Bitcoin falls from $266 | Hacker News Reader

Bitcoin falls from $266

data.mtgox.com

396 pointssillysaurus486 comments

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I'm interested in the price of Bitcoin, but we don't need these daily submissions.

If you're interested in following the price, I suggest these links:

- https://bitcoinity.org/markets

- http://bitcoincharts.com/charts/mtgoxUSD

- http://bitcoin.clarkmoody.com/

If you're interested in talking about the price, try #bitcoin-pricetalk on Freenode.

I appreciate the daily submissions because I am only slightly curious about the price of bitcoin as long as it's interesting and newsworthy (i.e. rising or falling significantly). If the price of bitcoin stabilized it would cease to be newsworthy and I'm sure the daily submissions would stop. I suspect many people feel the way I do, which is why these submissions get upvoted.

I'd argue that HN has a built-in mechanism for determining what's interesting to its users. If a Bitcoin related story gets voted up to appear in the top page every day, then maybe it should be there.

This. There's been so much talk about curation/deletion of posts lately. Letting the algorithm do it's job is the only way to determine what's HN worthy in my view.

Mostly agreed.

There is value in curating HN. People come to HN because it has a reasonably high signal to noise ratio in a certain realm. Highly charged topics tend to drive upvotes, even if it's just a 'like' or a, 'yeah, that's important, I'll up-vote it'. I didn't really start visiting HN for politics or shocking stories; those tend to disproportionately draw upvotes. I'm not in favor of downmodding non-tech articles, but there's something to be said for those who do.

There are more important things in the world than Bitcoin, but I'm happy to see a bitcoin article, perhaps two, on the front page anytime something interesting is happening.

The difference here might be that people who own bitcoin have a financial interest in keeping interest in bitcoin up, so they form a kind of implicit voting cartel, regardless of the real interestingness of the items?

No, there aren't downvotes. If 20% of users really love something, and 80% hate it (assuming they only use flagging for spam) it will still keep making the top page.

The guidelines suggest that people flag for spam or off-topic:

> Please don't submit comments complaining that a submission is inappropriate for the site. If you think something is spam or offtopic, flag it by going to its page and clicking on the "flag" link. (Not all users will see this; there is a karma threshold.) If you flag something, please don't also comment that you did.

Some people (but not me) flag all Bitcoin articles. Other people appear to flag many of them.

Bitcoin is fascinating. Lots of the technical stuff is poorly understood. Lots of the economics stuff is poorly understood. Unfortunately most of the threads are more heat than light, so I understand why people do flag Bitcoin threads.

This is HUGE news on Bitcoin - nothing like this has ever happened in it's history. Market went from $250 to $110 in 5 hours. MtGox was down for 30 minutes today. Trading lag was 600 seconds for orders placed at market prices. April 10th, 2013 may be the day that will be remember for the next 20 years as the day that Bitcoin crashed and either (A) never recovered or (B) kept progressing after an incredible Blip.

Definitely HN fodder today.

> nothing like this has ever happened in it's history

Completely false. The curve mirrors the speculative run-up from $0.50 to $30 pretty closely... the LAST time bitcoin's market scaled an order of magnitude.

It's happened before. It will happen again.

> Definitely HN fodder today.

Maybe, but my own unscientific, vague sense is that I've been seeing multiple bitcoin related submissions to HN every day for quite some time now. At this stage all of the arguments have been hashed and rehashed (ho ho) in the comment threads to the extent that they're getting pretty repetitive and tedious (especially since so many of them are so political).

So, sure, it was marginally interesting a few days ago that bitcoin was up a significant amount so we had multiple articles about that, and then it was up the next day too so we had some articles, and then there were opinion pieces about why it was a bad idea / good idea, none of which really said anything much new, then there were columns about how it was becoming mainstream (which was obvious if you'd been following all the bitcoin startups that also get posted to HN), then today we find it's down an unusual amount. Surely you can see how this is becoming a little grating even for someone who started out with an interest in the topic.

The 50% drop is larger than usual, but 30% falls have regularly been seen during the current rally, and they recovered as fast as they occurred.

Furthemore, the trade volume in Bitcoin is unexceptional.

Edit, 10:56PM CET: It went down to ~$100, and it is already back up to $180. I predict another drop in the next few hours, then a recovery around at least 200. That's the usual pattern.

Should bitcoin continue from here as topic of noteworthy discussion, I can say with absolute certainty this will not be the last time it crashes.

You must be new to bitcoin. Take a look at what the price did over the Summer of 2011.

It's hard to treat this re-pricing as a huge crash given that it was preceded by an equally unprecedented boom.

Bitcoin has been through worse than this at least twice.

I like this prettier and easier to read interface: http://realtimebitcoin.info/

I've been watching it drop from $200 to $157 over the last hour or so.

What do the numbers in the background mean? I've seen everything from $0.01 to $8000+ in about 30 seconds.

EDIT: Realtime transactions? Impressive range if they are.

Yeah the biggest I've seen so far was $94,000.00 It doesn't specify whether that was a sell or a buy though. Either way someone made or lost a lot of money.

http://bitcoin-analytics.com/#charts

How many sellers caused this? Was it a whale cashing out or multiples panic jumping the ship?

No, thanks. I prefer getting the relevant updates from HN.

Agreed. I'm going to start flagging them. Due to their volume they've become spam.

Don't forget that people upvote them. There are many people who find them interesting and don't think that they're spam, including me.

A friend of mine told me "dude, the price is falling". So where do I go to check what's up? HN, of course!

for what its worth, i lost my flagging privileges doing the same thing in the bitcoin bubble two years ago

I think part of the issue is that it's kind of a slow news period right now. There are not a whole lot of really exciting other stories hitting HN's front page so far in April.

That'd be a great opportunity to read and comment on some of the better submitted articles. Unfortunately it's been seen as an opportunity to submit many articles. Nearly 40 articles with Bitcoin in the title have been submitted in the past 24 hours.

I understand a few Bitcoin posts. But there are a lot at the moment.

It's interesting how quickly its fallen even since this article was posted. It looks like it's around 150 now.

