6 ms·

First Bitcoin "Depression" Hits

33 points by davidhperry 15y ago

yaix 15y ago
Off topic, but for the first image displayed next to the text: >> "(Source: Google Images)" What? Does Google Images offer own original content?
- ltamake 15y ago
  Yeah, he might as well put "Google.com" as the source link for the article if he's gonna cite his images like that.
jasonkolb 15y ago
There is a lot of assumption going on in this article. When you're talking about movements in currency crosses, as the article does in focusing on the BTC/USD rate, there are a bunch of different reasons that can move it. At the core though, there are two sides to a large drop in the value of a Bitcoin vs. the USD. You can have a large number of people wanting to dump BTC, OR you can have a large number of people wanting to acquire USD. Note that the article itself talks about the turmoil in the US equity markets on the same day. This usually creates a demand for USD as people require it to meet margin calls or pay off debt which is denominated in USD. I'd bet on this being the primary cause. In fact, if you look at the USD vs. any other currency (EUR, JPY, etc) it rose in value against just about everything today. The other reason, which I consider less likely, is that people decided to drop BTC en masse for some other reason which is as yet unknown. This appears to be much less likely, although it can't be completely counted out. In short, the USD rose against just about everything today, and the BTC market seems to have been affected more than most--primarily, I'm assuming, due to the relative illiquidity of that specific market in general.
- adrianwaj 15y ago
  I am inclined to think that the fundamentals of bitcoin are very good, it'll be interesting to see how the price rebounds after this correction, I tend to think with all the trolls happening in the forum that some big players want in big time.
  - bonch 15y ago
    Can't believe you're calling other people trolls after your comment to a previous Bitcoin post: People that don't have the money to buy bitcoins and see them appreciate are jealous of the ones that do. They hide their insufficiency and jealousy by calling it a ponzi scheme or scam, so they can simultaneously feel superior to the bitcoiners whilst tricking themselves into thinking they wouldn't buy them anyway even if they had the money. It'd also be a fear that one day they'd have to work on a bitcoin project, which would be rubbing salt in the wounds. Fact is, there are tons of hackers that could contribute a lot to the bitcoin ecosystem, but they take the negative route instead: they don't want to give anyone a free ride (or they like their rut.) I could go on, but there are some anti-Israel type tones in the anti-bitcoin brigade, that's my feeling when I write anything positive about bitcoin: I may as well write something positive about Israel. For many, bitcoin.org is the startup, and buying the currency is the investment. People would upvote any story about their startup, and they'd upvote anything about bitcoin. It's a fair thing to do. Bitcoin is an extremely hacker-ish thing. It is a hack on the money supply. It is as revolutionary to money (the concept, perhaps not the implementation as yet) as mp3 was to music, or blogs to writers. It has hugely positive implications, so people that hate it, will Really hate it.
bdr 15y ago
The exchange rate stopped going up shortly after The Silk Road closed to new users. It started dropping soon after. TSR was the most compelling and publicized use of bitcoins, and I expect that if the site re-opens there'll be another round of publicity and bitcoins will rally. So sure, probably some component of the initial rise was a bubble, but it's important to remember that the actual utility of bitcoins also went down significantly preceding the price drop.
- shazow 15y ago
  I really doubt TSR was a significant factor in this. Perhaps people are worried about Gavin giving his CIA talk in two days. Perhaps Russians were funneling money again (like with egold when it was shut down) and completed their trial run. Perhaps some investor got wind of this cool thing called Bitcoin and told his assistant to buy in $150k (that alone would move the price +$10), then sold a week later. Or perhaps it was the non-stop increasing media coverage of Bitcoin in the past month. Or perhaps it was the weekend when it's harder to get money into MtGox and the psychological perfect storm of speculators manifested. TSR was around since February, with steady growth up until the recent spike when they closed to new users. Perhaps that was a factor, but I doubt it was a significant one. I imagine most people who bought coins don't have Tor installed.
netcan 15y ago
