

41 of 290 comments (clear)

  1. Bitcoin by fustakrakich · · Score: 4, Interesting

    Just another commodity rip off scam. We need a medium of exchange that stands by itself, not subject to speculations of the 'market'.

    --
    “He’s not deformed, he’s just drunk!”
    1. Re:Bitcoin by Anonymous Coward · · Score: 5, Insightful

      What many forget is that bitcoin is not a regulated market. That means no one pulling the plug to let people calm down. There is no value other than the dollar against it. The dollars value against other currencies has strengthened over the past year. So in relation to bitcoin you are going to see lower prices with it. Bitcoins value is only in other dollars (with a few exceptions). What do I mean by that? If you buy something with bitcoin it will be in relation to the current value in the local currency. Stronger external currencies will mean weaker purchasing power for bitcoin.

    2. Re:Bitcoin by jeffmflanagan · · Score: 2

      To stock up for what?

    3. Re:Bitcoin by ShanghaiBill · · Score: 2

      A medium of exchange that isn't subject to speculation. Good luck with that.

      Why would we even want that? What is wrong with speculation? If people think the price of a commodity will go up in the future, they buy now, driving up the price and encouraging conservation before the future shortage occurs. That seems like a good thing.

    4. Re:Bitcoin by alexander_686 · · Score: 2

      No, it is very possible to make to make a medium of exchange so it can't be speculated in. Almost trivial.

      The issue is that for something to be money it must be a medium of exchange, a store of value, and a unit of account. It is the store of value that is tricky. Nothing can be a full proof store of value since value is sitting on the shifting sands of time. Value can never be locked in. What may be plentiful and cheap today may be scarce and dear tomorrow. Taste and wants change. Technology and productivity changes relationships. Wars destroy things of value. This is hard to do.

    5. Re:Bitcoin by aaaaaaargh! · · Score: 3, Informative

      There are many reasons. For example, speculating with currencies produces no product and no useful service for society, and is in that sense also not work. (Just as sitting on your money and watch it grow is not work.) There is also no guarantee that the dynamic systems created by such speculations are sufficiently stable and non-chaotic to ensure that they won't collapse some day out of the blue and ruin thousands people and companies in the course of it.

    6. Re:Bitcoin by kelarius · · Score: 2

      No instead it deflates/inflates in wild fluctuations with little or no warning or reason. Thats the mark of a true currency, never being able to instill confidence that it's going to be worth X tomorrow, even within a reasonable range.

      I'd rather my currency not change in value more an investment in penny stocks. Maybe it will smooth out once the final blocks are mined out but I won't be holding my breath.

      --
      Personally I'd rather have my idiots at home glued to the TV than out doing idiotic things
    7. Re:Bitcoin by Anonymous Coward · · Score: 5, Insightful

      Just to get this straight: your financial planning is based on taking your entire ~75 year life's savings and, in preparation for a 1/1600 year flood, invest it in a single commodity(whose value fluctuates according to INDUSTRIAL demand roughly 100% up or down over a 3 year period) and hope that the world falls apart at 1/21 odds in your lifetime? And you are doing this because you believe that SLV will be worth more than .22lr, cigarettes, alcohol, or antibiotics, under the collapse of western civilization scenerio, because it's so useful to industrial consumers, such that your concerns regarding financial prosperity and financial security make THIS gamble an excellent opportunity, in the long run, to stave off bankruptcy and maximize profit according to currently dominant property rights paradigms, despite the short term volatility risk exposure?

      Would you consider yourself a "cup 20/21 empty" type personality?

      I don't know if I should admire your willingness to bet it all(like your entire life), mock your choice of apocalyptic investments, acknowledge that timing the market is impossible(so any one fairly priced investment should be equally valid if you aren't going to spread your bets), or worry about the scenerio where Silver turns out to be the secret ingredient to nuclear fusion power generation and I eat my words when mad max is driving his Mr. Fusion to the battlefield.

      I hope you are at-least dollar cost averaging your entry point in that position over the entire 75 year period and plan on having 21 generations of grandchildren to make the expected value of this bet worthwhile!

      My recommendation is that you skip next month's silver investment and buy an "introduction to statistics" class at your local community college...

    8. Re:Bitcoin by kelarius · · Score: 2

      Because thats an awesome idea, make it easy for some organization to artificially inflate the value of a currency by running ads on TV and the internet about how you should invest in some precious metal, creating fake demand.

      Tying currency to a physical substance (gold) only makes it easier for outside organizations to manipulate that currency since they can play with the values and availability of stockpiles of said substance outside of your control. Granted, this can of course still occur with an abstract currency (dollar) but its a lot harder to do so.