..and 5 minutes later, its back up to $190 USD/BTC.

It's not a matter of being up $40 in 5 minutes. The spread is actually $40.

Edit: Erm, the above was true a while ago. More recently there were standing orders on both sides around $190, but only 20 btc of liquidity on the bid side between $190 and $150.

Edit more: Seeing this again, $44 spread from $106 to $150.

>I'm interested in the price of Bitcoin, but we don't need these daily submissions.

Bitcoin markets are having unprecedented volume and volatility. This is a relevant current event. You don't need to click the links if you don't want to.

>try #bitcoin-pricetalk on Freenode.

The discussion quality on IRC is almost as bad as it is here.

My reply was a lot more relevant at the time of posting and when the original title was, "Bitcoin drops from $260 to $230". :/

http://realtimebitcoin.info/ is another good one to watch

Evidently, many hoarders/speculators decided to cash out at once -- much like the audience in a movie theater would try to go through the exit door at the same time if someone were to yell "fire!"

The naive souls who recently bought bitcoins to make a 'quick buck' are in for a rude surprise. In the short run, no one knows how Bitcoin's price will fluctuate.

In the long run, however, if Bitcoin continues to work as intended, the more people around the world who adopt it as a store of value and/or medium of exchange, the more demand there will be for it, and with supply being fixed, growing demand will be reflected in a rising price.[1]

[1] My full thoughts on the matter: http://cs702.wordpress.com/2011/05/29/on-the-potential-adopt...

On the contrary this is just the most pronounced in a series of recent coordinated DDOS / aggressive selling attacks designed to (successfully) inspire panic. The attackers unload their bitcoin before the price gets smashed and presumably buy it all back again from frightened speculators.

If anything it might be a positive sign for bitcoin that the attackers are keen to acquire it!

On another note, mtgox.com the main exchange is shockingly unfit for purpose. If real markets could get 1 hour behind in transaction processing because of a spike in volume it would be the end of capitalism as we know it. I hope a more able exchange arrives soon.

> On the contrary this is just the most pronounced in a series of recent coordinated DDOS / aggressive selling attacks designed to (successfully) inspire panic.

The bitcointalk forums and /r/bitcoin are full of paranoia like this. After months of stress trying to divine market patterns, people see market manipulation and conspiracies everywhere.

The simple truth is that there was an agressive bubble. The doubling period for the price was halving with each iteration[1]. If you looked at the log plot[2], it still looked exponential! A crash was inevitable.

> On another note, mtgox.com the main exchange is shockingly unfit for purpose.

They have a big update scheduled for April 17th[3].

[1] https://bitcointalk.org/index.php?topic=171312.0;all

[2] http://bitcoincharts.com/charts/mtgoxUSD#rg180ztgSzm1g10zm2g...

[3] https://mtgox.com/press_release_20130409.html

Do you have any evidence at all of a coordinated attack against Bitcoin, or is this just an unsubstantiated conspiracy theory?

In the days before computers, believe it or not, price reporting often ran behind. In the 68 'paperwork crisis' the NYSE went to a four-day trading week for a while to give back offices time to catch up. Capitalism survived.

> If real markets could get 1 hour behind in transaction processing because of a spike in volume it would be the end of capitalism as we know it.

The Facebook IPO was pretty damn similar and didn't end capitalism as we know it :)

> If real markets could get 1 hour behind in transaction processing because of a spike in volume it would be the end of capitalism as we know it.

That's (probably unintentionally) sad commentary on the state of our world today. After all, this trading is just finance. Truly forging the materials or implementing the algorithms that improve our standards of living happens in on a completely timescale, where a one hour delay of some financing operation (such as getting a loan approved) makes no difference at all.

>> "If anything it might be a positive sign for bitcoin that the attackers are keen to acquire it!"

I don't think it inherently implies anything of the sort. There is nothing to suggest that they believe in Bitcoin or care about it. If your suggestions are true, the only thing we know is that they are playing a very, very easy game of manipulation for financial gain. I don't see that as a positive for Bitcoin and think you're reaching with that statement.

Did you see Nasdaq's performance on Facebook's IPO day? I don't think there's an exchange in the world that can handle a serious amount of crushing volume (many times above normal) without some failure somewhere.

What evidence do you have of this claim?

>the end of capitalism as we know it.

>I hope a more able exchange arrives soon.

I hope for both of those things!

> aggressive selling attacks

what's the difference between a "selling attack" and just "selling"?

I hope a more able exchange arrives soon.

It would be possible to create a GLD-style ETF around Bitcoin and it would be as an accurate reflection of the real price as possible. But why bother?

btc-e seems to be another big one.

http://bitcoincharts.com/markets/ will show prices in the major exchanges, if it's online. I had to use the Google cache.

In the long run, yes, there could be a bright future for BTC.

In the short run, there are several big challenges, liquidity being a huge one. When it comes to BTC, the activities of speculators/hoarders, and the activities of free exchange and commerce, have shown themselves to be in direct opposition so far. The "store of value" and the "medium of exchange" are not mutually exclusive, of course, but for the time being, they're functionally mutually exclusive. It's not yet clear whether BTC is a currency, a buy-and-hold investment vehicle, or some schizophrenic combination of the two. It's in the best, long-term interests of BTC to stabilize and become the latter. But BTC is going to be the former for quite awhile, precisely because it's so mysterious in the public eye, there's such information asymmetry about how it works, and because the markets for BTC-based commerce are still fairly niche.

Stabilization is going to come when more businesses start accepting BTC, and accordingly, when BTC becomes more freely convertible for goods, services, and other currencies. Until then, it'll proceed apace slowly and steadily, with the occasional burst of volatility as public interest spikes and wanes, and as speculators jump in and out.

What the currency really needs is exchange volume -- not just from trading, but from commerce.

> It's not yet clear whether BTC is a currency, a buy-and-hold investment vehicle, or some schizophrenic combination of the two.

Where is gold on that spectrum? As far as I can tell, Bitcoin seems to have all the properties of gold (except that it's easier to transport.)