As far as I understand bitcoin (very very little) is mostly being bought/mined by people who like the idea as an investment/experiment. That makes it a kind of goofy commodity at the moment. I think to get some stability and potential longevity bitcoin needs to be used more like a currency. IE be used for buying and selling stuff. That's a difficult piece of this puzzle. I can't think of any possible catalyst for it. Can anyone explain to me how bitcoin might become something that a large number of people use to buy & sell goods and services?
- pemulis 15y ago
  Basically, it's great for the black market. For the US, that means primarily drugs and gambling. That's why the price shot up after the Wired article about Silk Road: A whole bunch of people wanted to get Bitcoins to buy drugs online. In some countries the black market is even more important, because it's the only way to get certain necessities. The fact that bitcoins are being used as an investment vehicle right now is depressing, since the world desperately needs a form of digital cash.
- Tichy 15y ago
  It's much more convenient to use than existing methods of money transfer. Once you already have some BTC, that is - getting BTC might be a bit too cumbersome at the moment. For example I bought some T-Shirts at SquareWear.biz. Upon checkout I get told a bitcoin address I enter into my client to transfer the required amount of BTC. A couple of seconds later squarewear knows I transferred the BTC and all is done. No registration with a payment processor required. Another example: in my blog I once offered 0.1 BTC to the first five commentators on a blog post. Try that with other payment methods. Maybe money wires would work, but then not internationally without high fees.
  - netcan 15y ago
    Do you think a bitcoin based payment processor where you can pay with bitcoin or with credit card (processor converts to bitcoin behind the scenes) would have any advantage? Would it be enough of an advantage to incentivise bitcoin use (eg avoiding conversion costs)?
Tichy 15y ago
It doesn't feel like a depression when it was preceded by an incredible rally. One month ago I sold my first BitCoins for 2.7€. Four days ago I sold some for 20€. When I got into mining, I thought even 1€ was incredibly high. Who cares if they went down from 20€ a little - the exchange rate is still incredible. I think 30$ was simply a very attractive exchange rate, so a lot of people decided to sell. That's all there is to it. Though I have to say it is fun to experience this with BitCoins. There certainly was a feeling of "damn it, sell now or wait for even higher prices???". But as far as I am concerned, it is still more like a game, so I am not depressed if I lose out on the highest prices.
- palish 15y ago
  I sold my 5 BTC at $30/coin, and walked with $149.96 after fees. It certainly felt like a bubble, and I'm glad I got out when I did, even if it was only for spare change in the scheme of things.
  - Tichy 15y ago
    Yes, it felt like a bubble. Then again, I don't really know. You never really know with investing, I suppose. It felt like a bubble when I sold for 7€, and now with hindsight 7€ was very low... Maybe lots of people started buying drugs with BTC and hence demand went up, or whatever. I am also happy about the money I made. But I am not chiding myself for not selling more BTC at the peak. Maybe if they dropped to zero value I'd be a bit remorseful :-)
    - palish 15y ago
      Heh. How many BTC do you have?
      - Tichy 15y ago
        I have about 350 left - bought a miner in March... I guess another reason why I don't feel depressed is that I always meant to keep some of them as a long term investment. Just curious to see what happens when supply of new BitCoins starts to slow down. Of course I am not the only one thinking like that, so there are a lot of BitCoins out of circulation atm.
philfreo 15y ago
I made a quick and easy way to check the latest price: http://bitcoinprices.org/ http://bitcoinprices.org/
- Tichy 15y ago
  Would be more interesting with more sources, otherwise, why not just check mtgox directly?
  - philfreo 15y ago
    their website is quite slow and the numbers are small :)
- netcan 15y ago
  Care to add historical prices?
  - philfreo 15y ago
    probably not, just wanted something really fast & simple. try bitcoincharts.com or mtgox.com
    - netcan 15y ago
      you have a better domain name, don't be lazy ;)
- mortehu 15y ago
  And I made a price comparison chart with fiat currency conversion: http://fnoose.com/bitcoin/arbitrage/ http://fnoose.com/bitcoin/arbitrage/
fleitz 15y ago