      --
      Personally I'd rather have my idiots at home glued to the TV than out doing idiotic things
    9. Re:Bitcoin by neilo_1701D · · Score: 2

      I can't see the point you're trying to make. You start by saying that making a medium of exchange that can't be speculated in is almost trivial, then conclude by making a great argument that it's very hard to do.

      For the record, I don't think it's possible to create a medium of exchange that can't be speculated in. That would require worldwide agreement of every person living and every person yet to be born.

    10. Re:Bitcoin by ShanghaiBill · · Score: 2

      speculating with currencies produces no product and no useful service for society

      This is nonsense. If a government proposes a populist, but idiotic, economic policy, currency speculators will assume the value of the currency will fall in the future, and so will drive down the value now, making the consequences of economic folly more immediately apparent, and therefore avoidable. Currency speculation is a good thing. and the speculators and providing a valuable public service. They are mainly criticized by people with a political or financial vested interest in economic folly.

    11. Re:Bitcoin by neilo_1701D · · Score: 4, Informative

      Sure. But the value of precious metals isn't going to collapse like bitcoins, fiat currency or anything else created out of thin air if investors and speculators stop believing.

      Tell that to the gold speculators.

      Look at the price of gold over time: http://goldprice.org/gold-pric...

      If you bought gold on August 19, 2011 for $1850 / oz, you would be pretty sore today at $1262 / oz. The period of September 24, 2012 through to July 2, 2013, where gold dropped by $512 / oz looks like a collapse to me.

    12. Re:Bitcoin by __aaclcg7560 · · Score: 2

      Precious metals has it boom-and-bust cycles like everything else. But precious metals will never collapse to zero, say, like the Zimbabwean $100 trillion note that sells as a novelty item these days.

    13. Re:Bitcoin by hibiki_r · · Score: 2

      Speculation, to a point, produces value, as having the prices that best reflect supply and demand is very valuable. We see a lot of that in treasuries: Isn't it incredibly useful to have the best possible guess of what interest rates will look like for the next 10 years? Currency speculation can be just as valuable.

      We'd not want an economy that is based on speculation: There's such thing as spending too much on finance. But a world without any currency speculation is a pretty dire one. It's just very hard to imagine it though, as speculation happens naturally.

    14. Re:Bitcoin by Zontar_Thing_From_Ve · · Score: 2

      The eventual collapse of Western Civilization after fiat currency goes kablooey. Last time that happened was the end of the Roman Empire in the 5th century. Even if that doesn't happen, the value of precious metals will continue to rise. Buy low, sell high.

      Perhaps you would best be served to not believe everything you hear on right wing talk radio.

      Silver is as risky as investing in gold, despite what you heard Rush, Sean, Glenn or some other right wing talk guy tell you. If you get in at the right time you can make big money, but the problem is that when those markets correct, the destroy your savings. If you bought silver at its high in 2011 right now you'd be roughly down 40% and that is a huge loss.

    15. Re:Bitcoin by mbkennel · · Score: 2

      | The Roman Empire fell apart because the gold coin was debased with less valuable metals and made worthless over time.

      turned around, causality is

      | Since President Richard Nixon took the U.S. off the gold standard in the early 1970's, the U.S. dollar has become increasingly worthless over time

      One individual US dollar has become increasingly worthless. "The US Dollar" as a system, is increasingly powerful and useful over that time, and there were and still are many useful and profitable investments which more than make up for the depreciation built in to one single dollar. And precious metals are not a very good one.

      | P.S., Some people believe that the world central banks are surpressing the prices of precious metals to prevent people from realizing how worthless the dollars are in their wallets.

      In that case, don't fucking fight the Fed!

      So they're printing increasingly worthless dollars are yet so powerful that they can suppress the precious metals EVEN MORE? And by printing so many more worthless dollars? How does that work exactly?

      They didn't manage to suppress the equity market, the real estate market or the bond market, which can also, even more effectively, make people realize "how worthless their dollars are" by increasing even faster than a dollar. What's up with that?

      PS, if you advocate a gold peg, go see Greece: it is suffering tremendously under the same equivalent peg of their currency to a German Euro. The message from facts of 1930-1933 was very clear: the countries in a major recession which depreciated first, came out better economically.

    16. Re: Bitcoin by ShanghaiBill · · Score: 2

      If I have to store what currency I gain for a while, I want it to keep its value. It shouldn't be a perishable item.

      Then you should insist your government have responsible fiscal and monetary policies, rather than shooting the messenger that is telling you that they don't.