I'm pretty sure that gold is not considered to be a "currency" in any sense in the modern era; it's traded as a commodity, like oil. But people still can use it (or any other commodity, like oil--or, say, laundry detergent[1]) for under-the-table anonymous transactions as well.

[1] http://www.thedaily.com/page/2012/03/12/031212-news-tide-the...

"Bitcoin seems to have all the properties of gold"

It's an interesting analogy, though there are a few key differences. Gold is a physical good, it has industrial uses, and it can be made into other materials and value-added goods (jewelry, etc.). There's no intrinsic value to gold (aside from the aforementioned industrial uses), other than the fact that it's rare, shiny, and resistant to tarnish.

Once the world moved away from the gold standard, gold ceased to function like a currency and started functioning almost strictly as a commodity. The distinction between the two depends on liquidity, which depends on how freely gold can be converted for goods and services in most markets (it can't).

Interestingly, most people who buy "gold" don't actually take possession of the material; they buy and sell contracts based on gold, or they buy and sell funds invested in gold-mining operations. The idea that people can just buy strips or bars of gold, and use them to transact, is theoretically true, but practically very difficult.

[On a side note: quite a few of the people buying "gold" under the auspices that it'll hold its value if/when a Great Depression, WW3, nuclear apocalypse, etc., takes place, would be in for a rude awakening if such a scenario came to pass. Most of them don't have the actual metal, and they almost certainly wouldn't be able to access it if the shit hit the fan].

The gold analogy is apt, but I think diamonds are a more apt analogy. Diamonds capture the "value is what people are willing to pay" aspect better than gold does.

Exactly

Assuming that bit-coin is not passed over for a more useful digital currency at which point the network fails and the total value of all bit-coins falls to 0.

I wonder if the value would ever fall to precisely zero. Mightn't they still have value as a novelty or collector's item? Like, "Hey, a Bitcoin! I remember those... sure, I'll buy one, just to say I have one." It's unfortunate that you couldn't mount it in a decorative frame, though.

One guy made physical coins for bitcoin:

(https://www.casascius.com/)

At some point it would probably be easier to mine one, if the value and interest drops low enough.

It will never fall to zero, I'll personally buy every last one of them at $0.0001 each.

Thoughts on your essay:

Fractional reserve banking - if it's merely backed in BTC then what's the point of bitcoin? It entirely defeats the system as people will be back to fiat currency.

Early adopters and clever nation states have the opportunity to totally turn the world upside down in a BTC backed future. They should have a significant percentage of all existing (as it's finite) BTC which would distort their actual worth. A clever North Korea - estimated GDP of $40 billion, and about $4 billion each in exports and imports - could hold an incredible amount of BTC buying power. Why would any other nation want to acknowledge them? Similarly, they'd be holding onto a financial nuclear bomb if they held enough BTC. They'd be able to almost singlehandedly alter the value (in purchasing power) on a whim with a significant enough percentage.

---

Next, you focus heavily on hyperinflation, but never once seemed to mention deflation. Or the fact that under a scenario like above, hyperinflation is almost feasible as suddenly a large amount of BTC could reenter the market. Long term it would get absorbed, but short term impacts could be severe.

It's until one-two major governments decides to make it illegal to deal in bit-coins that it's price will drop to zero.

It doesn't matter if they can't enforce it 100% (or even 1%). What matters is that it will kill almost all opportunities to use it as regular money for legitimate purchases by major companies etc in the future. And that it could also land your ass in jail (with ISP monitoring and such being what it is).

Why would a government do that? For one, because they don't like money systems they can not control. Second because they would argue it can be used for money laundering and such.

Time and again it has been proven that you cannot solve social issues with technology. For example a solution for private communication exists: cryptography. And yet, the government can limit what kind of cryptography you can use in your app or export, etc. And they can even throw your ass in jail if you have an encrypted file and you don't hand them the key. You have to go all the more deeper, and even that doesn't solve the issue of your dumb cousin exposing your secret in his plain text email to you.

"It's until one-two major governments decides to make it illegal to deal in bit-coins..."

I don't know about other governments, but I doubt the US will ever declare Bitcoin illegal (though I am told to never say never). Supporting my viewpoint, the US Treasury Department, through FinCEN, has recently tacitly approved Bitcoin: http://www.businessinsider.com/is-bitcoin-legal-2013-4

I think the US government would prefer to take the benefits of Bitcoin (startups springing up everywhere, taxable Bitcoin economic activity, etc), rather than banning it because the technology is used by a minority of users for illegal activity.

"For one, because they don't like money systems they can not control"

This is a broken argument. The US does not control the Euro, or Yen, etc, yet they do not make it illegal to trade in Euros/Yens within the borders.

If you're trying to do something that's already illegal (sending money to your grandmother in Iran) then you won't care if bitcoins are illegal.

The market for making politically sensitive transactions is huge. There's no need for Bitcoin to be the currency of choice for buying a Big Mac in New York.

I've been trying to figure out a way in which bitcoin could be useful for money laundering, and I just don't see it.

Classic money laundering schemes use businesses which typically have large amounts of anonymous customers paying in cash - the dirty money flows in as cash purchases that didn't really happen from customers that didn't exist. The pseudonymous bitcoin doesn't seem to support this use - it will be obvious from an examinination of the block chain where that money came from.

Can anyone describe a workable money laundering scheme using bitcoin?

A vast number of major governments have made it illegal to trade in, for example, heroin. Just making something illegal doesn't necessarily stop trade.

That will keep it down, but never zero (because of that). There's a real value to the illicit transactions. Even if it's merely a way to exchange dollars into something like silk road points, that's worth enough to enough people to keep it at some non zero value.

There is literally no fundamental value to bitcoins. Spikes and crashes are absolutely to be expected in such a situation.

That's not quite true is it? A distributed cryptographically-guaranteed ledger has fundamental value, no?

Its an interesting thought. What's the upper bound on what a ledger could be worth?

That said, the value of the ledger derives almost entirely from the value of the items transacted in the ledger. Therefore, I'd say that the ledger value is derivative of the market value and thus doesn't itself convey an intrinsic value to the coins.

same as the dollar and euro then. They are not backed by anything except the status quo.

