Friday's Big Swings, Mostly Down, Illustrate Bitcoin Value Volatility 476
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.
Bitcoin bubble (Score:5, Interesting)
Look at the Bitcoin price chart [bitcoincharts.com] . 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.
The missing BTC (Score:4, Interesting)
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.
Re:Volatility (Score:4, Interesting)
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.
Re:Pick your poison. (Score:4, Interesting)
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.
Re:Bitcoin is not worthwhile as a currency (Score:3, Interesting)
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.
Re:Bitcoin continues to drop (Score:4, Interesting)
Bitcoin now at $11.01, down from $28.92 at Friday's open. No further comment necessary.