The money is only 'lost' if A) they bought BTC at > $19 B) they did A AND sold today, or C) the price never recovers to $28 USD. I would assume given the types of people that BTC would appeal to that they presume the US will persue a very expansionary monetary policy for the foreseeable future. Maybe the gov't announced news that would suggest raising interest rates or balancing the budget. It could also be a sign that people are starting to do hedge fund type operations with BTC. If you wanted to invest heavily in BTC using a few hundred K to depress the price may be advantageous given the instability of the currency.
ahi 15y ago
I suspect #4 Getting Money In or Out is the only one that matters. There have been problems getting USD into Mt.Gox for most of the week. Now with the weekend upon us the trickle of new funds has become a drip. There are no shortage of people in the forums looking to buy bitcoin with paypal, trying to get in before all the bank wires on Monday. I expect it will be back up to around 20 USD by Tuesday. Regardless of the cause, big swings like this don't exactly help it's cause in becoming a widely used currency.
Mithrandir 15y ago
Take Silk Road, for example -- the topic of a recent Gawker piece. An IP accesses this site, which is known for selling narcotics illegal in the U.S. If this is a user's direct IP, anyone who can sniff the traffic of the site can trace that user back to their home address, assuming cooperation of the internet service provider. However, if you first route your IP through Tor -- an anonymizing service, you can make it extremely difficult for anyone to trace you. Silk Road is only available through Tor; it can't be accessed from the clearnet unless you use something like tor2web.
- gasull 15y ago
  Yes, but Bitcoin isn't necessarily anonymous: https://en.bitcoin.it/wiki/Anonymity https://en.bitcoin.it/wiki/Anonymity If you want more anonymity in Bitcoin, run it through Tor and have the setting noirc='1' in your ~/.bitcoin/bitcoin.conf. Also, Tor is more anonymous for you if you act at least as a middle node, what also helps the network.
Groxx 15y ago
>millions of USD sunk into Bitcoins lost big in the flash crash. Seriously? Check MtGox more closely. Even down at ~$10 where it is now, only the extremely-new users who bought it at skyrocketing prices got screwed. And by "extremely-new" I mean extremely. The prices are still above where they were less than a week ago. What we just saw was the bursting of the first large Bitcoin bubble, not the first depression. Depression for the people who bought during such a freakish rise, yes, but there will always be winners and losers in any economic game. --- edit: On a side note, I've found Paypal's "excuse" for not allowing transactions with Bitcoin merchants a weak one at best. Why, then, have they allowed exchanges with Linden merchants like VirWoX for the past three and a half years? --- edit2: wow, this article gets worse and worse: >Mt. Gox is the world's largest bitcoin exchange, but it's suffered from major liquidity issues in recent weeks. The recent massive inflationary drop is also a sign of poor controls at the exchange. Two questions: 1) why did Mt. Gox suffer? They're a trade tool, all the action has only been good for them, to the tune of 0.65% of each trade! 2) they're an exchange. If they wish to exchange at market price, what "controls" would you expect them to put in place? People pay what they want to pay, that's the way MtGox has always worked, they're just an intermediary.
- bastiat 15y ago
  but there will always be winners and losers in any economic game I believe you mean to say 'financial' here, in place of economic.
  - Groxx 15y ago
    I suppose, yeah. I was thinking that you're essentially betting on the Bitcoin economy if you buy them.
    - bastiat 15y ago
      It's worth recognizing that buying USD is also a bet highly correlated to the United States economy. Regardless, I disagree with the veracity of using either term in that sentence but, apart from people like myself, you'll find much more solidarity in denigrating "finance" over "economics."
edoloughlin 15y ago
"a major improvement would be for Bitcoin exchanges to implement mandatory market closures if the currency value dropped below a threshold" Would anyone actually exchange real world goods for bitcoins if the exchanges close following a sudden drop? Am I missing something, or would this just drive the value (temporarily) to zero?
perlgeek 15y ago
I guess these fluctuations will go on until there are many more interfaces between bitcoin and the rest of the world (ie places where you can earn and spend bitcoins).
shii 15y ago
FUD. Pic related: http://bitcoinweekly.com/articles/comic-reaction-after-dramatic-rise-of-bitcoin-s-value http://bitcoinweekly.com/articles/comic-reaction-after-drama...
Amincd 15y ago
A depression doesn't mean a sudden drop in market prices. It means persistent GDP contraction, which has nothing to do with the value of a currency. The drop is also not the first bitcoin has had. It's been highly volatile since the beginning. This is just sensationalism.