The dollar is backed by the word of the most powerful organization in the history of civilization. If that doesn't have value, what does?

Dollar/Euro are backed by central banks who dynamically maintain money supply to maintain a promise of low price inflation.

Their fundamental value is derived from fiat.

It's similar, but not the same.

not 100% true. you have to pay taxes in dollars. the currency is backed by the value of not going to jail.

Its not panic if your first.

"Sell on news."

>>someone were to yell "fire!"

Who did yell this time?

>>the more people around the world who adopt it

Who shall be those people?

Are we, by any chance, thinking that we should count the people in mining bitcoins or adopting a currency based on algorithms(let alone the talk about encryption/bits/bytes/code) which they do not have an iota of idea about?

Or are we considering that "naah, it's not for them 'non-techies' anyway!"?

Well, in that case it's actually fine if bitcoin is to be restricted to paying for goods/services that we (the 'techies') shall buy and we'll buy from us (the 'techies'). But then, this will go nowhere.

But 'they' can buy the bitcoins at those exchanges, can't they? No, they shall not buy sth fluctuating in price(paid in dollars and rupees) which shames any share price fluctuation or currency value change except Zimbabwean dollar. And certainly not sth that they do not understand and sth where they have to remember a cryptic and random long string and if they misplace it, forget it or even change it accidentally - well, they just lost all their bitcoins!

There's no support number to call to, no branch manager to go to and tell "well, I just happened to have my id/pwd forgotten".

To me it doesn't even look like a currency. It just looks like, from an average person's point of view, another merchandise(if we do not call dollar a merchandise)/online-'stuff' that people(better say enthusiasts) are buying. Like some share which are generated by running more and more computers.

Agreed. I don't trust the dollar as investment and I don't understand why people consider bitcoin something worth investing in. Sure, for trading stuff between techies it looks fair enough but it'll never reach the general public.

The whole banking system works hard to earn the customers' trust and any small mistake damages that. Bitcoin doesn't provide any assurances, support, etc...

Looks like another fad the computer industry created for its own amusement. Let's see how long it lasts. I'm sure all the revolutionaries out there fighting the man will come up with solutions for the trust issues.

>I don't understand why people consider bitcoin something worth investing in

You don't understand the power of frictionless micropayments and monetary privacy?

BTC crashed primarily because the market suddenly got flooded by Bitcoinbillionaire :

http://arstechnica.com/business/2013/04/bitcoin-crashes-losi...

This bares repeating...

The value of BTC is in the nature of the transaction; not the currency itself. People have turned BTC into a commodity instead of actually bloody spending it. Their old fashioned thinking still ties it to traditional fiat like a smoker trying to give up the habit.

Look, I don't want anyone to lose their money, but people have to stop thinking of BTC as something that has value. What's valuable is the transaction itself, not the means of transaction. To put it another way, fiat currency is just colorful paper until it gets distributed to banks and into your hands.

This original transaction and all future transactions give it value; without it, the paper means nothing.

Edit: Spelling. Ironically, I wrote "bears repeating" instead "bares repeating". BTC ain't a bear market ;)

The value of BTC is in the currency itself.

How much is a three year old's scrawled drawing with the note "I love you Grandma" worth? To most people it is worthless, but to the recipient it has worth. Its utility and use value to the recipient is not measurable. The utility and use value of any commodity is not measurable. The drawing has a use value even if no one wants to buy it - it is useful to the recipient.

Commodity values also reflect the work put into them. Let's say I assemble PCs. I buy $600 worth of parts - motherboard, disk drive etc. I spend an hour assembling the parts into a PC. I now want to sell it for more than $600 since I want to be paid for my time, maybe $50 for the hour - it is now $650 total. Each of the components of the PC I paid $600 for the parts of is more expensive because of the labor costs associated with assembling that component. So the value of a commodity is also connected to its labor costs.

Utility can not be measured as it is subjective - like the child's painting. Exchange value can be measured though. I can buy an OK pair of headphones for $20, I can buy dinner for $20 as well. So a certain pair of headphones are worth the same as 20 dollars are worth the same as a certain dinner at a certain restaurant.

We have had currency for thousands of years. Currencies have always held value due to their inherit value as a commodity, not due to being an exchange medium. Attempts have been made over the centuries to try to change this, but it has never been long lasting. The US dollar was backed by gold until 1971. Now paper currency has value due to the US government accepting it for taxes, stamps and so forth, but such things have been relatively short-lived through history so far. Paper currencies like Confederate dollars, Reichmarks in 1945 and such depend on political factors for their worth( http://www.moneymuseum.com/moneymuseum/library/texts/text.js... ) . Gold and other precious metals have retained value over thousands of years, no matter which way the political winds blew.

> BTC crashed primarily because the market suddenly got flooded by Bitcoinbillionaire

From the Ars Technica link:

> At the moment, no evidence links the currency's plunge with this random reddit charity.

I'm going with Ars on this. $12,000 to 12 people on Reddit isn't enough to bring the market tumbling down.

Bitcoinbillionaire supposedly had waaaay more than $12k in Bitcoins. That was just the bitcoins he gave away for nothing. He supposedly had millions worth, if he sold a large chunk of that he could easily crash the price all on his own.

You had it the first time: "bears" is correct.

Definition 3 c: http://www.merriam-webster.com/dictionary/bear

You actually had it right the first time—"bears repeating"

Could it be that Bitcoin is presently more well-suited as a digital store of value than a digital currency? Given the difficulty of transferring fiat into digital, a way to store value in the digital world is just as needed as a transactional system. And I suspect we'll see some systems emerging in the coming months that are better suited for transactions, with immediate verification, etc. It could be that Bitcoin's long-term role in the crypto currency ecosystem is as a store of value, with transfers only occurring when someone needs to deposit money into their version of a digital checking account, or else large transactions that are not extremely time sensitive, like buying a house or car.

Who is satoshi nakamoto?

He's the Yamaga Soko of modern digital currency. Basically wrote the book on the first plausibly practical means of exchanging currency for services and the edicts of transactions.