       

    17. Re:Bitcoin by Anonymous Coward · · Score: 2, Interesting

      no useful service for society

      To be a successful trader you have to synthesize information about markets, which is itself a useful service. What they produce is knowledge and their success depends directly on the quality of that knowledge.

      The relative strength of various currencies changes whether we know it or not. Currency trading brings the nominal value of currencies toward their actual values. That reduces the risk for everyone using those currencies. Effectively, they take risks so that you don't have to.

    18. Re:Bitcoin by AK+Marc · · Score: 2

      And nobody likes to talk about it, but gold standard is still fiat. It's "backed" by something, but only the word of the governmemt. It takes 10 seconds to change the gold standard from $20 to $35, or move off it. So, it's backed by the word of the government, and nothing else. i.e. fiat.

      --
      Learn to love Alaska
    19. Re:Bitcoin by ladoga · · Score: 2

      The Roman Empire lasted another 200 years after the currency was fully debased to 5% silver in 270 CE. That's pretty fucking good by historical standards, especially since the first 100 years of that were reasonably stable and prosperous.

      Roman empire (Imperium Romanum) lasted well into middle ages. It ended with the fall of Constantinople to Ottoman Turks in 1453.

      I know Catholics like to rewrite history, but Romans made no such difference. In fact the city of Rome wasn't even capital of the empire after 330 CE when emperor Constantinus named Constantinople as the new capital. Trade in the east meant that's where the money was and the court moved accordingly.

      Western parts were administered from Ravenna (Mediolanum) between 330 and 426 as the Rome (the city) fell into relative insignificance before falling to Goths. Rome was reconquered by the Roman Empire during Gothic wars in 535-554 CE.

  2. Nothing has been lost! by I4ko · · Score: 5, Insightful

    It was never there in the first place. You can only lose your direct investment - electricity cost and some portion of the hardware cost as in case of hardware it still has some deprecated value. Market speculant crying that they couldn't unload in time and the risked turned out to be greater than they speculated they would be. Sorry, I have no sympathy for you. You have not created any product of value, so you cannot have lost anything of value. Calculating value on something you never had and losing said value is the same balloon American financial system has been pumping over and over again. It lost a lot of vapor in 2008 and required quite a lot of patching. GO cry somewhere else.

    1. Re:Nothing has been lost! by pr0t0 · · Score: 5, Insightful

      Agreed. Also, I don't ever recall return on investment as being one of the selling points of BitCoin in the first place. It was meant as an alternative to currency, not an investment vehicle. Even if the value dropped to parity with the US Dollar or below, it would still retain its initial utility. So again, nothing lost.

      --
      I'm sorry, but your opinion seems to be wrong.
    2. Re:Nothing has been lost! by Anonymous Coward · · Score: 5, Insightful

      "Bit Coins are actually more real then the US Dollar."

      OK, so where is the bitcoin Navy that is going to protect global trade?

      You have got to be kidding... right?

      I will buy into the idea of the 'full faith a credit' of bitcoin when it can project itself globally with both ambassadors and military power, until then it is just another attempt to pick my pocket

    3. Re:Nothing has been lost! by timholman · · Score: 5, Insightful

      Bit Coins are actually more real then the US Dollar. Sure we get a paper or coin note stating that this represents so much. But at least bit coin is connected to something in limited supply thus needs to be shared.

      I've never understood the logic behind statements like this. There are an infinite possible number of cryptocurrencies. A cryptocurrency is nothing but a mathematical algorithm being run on a lot of computers. By its very nature, it can't be in limited supply. Saying that Bitcoin is valuable because it's scare is like saying that digital music or digital video must be valuable because they're scarce.

      Any one, at any time, can create his own blockchain and create a Bitcoin clone. After that, all he need to do is persuade other people to adopt his blockchain, and a new standard has been created, with the originator becoming "wealthy". In fact, I suspect that this idea may suddenly occur to the operators of one of the big idled mining centers over the next few months.

      And before anyone says, "But Bitcoin was first!", let me reply, "Friendster and MySpace".

    4. Re:Nothing has been lost! by greyhat2600 · · Score: 2

      The strength of a currency has nothing to do with the issuing body's military and diplomatic power. What jellomizer was saying was that while the printing of the US dollar is controlled by a government institution that could print arbitrary amounts of money, bitcoins cannot be arbitrarily created.

    5. Re:Nothing has been lost! by jdavidb · · Score: 2, Insightful

      Bit Coins are actually more real then the US Dollar. Sure we get a paper or coin note stating that this represents so much. But at least bit coin is connected to something in limited supply thus needs to be shared.