33 points by davidhperry 15y ago

yaix 15y ago

Off topic, but for the first image displayed next to the text: >> "(Source: Google Images)" What? Does Google Images offer own original content?

ltamake 15y ago
Yeah, he might as well put "Google.com" as the source link for the article if he's gonna cite his images like that.

jasonkolb 15y ago

There is a lot of assumption going on in this article. When you're talking about movements in currency crosses, as the article does in focusing on the BTC/USD rate, there are a bunch of different reasons that can move it. At the core though, there are two sides to a large drop in the value of a Bitcoin vs. the USD. You can have a large number of people wanting to dump BTC, OR you can have a large number of people wanting to acquire USD. Note that the article itself talks about the turmoil in the US equity markets on the same day. This usually creates a demand for USD as people require it to meet margin calls or pay off debt which is denominated in USD. I'd bet on this being the primary cause. In fact, if you look at the USD vs. any other currency (EUR, JPY, etc) it rose in value against just about everything today. The other reason, which I consider less likely, is that people decided to drop BTC en masse for some other reason which is as yet unknown. This appears to be much less likely, although it can't be completely counted out. In short, the USD rose against just about everything today, and the BTC market seems to have been affected more than most--primarily, I'm assuming, due to the relative illiquidity of that specific market in general.

adrianwaj 15y ago
I am inclined to think that the fundamentals of bitcoin are very good, it'll be interesting to see how the price rebounds after this correction, I tend to think with all the trolls happening in the forum that some big players want in big time.
- bonch 15y ago
  Can't believe you're calling other people trolls after your comment to a previous Bitcoin post: People that don't have the money to buy bitcoins and see them appreciate are jealous of the ones that do. They hide their insufficiency and jealousy by calling it a ponzi scheme or scam, so they can simultaneously feel superior to the bitcoiners whilst tricking themselves into thinking they wouldn't buy them anyway even if they had the money. It'd also be a fear that one day they'd have to work on a bitcoin project, which would be rubbing salt in the wounds. Fact is, there are tons of hackers that could contribute a lot to the bitcoin ecosystem, but they take the negative route instead: they don't want to give anyone a free ride (or they like their rut.) I could go on, but there are some anti-Israel type tones in the anti-bitcoin brigade, that's my feeling when I write anything positive about bitcoin: I may as well write something positive about Israel. For many, bitcoin.org is the startup, and buying the currency is the investment. People would upvote any story about their startup, and they'd upvote anything about bitcoin. It's a fair thing to do. Bitcoin is an extremely hacker-ish thing. It is a hack on the money supply. It is as revolutionary to money (the concept, perhaps not the implementation as yet) as mp3 was to music, or blogs to writers. It has hugely positive implications, so people that hate it, will Really hate it.

bdr 15y ago

The exchange rate stopped going up shortly after The Silk Road closed to new users. It started dropping soon after. TSR was the most compelling and publicized use of bitcoins, and I expect that if the site re-opens there'll be another round of publicity and bitcoins will rally. So sure, probably some component of the initial rise was a bubble, but it's important to remember that the actual utility of bitcoins also went down significantly preceding the price drop.

shazow 15y ago
I really doubt TSR was a significant factor in this. Perhaps people are worried about Gavin giving his CIA talk in two days. Perhaps Russians were funneling money again (like with egold when it was shut down) and completed their trial run. Perhaps some investor got wind of this cool thing called Bitcoin and told his assistant to buy in $150k (that alone would move the price +$10), then sold a week later. Or perhaps it was the non-stop increasing media coverage of Bitcoin in the past month. Or perhaps it was the weekend when it's harder to get money into MtGox and the psychological perfect storm of speculators manifested. TSR was around since February, with steady growth up until the recent spike when they closed to new users. Perhaps that was a factor, but I doubt it was a significant one. I imagine most people who bought coins don't have Tor installed.

netcan 15y ago

As far as I understand bitcoin (very very little) is mostly being bought/mined by people who like the idea as an investment/experiment. That makes it a kind of goofy commodity at the moment. I think to get some stability and potential longevity bitcoin needs to be used more like a currency. IE be used for buying and selling stuff. That's a difficult piece of this puzzle. I can't think of any possible catalyst for it. Can anyone explain to me how bitcoin might become something that a large number of people use to buy & sell goods and services?