Also, I hear he plays a mean banjo.

Who is Tyler Durden?

Who is John Galt?

This is so absolutely untrue. Those values move rather often.

Not that I'd wish monetary loss on anyone, but if the first Bitcoin crash is any indication, these things tend to have a positive side-benefit of driving out most of the speculators flooding in after all the news reports that fuel these cycles, and the people actually interested in the currency itself stay behind, with an influx of new folk.

After all the noise dies down, new businesses and services get built backed by the wider audience, and the ecosystem develops further.

It's not yet clear if this is a crash similar to the previous one, but if it comes, I don't think much will change in terms of Bitcoin's future for the next few years.

(Posted this in the other thread just before it got ethered)

Anecdotally, I have been waiting for prices to fall because I was looking to actually use some btc starting a month ago, but because Im planning on using a tumbler, I was afraid of where the price might be in a week.

What is a tumbler?

It's money laundering for btc.

Don't worry! It won't ever fall below its intrinsic value!

Serious question: Is that really a fair criticism of BTC? Because afterall, our beloved US currency is fiat based, and often subject to whims of geopolitical games.

Actually, you can set a price floor on Bitcoin. It's the dollar value of the transaction float at The Silk Road.

USD are backed by the fact that US citizens have to pay in USD to pay their taxes. Bitcoins have no such imperative.

My Econ 101 understanding is that the value of USD is not primarily due to taxes, i.e. if the government stopped collecting taxes (or started forcing people to pay taxes in gold or Euros) the value of the dollar would not tank. Instead, we're in a Nash equilibrium where we're all accepting dollars as a means of exchange and it would be costly and have little benefit for individuals to defect. The intrinsic value of the dollar is roughly set by the value of all good and services exchanged in a given time period divided by the number of dollars in circulation.

That said, the tax part does add a bit of stability in the form of an additional friction to any hypothetical plan for everyone in the US to coordinate to start exchanging gold or Euros in lieu of dollars.

You are talking about slightly different things. A lot of the reason why fiat money has value is obviously circular logic: You can use it to buy money at the store, because the store needs to pay its suppliers in the same currency, who needs to pay its employees in the same currency, who are happy (more or less) to work for the same currency because they can use it to buy the things that they need.

The vast volume of why the value is there is clearly because of such thinking, so you are right.

But the parent post is also right, because circular logic tends to be awfully inadequate at explaining things. This is where taxation comes in, because it serves as the "induction base case", so to speak. Taxation is what sets the wheel in motion initially; the additional momentum then builds gradually, but the continued existence of the base case is what gives it stability.

Take taxation away, and the wheel will still continue because loan repayment acts as a "secondary base case". But once that secondary base case disappears as well, it is just a matter of time until collapse - kind of like the cartoon characters that keep running over the edge of the cliff, until they look down and notice gravity.

So if you want to understand why money has value in the first place, the parent comment gives the better answer. But that doesn't mean your reply is wrong, either.

"My Econ 101 understanding"

Go just a bit past Econ 101, and you'll discover that economists do not universally agree on these things. That being said, here is one popular view:

https://en.wikipedia.org/wiki/Modern_monetary_theory

From wiki:

"[Knapp] argued the state could create pure paper money and make it exchangeable by recognising it as legal tender, with the criterion for the money of a state being "that which is accepted at the public pay offices"."

Or in other words, taxes, torts, and other laws give money its value.

correct in a sense- the US dollar is backed by the full faith and credit of the US Government, nothing more. Would I still have that faith in the US $ if the government did not collect taxes / did not seem like a stable entity? Probably not, but your point is still valid

As a game theorist, I got happy when you used Nash equilibrium in your explanation.

bullets.

US currency isn't backed by gold- it is in a sense backed by the US government. BTC is wholly unbacked.

US currency is backed by the land the US is built on and the means to defend that land, as well as the ability of US citizens to expend their time in a productive way.

And to some extent it is currently based on the ability of the United States to protect its interests overseas, the trading of oil in the US dollar and significant trade partners accepting the US dollar as a means of exchange for goods shipped to the US.

And that works as long as significant portion of the world continues to believe in all of the above, if that should ever stop I hope I won't be there to watch the carnage. That's the kind of 'interesting times' that one would hope to avoid.

I'd like to point out that this is the same for just about every country.

when Europe falls things will change eventually.

Bitcoin is backed by a faith in the algorithms that enable Bitcoin.

The same geopolitical games also back the US currency. So it is no longer gold back but ICBM backed.

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And what's the backing of US citizens paying taxes? If all of the population decided to not pay taxes tomorrow, what power US government has to make them pay up? Government itself operates on the backing of people's consent. That's not too different from Bitcoin users' consent.

> If all of the population decided to not pay taxes tomorrow, what power US government has to make them pay up?

If all the population did that, that would mean the government had decided that. The population and the government aren't disjoint sets.

So, what do you think the intrinsic or non-monetary price of gold is?

Gold is useful stuff in all sorts of electronic applications... I'd say at least 4x that of Bismuth or around $50/pound.

So, about 0.2% of its actual value.

"current" is more precise than "actual"

more like 0.2% of its actual COST. His point is that he thinks cost and value are out of sync.

That's ridiculous. Gold is far more valuable as a mammalian decoration than as a conductor.

Gold is a very significant part of electronics manufacturing, especially high end/high rel work. A couple of examples are plating on connectors and switch contacts (corrosion resistance) and ENIG PCB finishes, but there's a lot more where those came from.

So while you may feel its value is higher as jewelry etc., its utility is still quite high in electronics.

Part of me is pulling for Bitcoin, but dang was that funny.

In some ways the price is tied to the cost of electricity needed to mine a coin. Granted, the mining "price" is usually about two weeks behind the actual price, and the electricity required is variable based on the current sum of computational power being used by all the miners, so there's certainly some disconnect.