      I've never understood the logic behind statements like this. There are an infinite possible number of cryptocurrencies. A cryptocurrency is nothing but a mathematical algorithm being run on a lot of computers. By its very nature, it can't be in limited supply. Saying that Bitcoin is valuable because it's scare is like saying that digital music or digital video must be valuable because they're scarce. Any one, at any time, can create his own blockchain and create a Bitcoin clone. After that, all he need to do is persuade other people to adopt his blockchain, and a new standard has been created, with the originator becoming "wealthy". In fact, I suspect that this idea may suddenly occur to the operators of one of the big idled mining centers over the next few months. And before anyone says, "But Bitcoin was first!", let me reply, "Friendster and MySpace".

      A Bitcoin is a unit of account in a specific ledger. The number of units of account in that ledger is finite. Additional ledgers can be created, and have been. But the value of units of account in those ledgers is not equal to the value of the unit of account in the Bitcoin ledger.

      It's a little bit like comparing seats at a concert. Yes, we can put more seats in the back, but they are not valued the same as seats in other sections. We can create more seats, but we can't create more seats in the front row.

      --
      Secession is the right of all sentient beings.
    6. Re:Nothing has been lost! by Anonymous Coward · · Score: 2, Informative

      So more than half the worlds currencies don't count either because they don't have substantial military backing?

      Many of those currencies are fixed currencies that are pegged to the US dollar, the Euro, etc. A law on the books stating that X local currency equals Y foreign currency. So yeah, the GP has a point.

    7. Re:Nothing has been lost! by leonbev · · Score: 3, Interesting

      The problem is that Bitcoin doesn't really work as a currency when the price is wildly swinging by over 25% in a single day.

      Could you imagine being a store that only sold their goods with Bitcoin? They would have to reprice their entire inventory every hour to insure that they are making a profit on what they're selling!

      Instead, most businesses that take Bitcoin have to use a service like Bitpay peg the Bitcoin transaction price to something more stable like US dollars. Even then, the Bitcoin exchange services are taking a big risk that the Bitcoin to USD price isn't going to suddenly fall. I'll bet that those services will soon need to increase their fees or offer more favorable exchange rates for themselves to stay in business.

  3. A metric for price by Rinisari · · Score: 2

    The be-all-end-all of pricing is mining profitability. Bitcoin's difficulty to meant to adjust according to mining activity. If there isn't enough mining going on to produce the mining rewards that should be awarded daily, the difficulty will quarter every two weeks until the rewards are enough to incentivize miners to continue doing so. So, mining operations might have to stop or turn down the heat in order to stay profitable at the current difficulty, and await the approximately bi-weekly adjustment of difficulty before resuming. However, that next adjustment might not be sufficient to restore profitability, so the stoppage or reduction might have to continue through multiple difficulty adjustments.

    If mining farm operators didn't plan for this possibility, then they didn't think through the inevitabilities of Bitcoin enough to maintain their business and they are destined to flood the market with their mining hardware, thereby redistributing the mining hardware and decentralizing mining, as it arguably should be.

    --
    Colin Dean Go a year without DRM
    1. Re:A metric for price by itzly · · Score: 4, Interesting

      thereby redistributing the mining hardware and decentralizing mining, as it arguably should be.

      Large scale decentralized mining isn't going to happen, though, because mining will always be at the edge of profitability, where only the most efficient survive. Those are the large scale operations in areas with cheap electricity.

    2. Re:A metric for price by OverlordQ · · Score: 4, Informative

      > If there isn't enough mining going on to produce the mining rewards that should be awarded daily, the difficulty will quarter every two weeks until the rewards are enough to incentivize miners to continue doing so.

      The difficulty only gets changed after the number of blocks since the last adjustment have been met. If less people mine, blocks take longer, blocks take longer, adjustment takes longer. So if people keep dropping out, it'll be a lot more than two weeks for the next adjustment.

      --
      Your hair look like poop, Bob! - Wanker.
  4. Welcome to the real world by mbone · · Score: 2

    So, Bitcoin wil be subject to volatility, like every other currency and precious metal in history, and that will cause troubles for the people who actually extract the stuff. Who (aside from anyone in the mining business) knew?

  5. Charging for transactions by davidwr · · Score: 2

    Bitcoin was designed so when all coins are mined, there will be transaction fees to cover the costs.

    It was also designed to allow transaction fees at any time.

    Maybe that time is now???

    --
    Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
  6. Currency Hedging by jratcliffe · · Score: 5, Interesting

    Having your expenses denominated in one currency, and your revenue in another, leaves you open to currency fluctuation risk. This is why currency hedging was invented in the first place.