pemulis 15y ago
Basically, it's great for the black market. For the US, that means primarily drugs and gambling. That's why the price shot up after the Wired article about Silk Road: A whole bunch of people wanted to get Bitcoins to buy drugs online. In some countries the black market is even more important, because it's the only way to get certain necessities. The fact that bitcoins are being used as an investment vehicle right now is depressing, since the world desperately needs a form of digital cash.
Tichy 15y ago
It's much more convenient to use than existing methods of money transfer. Once you already have some BTC, that is - getting BTC might be a bit too cumbersome at the moment. For example I bought some T-Shirts at SquareWear.biz. Upon checkout I get told a bitcoin address I enter into my client to transfer the required amount of BTC. A couple of seconds later squarewear knows I transferred the BTC and all is done. No registration with a payment processor required. Another example: in my blog I once offered 0.1 BTC to the first five commentators on a blog post. Try that with other payment methods. Maybe money wires would work, but then not internationally without high fees.
- netcan 15y ago
  Do you think a bitcoin based payment processor where you can pay with bitcoin or with credit card (processor converts to bitcoin behind the scenes) would have any advantage? Would it be enough of an advantage to incentivise bitcoin use (eg avoiding conversion costs)?

Tichy 15y ago

It doesn't feel like a depression when it was preceded by an incredible rally. One month ago I sold my first BitCoins for 2.7€. Four days ago I sold some for 20€. When I got into mining, I thought even 1€ was incredibly high. Who cares if they went down from 20€ a little - the exchange rate is still incredible. I think 30$ was simply a very attractive exchange rate, so a lot of people decided to sell. That's all there is to it. Though I have to say it is fun to experience this with BitCoins. There certainly was a feeling of "damn it, sell now or wait for even higher prices???". But as far as I am concerned, it is still more like a game, so I am not depressed if I lose out on the highest prices.

palish 15y ago
I sold my 5 BTC at $30/coin, and walked with $149.96 after fees. It certainly felt like a bubble, and I'm glad I got out when I did, even if it was only for spare change in the scheme of things.
- Tichy 15y ago
  Yes, it felt like a bubble. Then again, I don't really know. You never really know with investing, I suppose. It felt like a bubble when I sold for 7€, and now with hindsight 7€ was very low... Maybe lots of people started buying drugs with BTC and hence demand went up, or whatever. I am also happy about the money I made. But I am not chiding myself for not selling more BTC at the peak. Maybe if they dropped to zero value I'd be a bit remorseful :-)
  - palish 15y ago
    Heh. How many BTC do you have?
    - Tichy 15y ago
      I have about 350 left - bought a miner in March... I guess another reason why I don't feel depressed is that I always meant to keep some of them as a long term investment. Just curious to see what happens when supply of new BitCoins starts to slow down. Of course I am not the only one thinking like that, so there are a lot of BitCoins out of circulation atm.

philfreo 15y ago

I made a quick and easy way to check the latest price: http://bitcoinprices.org/ http://bitcoinprices.org/

Tichy 15y ago
Would be more interesting with more sources, otherwise, why not just check mtgox directly?
- philfreo 15y ago
  their website is quite slow and the numbers are small :)
netcan 15y ago
Care to add historical prices?
- philfreo 15y ago
  probably not, just wanted something really fast & simple. try bitcoincharts.com or mtgox.com
  - netcan 15y ago
    you have a better domain name, don't be lazy ;)
mortehu 15y ago
And I made a price comparison chart with fiat currency conversion: http://fnoose.com/bitcoin/arbitrage/ http://fnoose.com/bitcoin/arbitrage/

fleitz 15y ago

The money is only 'lost' if A) they bought BTC at > $19 B) they did A AND sold today, or C) the price never recovers to $28 USD. I would assume given the types of people that BTC would appeal to that they presume the US will persue a very expansionary monetary policy for the foreseeable future. Maybe the gov't announced news that would suggest raising interest rates or balancing the budget. It could also be a sign that people are starting to do hedge fund type operations with BTC. If you wanted to invest heavily in BTC using a few hundred K to depress the price may be advantageous given the instability of the currency.

ahi 15y ago

I suspect #4 Getting Money In or Out is the only one that matters. There have been problems getting USD into Mt.Gox for most of the week. Now with the weekend upon us the trickle of new funds has become a drip. There are no shortage of people in the forums looking to buy bitcoin with paypal, trying to get in before all the bank wires on Monday. I expect it will be back up to around 20 USD by Tuesday. Regardless of the cause, big swings like this don't exactly help it's cause in becoming a widely used currency.