So if I shock a turd with a thousand dollars worth of electricity from my electric utility company, can I sell it for $1,000? Or add some non-intrinsic worth by calling it "art" and sell it for $2,000? Actually, make those figures $1,010 and $2,010 -- my turds also have intrinsic value.

no, because throwing electrons at turds doesn't generate currency. in contrast, throwing electrons at a chip does generate bitcoins. that's the relationship being alluded to: there's the possibility of arbitrage between electricity (compute cycles) and currency.

You explained exactly what the intrinsic value of the currency is: the usefulness of the currency itself. BTCs have value over turds for use as a currency for many obvious reasons. The amount of electricity it takes to create that currency can perhaps be seen as a price floor, which is perhaps corollary to the intrinsic value, but is not the intrinsic value itself.

So if something improbable or drastic happened tomorrow that made the currency not useful (e.g. governments outlawing it, a bug in the code) then the price would fall well below what it costs in electricity to mine it and the currency would become mostly defunct, i.e. it's intrinsic value plummeted because it's usefulness did.

tl;dr the intrinsic value is the usefulness of the currency not how many electrons you pump into it (though there is likely some corollary between them)

If you do this let me know. I want to buy tickets.

It's the other way around. The cost of electricity needed to mine a coin will tend towards the price that coin can be sold for. If the bitcoin price drops significantly, then the least efficient miners will become unprofitable and drop out, and the difficulty will reduce.

The value of gold, and bitcoins is that their scarcity and inflation serve as an accurate proxy for the real economy of goods and services.

neither gold nor bitcoins are inflationary. In fact, both are deflationary.

What is it's intrinsic value? Nothing?

I just thought about something I'd never thought before:

Could it be said that bitcoins _do_ have an intrinsic value equal to the marginal amount of electricity and equipment needed to produce one?

> Could it be said that bitcoins _do_ have an intrinsic value equal to the marginal amount of electricity and equipment needed to produce one?

No, that's an intrinsic cost. It would only be an intrinsic value if that electricity and equipment could inherently be extracted back from the bitcoin. The intrinsic value of gold comes from what you can use gold for other than a medium of exchange. Bitcoin has neither the intrinsic value of commodity currencies nor the sovereign backing of fiat currencies.

That isn't an intrinsic value. Waste heat does not have an intrinsic value equivalent to the cost of producing it- it is waste heat.

Intrinsic value is derived from what you can do with something, not what you did to get it.

The intrinsic value is the bitcoin protocol which provides a framework where transactions become effectively irreversible in about an hour, you don't have to go through a middle-man to pay someone, and it provides anonymity if you need it.

Not sure you can consider that an intrinsic value. I could be wrong, but my understanding of intrinsic value is essentially that it is the value of an item when the market value is zero. The bitcoin protocol does you no good if the market value of a bitcoin is zero.

You do present an interesting conundrum though.

> Intrinsic value is derived from what you can do with something

So then, the market price of any good is its intrinsic value? Under this definition, if I can sell a bitcoin for x USD, then its intrinsic value is x USD.

The ability to sell an item for x USD is not one of the "things" you can do with it that contribute to intrinsic value. Let's put it a different way; if the market value for a bitcoin was $0, what could you do with it? Compare that to an apple. If the market value for an apple was $0, you could eat it. Thus (unless someone has a clever use for bitcoins outside of currency) an apple has greater intrinsic value than a bitcoin.

Intrinsic value and market price are slightly different. I imagine the difference brings us back to the fact that bitcoin is unbacked by any government. There is a worst case scenario that bitcoins are worthless. Government backed currencies despite not being tied to the standard of a physical good have a sovereign entity responsible for their value thus they are as valuable as your trust in that sovereign.

No, because you can't go from Bitcoin back to electricity in the same way you could smelt a gold coin.

Maybe you could give someone a bitcoin and they'd give you x amount of compute time on their cluster equal to the time they'd need to generate a new bitcoin. ?

That's a transaction based on market value, not intrinsic value. Someone might take you up on that, but it would depend on their valuation of your bitcoin, not some kind of inherent equivalence between bitcoins and other assets.

Intrinsic value doesn't have anything to do with cost/effort necessary to produce something.

I don't know if intrinsic value is the right term, but I've been thinking along the same line.

A Bitcoin is essentially a tradable hashcash, which has direct value in spam filtering.

"Isn't it enough that I ruined a pony, making a gift for you?

Sold everything I had yesterday at ~$240

https://twitter.com/nikcub/status/321751009598791682

I was buying and selling BitCoins with a very simple theory. Each time the currency would rally I would check the stories on Google News and check the graph on Google Trends[1].

Other price peaks would correspond with a peak on the trends graph[2], a new peak in new stories (with more stories in more general media publications), and more traffic to the sites that are the top results for "BitCoin" (using Compete etc.)

The peak yesterday had no new interest driving it, and no new buyers coming in. It was clear what was going to happen next.

Previous price peaks would drive new news stories which would drive the next peak. Yesterday I logged into News and Trends and found the trends level at its lowest in 30+ days and no new large items in news and sold.

[1] https://twitter.com/nikcub/status/319427166817357824

[2] https://twitter.com/nikcub/status/315680085468405760

..and this is probably going to look foolish when it goes to $1000 later this year. Your actions looks like someone trying to pat themselves on the back and reassure the "right decision".

I wish online P2P wagers were legal in the US :) I was watching everything during the "crash". It's already back up to 170 in a few hours. Previous crash took months to recover.

I've been around the block and the same tired and worn arguments were being used at $10 then $20 and $100.

> later this year

I play a much shorter game than that. If it is justified, I will likely jump back in. This isn't the first time i've bought and then sold BitCoins.

It has run out of new buyers to drive it to that level. The support from those who believe in the currency isn't worth more than $100 - much less than that.

Everybody else is an amateur investor who read about BitCoin in USA Today and believes in it for the profit potential, not as a currency. These people scurried at the slightest smell of a price shock.

You sound like every person who believed in the non-bubbleness of every bubble. What justifies the price of Bitcoins? They have no real value before they're widely accepted, and that won't happen until the price is stable.

"Widely accepted" isn't a binary value. As adoption increases bitcoins gain value. That's what justifies the price.