    1. Re:Currency Hedging by david_thornley · · Score: 2

      Hedging isn't free. You're paying somebody else to take the risk of unfavorably fluctuation. It's insurance against unfavorable currency fluctuations.

      --
      "When you have eliminated the unacceptable, whatever is left, however improbable, must be the truthiness" - Holmes
  7. Hmmm ... by gstoddart · · Score: 5, Interesting

    So, overpriced speculative currency found to be overpriced?

    When BitCoin was worth over $1000, why was it worth over $1000? Because people said it must be, not because it's backed by anything which objectively made it worth that much.

    I've always looked at BitCoin and wondered what the value was in it -- sure, people said "Yarg, no regulations, no governments". But did you really think that would last? Or that without those people would be honest?

    Basically BitCoin created a bubble, inside of a reality distortion field, and people assumed it would go up forever and always stay that way. And it's been all hype since then. But it seems like we've been discovering that the players are either shady or incompetent, and that it doesn't look like all of the voodoo magic ascribed to it.

    BitCoin seems like it's always been an idea, but somewhat divorced from reality. Essentially, it placed value on ... what ... large prime numbers?

    As someone who has always been skeptical of BitCoin, I don't find myself seeing any reason to think it was ever anything but something people wanted to believe in, but which was never going to pan out as claimed.

    This is like the people who were still buying tech stocks at the end of the .com bubble. It's musical chairs, but with money. Only now people are starting to realize there's not a lot of seats left.

    --
    Lost at C:>. Found at C.
    1. Re:Hmmm ... by amicusNYCL · · Score: 3, Informative

      Bitcoins have not lost any of their utility, at all. If I want to buy something that costs $200 in bitcoins, I go get $200 in bitcoins and then buy it. It doesn't matter how many bitcoins I get for $200, the system is still working exactly like it always has. If someone decides that they want to buy $1000 in bitcoins, spend a fifth of it, and save the rest for another purchase later, they might find out that they don't have enough for another purchase whenever they get around to it. The volatility of bitcoins is just proof that you shouldn't horde them, there's no reason to do that. But the system in general has lost exactly zero amount of usefulness.

      --
      "Our two-party system is like a bowl of shit looking at itself in a mirror." - Lewis Black
    2. Re:Hmmm ... by brunes69 · · Score: 3, Insightful

      Why is 1oz of gold worth $1262? Because people said it must be, not because it's backed by anything which made it worth that much.

      This is how pricing works. There is no item or unit or work in the universe that has some kind of intrinsic price. Items are worth what the market will pay for them, period.

  8. This was to be expected? by dablow · · Score: 3, Interesting

    I am not sure about the rest of you, but I expected this and IMHO Bitcoin will be subject to high volatility for a long time to come.

    Also is it not possibly that there are entities out there purposely trying to undermine it? Such as governments who can no longer control the money supply (and their favorite hidden form of taxation, inflation!). Destroy the confidence people place on Bitcoin, if enough lose faith it will start a negative feedback loop and we can watch it spiral down to it's death.

  9. Last year's $1,000 coin is this years $200 coin by perpenso · · Score: 3, Informative

    A medium that doesn't deflate value by randomly printing more paper.

    Does it matter if the value deflates due to printing as in the dollar case, or a lack of interest or lack of faith as in the bitcoin case? Last year's $1,000 bitcoin is this years $200 bitcoin. Why would the public care about the cause rather than the result?

    That said I agree that bitcoin is useful as a mechanism to transfer value, as a transaction method, but as a store of value it currently fails. Its totally subject to consumer (goods/service buyer) and investor sentiment, merchant (goods/service seller) sentiment is irrelevant since merchants accepting bitcoins generally immediate convert them to dollars, euros, etc to avoid holding risks.

  10. Virtually currency value is entire faith based by perpenso · · Score: 2

    The strength of a currency has nothing to do with the issuing body's military and diplomatic power. What jellomizer was saying was that while the printing of the US dollar is controlled by a government institution that could print arbitrary amounts of money, bitcoins cannot be arbitrarily created.

    But a bitcoin's value is also arbitrary, it is based on the faith of those who hold it. Arbitrary creation is just a talking point. A more stable supply did not constrain the skyrocketing from $60 to $1,000 nor did it prevent the crash from $1,000 to $200. Faith drove both.

    Development teams and advocates can make up rationales for their theory of value, i.e. the value is equivalent to the mining expense, but such statement are just salesmanship, marketing, they have no force. Virtually currency value is entire faith based. If there is sufficient and constant faith it could work but that doesn't change its underlying faith based nature.