Mithrandir 15y ago

Take Silk Road, for example -- the topic of a recent Gawker piece. An IP accesses this site, which is known for selling narcotics illegal in the U.S. If this is a user's direct IP, anyone who can sniff the traffic of the site can trace that user back to their home address, assuming cooperation of the internet service provider. However, if you first route your IP through Tor -- an anonymizing service, you can make it extremely difficult for anyone to trace you. Silk Road is only available through Tor; it can't be accessed from the clearnet unless you use something like tor2web.

gasull 15y ago
Yes, but Bitcoin isn't necessarily anonymous: https://en.bitcoin.it/wiki/Anonymity https://en.bitcoin.it/wiki/Anonymity If you want more anonymity in Bitcoin, run it through Tor and have the setting noirc='1' in your ~/.bitcoin/bitcoin.conf. Also, Tor is more anonymous for you if you act at least as a middle node, what also helps the network.

Groxx 15y ago

>millions of USD sunk into Bitcoins lost big in the flash crash. Seriously? Check MtGox more closely. Even down at ~$10 where it is now, only the extremely-new users who bought it at skyrocketing prices got screwed. And by "extremely-new" I mean extremely. The prices are still above where they were less than a week ago. What we just saw was the bursting of the first large Bitcoin bubble, not the first depression. Depression for the people who bought during such a freakish rise, yes, but there will always be winners and losers in any economic game. --- edit: On a side note, I've found Paypal's "excuse" for not allowing transactions with Bitcoin merchants a weak one at best. Why, then, have they allowed exchanges with Linden merchants like VirWoX for the past three and a half years? --- edit2: wow, this article gets worse and worse: >Mt. Gox is the world's largest bitcoin exchange, but it's suffered from major liquidity issues in recent weeks. The recent massive inflationary drop is also a sign of poor controls at the exchange. Two questions: 1) why did Mt. Gox suffer? They're a trade tool, all the action has only been good for them, to the tune of 0.65% of each trade! 2) they're an exchange. If they wish to exchange at market price, what "controls" would you expect them to put in place? People pay what they want to pay, that's the way MtGox has always worked, they're just an intermediary.

bastiat 15y ago
but there will always be winners and losers in any economic game I believe you mean to say 'financial' here, in place of economic.
- Groxx 15y ago
  I suppose, yeah. I was thinking that you're essentially betting on the Bitcoin economy if you buy them.
  - bastiat 15y ago
    It's worth recognizing that buying USD is also a bet highly correlated to the United States economy. Regardless, I disagree with the veracity of using either term in that sentence but, apart from people like myself, you'll find much more solidarity in denigrating "finance" over "economics."

edoloughlin 15y ago

"a major improvement would be for Bitcoin exchanges to implement mandatory market closures if the currency value dropped below a threshold" Would anyone actually exchange real world goods for bitcoins if the exchanges close following a sudden drop? Am I missing something, or would this just drive the value (temporarily) to zero?

perlgeek 15y ago

I guess these fluctuations will go on until there are many more interfaces between bitcoin and the rest of the world (ie places where you can earn and spend bitcoins).

shii 15y ago

FUD. Pic related: http://bitcoinweekly.com/articles/comic-reaction-after-dramatic-rise-of-bitcoin-s-value http://bitcoinweekly.com/articles/comic-reaction-after-drama...

Amincd 15y ago

A depression doesn't mean a sudden drop in market prices. It means persistent GDP contraction, which has nothing to do with the value of a currency. The drop is also not the first bitcoin has had. It's been highly volatile since the beginning. This is just sensationalism.