The problem is deciding just how much adoption implies how much value.

What I find funny about most of the comments on here and everywhere else is that many of it reminds me of the investment bulletin boards and forums I've been frequenting over the years. There is always a lot of people talking the price up (since they are invested in it), and when there is a dip it is a 'buying opportunity' (so that others can buy and help the value of their holdings)

What to me the most striking is the firm belief that demand will keep on growing, just like people believed property prices will keep on going up since the population is growing and land is finite. Sure, but demand spikes can still price these things too high.

> What to me the most striking is the firm belief that demand will keep on growing, just like people believed property prices will keep on going up since the population is growing and land is finite. Sure, but demand spikes can still price these things too high.

I don't think anyone really expected it to go up in one straight line all the way to the value that it should have during mainstream usage.

Sure, but I don't think everyone takes into account that the price could collapse down to $20 or below and could take, say, over 5 years or more to get above $300 with a lot of volatility along the way.

There hasn't been a buying opportunity this attractive since less than 48 hours ago!

Before crying wolf, understand that bitcoin exchanges are unfortunately not battle hardened internet businesses. Two of the largest exchanges MtGox and bitstamp are both under DDOS. This may be an attempt by someone to make a large buy at a cheaper price. Due to lack of trading, prices are going downward.

However, BTC China is still trading at above $275! That's the beauty of bitcoin, it isn't restricted to just one region in the world.

Yes, the exchanges need to toughen up and it's sad that someone can manipulate prices so easily but bitcoin is still very geek centric and as long as geeks understand and hold their BTCs this can't succeed. Of course, now that regular people are jumping on the bandwagon it'll be interesting to see how events unfold..

> However, BTC China is still trading at above $275! That's the beauty of bitcoin, it isn't restricted to just one region in the world.

Bitcoin does have alot of advantages over existing currencies it, but this isn't one of them. I can buy and sell USD/CAD/AUE/GBP in many markets around the world

Yes, but that's because those governments have allowed their currencies to be free float currencies or something like that. Buying and selling an Indian Rupee for example is quite heavily restricted. Probably to prevent instability caused from speculation.

BTC never had that from the start because it's pretty much unregulated from the get go.

>"However, BTC China is still trading at above $275! That's the beauty of bitcoin, it isn't restricted to just one region in the world."

This is a flaw, not a benefit. I want to know what the value of my BTC are. Not what they are here, vs China, vs Canada, vs Australia...

>"Buying and selling an Indian Rupee for example is quite heavily restricted. "

What do you mean, "quite heavily restricted"? It's far harder for me to buy BTC, especially with these ongoing issues, than it is to buy Rupees in my forex account.

The Indian rupee is not a free float currency. That means that the reserve bank of India tries to make sure it doesn't fluctuate too much in value. While India is trying to move the currency towards free float, it isn't done yet. Basically, if anyone tries to speculate large amounts in rupees, the reserve bank will try to prevent fluctuations by speculating as well, or placing some sort of controls. This happened last year when the rupee started crashing and lost about 20%.

http://en.wikipedia.org/wiki/List_of_countries_with_floating...

In that respect BTC is similar to the USD/Euro/etc.

Also, Indian citizens are pretty heavily restricted from selling large amounts of rupees for dollars, etc. You need a lot of permissions and clearances for large amounts. (>$1M equivalent, earlier the limit used to be $1000!!)

Is it possible to buy from MtGox at $200 and sell in BTC China shortly thereafter at $275?

I know nothing about BTC.

Keep in mind you're playing 'musical chairs' here. If you do this with money you need and the music stops you might possibly be in deep trouble. Only do this with money that you don't actually need, and only do it if you understand all the risks that come with playing arbitrage over exchanges with flaky connectivity. If your initial trade goes through but your offload does not you have a problem.

If you do have a verified account at both, yes, it should be fairly simple. As of now though it's unlikely that your trades will go through.

Also, the price has started falling on BTC China as well.

Yeah but you need to perform the sales with matching funds on both trading platforms. Selling here and transferring BTC/USD to another trading platform is not the method due to the swings and time for verification.

Yup, the arbitrage opportunities are real. Just yesterday the Canadian exchange (cavirtex) was trading $40CAD/BTC higher than MtGox (CAD); if you had an account with both, and free money to spare, you could take a handsome profit (minus fees, usually around 3% each, so 6% roundtrip)

Doesn't that cause the currency to collapse - only limited by the transaction rate? With no transaction limit you can pump for infinite BTC.

If I can do one transaction per minute for an hour at 6% return that's 10 BTC -> 370 BTC using standard compound interest formula. In 10 hours you're a quadrillionaire.

Edit: of course it's limited by the trades available ...

In theory, yes.

It happens even in the real world. http://en.wikipedia.org/wiki/Arbitrage

Once the transaction is processed and you have your BTC, then yes. I don't know how fast MtGox releases BTC from the wallets they control though (or similarly, how long it takes BTC China to give you access via their controlled wallets).

As others have stated due to the DDOS your trades will have low likelihood of going through (in fact some people may be doing this as we speak).

I have been following BTC China along side MtGox, and it seems that BTC China is starting to fall also. Price was ¥1700 ($274) 15 minutes ago, and now it runs at ¥1,386.00 ($223). I'm still not sure if this is due to MtGox being DDOS or people panicking and selling everything.

Other exchanges tend to tail MtGox.

> However, BTC China is still trading at above $275

Spreads for fungible commodities are generally not good. They mean that either a) somebody is getting massively screwed by paying a price that's way off the mark, or b) nobody's actually trading, which means the asset is illiquid. That is, unless there is some real reason why a BTC should be worth double in China what it is in the US.

Perhaps a pseudoanonymous currency's value is correlated with the oppressiveness of the local govt? I can imagine circumstances where someone might be willing to pay a premium for BTC solely based on their desire for the privacy of their transactions.

But even if they are willing to pay a premium, at a $100 spread there should be a lot of traders willing to jump into the market which would close the gap, unless they are prevented from doing so. If there are capital controls they are surely on USD not BTC, so if anything USD should be more valuable within China.

It's not just MtGox and bitstamp. Pretty much every other exchange, as well as bitcointalk.org and trackers like bitcoinity are under attack simultaneously. It's a pretty obvious attempt at manipulating the market by causing widespread panic, so that the attackers can buy in at a conveniently low price the moment the attack is halted.

A genuine crash in which everyone was trying to sell at once might look like a DDoS. How do you know this is not that? (No opinion, just curious.)

How do they manage to make the DDOS only target buyers and not sellers?

Seems to me a DDOS would just make no bitcoins available for sale, but would not change the price. It doesn't matter if the price is low if they can't actually buy anything.

How can you confirm this?

Agreed, it is geek centric both in terms of early adopters, people who will support this even under attacks, and people who build it: https://news.ycombinator.com/item?id=5526118

Those people who converted their USD to BTC yesterday just got screwed. If only there were a central authority to regulate bitcoins volatility. oh wait...

Not necessarily. They might have bought to hold - expecting BTC to be worth more in a year. Not caring about day-to-day fluctuations.

That will depend on fundamentals - is it being used as a trading currency or store of value currency by millions of people for a long period, or not?

Those that cashed in, though, are in the money. Even if they bought a few days ago, they still made a 33% markup. And the real winner is the exchange, who takes a certain percentage for each transaction.

To everyone claiming that bitcoin isn't a currency, no shit!

Currency doesn't happen overnight, it's a process to get there. Just like anything revolutionary, it takes time before anyone knows what it will be come. By the time (with a very big IF) bitcoin becomes a viable currency, it's price won't be $200 anymore. It'll be at least a few thousand per coin and people will be transacting in micro bitcoins.

What bitcoin is going through right now, is puberty. If you invest early, you reap profits. If you invest after it is stable, there is very little profit to be made.

Love and give every new idea a chance until you've used it and have a personal reason to hate it.

Negative speculation is for chumps

I don't hate Bitcoin, in fact I think it's a really cool idea, but I think the mindset you are portraying is very bad. Ignoring all but positive speculation is pretty much the definition of a bubble.

How is positive speculation any more admirable?

It's the speculators! Where have I heard that before?

I have a personal reason to hate it: it thinks it's revolutionary when it's actually just... money.

It solves no problems because it carries greed with it.

"It" is just a system. It doesn't think anything. It's the people who think it's worth using it for something. So really you hate the people that use it.

Fair (though a bit pedantic :P).

And to be clear, I don't really _hate_ them (or the system). I had to phrase it that way as a rejoinder to his statement; but I am deriving _so_ much amusement out of this whole debacle.

It solves two huge problems merchants face

1. Ultra low transaction fees 2. No chargebacks/reversals

1 and 2 are features of Credit Cards and Paypal which make ads up to a sizable % to anyone trying to sell online.

It solves the problem of giving Libertarians something to feel good about?

greed, when directed with proper force, is how progress is made.

unchecked greed, of course, is when progress happens unevenly for society.

Someone supposedly sold $10+ million worth of bitcoins.

http://blockchain.info/address/1HQ3Go3ggs8pFnXuHVHRytPCq5fGG...

Well, transferred. Can't even say for sure if the BTC changed owners.

In case anyone else was confused like me, you click the green button in the bottom right to covert it to dollars.

That's probably a transaction resulting from MtGox's shuffling coins around.

Wasn't Bitcoin at $100 just a couple of days ago? I feel like I'm watching a penny stock; and, while I would have enjoyed something like a 10x stock value worth if I'd gotten in when I thought to, this variability is scary

There was a lot of BitCoin related press coverage. This is probably related.

Volatility is high which will harm the adoption of BitCoin by vendors, which will in turn drive the price down when people realize they can't do anything with their BitCoins, etc.

Bitcoin isn't really in the adoption by vendors stage yet. Two things are happening right now that are driving the price:

1) Adoption in politically sensitive markets (drug dealers, disaporas, people in corrupt states, etc) who have no other options.

2) The slow process of the finance world understanding what Bitcoin is, and how to value it.

The first is happening because there is demand for it. The second is happening because global finance organizations seek out and exploit any and all market opportunities.

I think what we'll see in the next few years is that #1 will keep growing, and #2 will cause wild swings in bitcoin prices as we develop the technologies and scholarship necessary to truly reckon Bitcoin's value.

At that point, the markets will have a good bead on the true adoption rate and the market mechanics, which will allow them to converge on a more stable value. Only then will Bitcoin start to become a good medium for broader consumer exchange.

That said, even if it's only ever used for politically sensitive transactions, and it never takes off as a consumer payment service, it will be a very big economy.

Am I the only one who thinks of Bitcoin as purely a speculative commodity which is leveraged mostly by the fact that it is in a financial grey area?

The currency itself is very grey, yes, however the transaction network is excellent and high-quality.

It's unfortunate that the currency so loudly dominates the news surrounding it. Personally I find the technological achievement of a major, reliable, and international transaction network more impressive.

"the transaction network is excellent and high-quality."

Really?

I thought the transaction network was already struggling with SatoshiDice and the volume of transactions it's caused? If that is the case then the network is going to have a lot of trouble coping with increased use in future.

No, that's pretty much a summary of the primary criticism of bitcoin as a currency.

I think you are largely correct (and no, you are without doubt not the only person to think that ;). However I do think that to some degree the ability to buy drugs with it plays a role in its value; it is not just a financial toy.

No, that's basically what it is.

We can laugh at Bitcoin but real guys, in real basements, are losing real fake money right now.

https://twitter.com/DavidClinchNews/status/32205973231779430...

A currency set up to be deflationary and swings at 50% daily? This sounds like a great investment - I also have a slot machine I'd like to get you to invest dollars on.

Basically this is watching a whole lot of people getting into FX game without even knowing they're in the FX game or even know about FX. I wonder if senior FX sharks sniffed blood and gamed bitcoin into this. My 2c says it's gamed exactly by FX pros, that's why I'm not into it.

See also: Tulip Mania in the 17th century.

http://en.wikipedia.org/wiki/Tulip_mania

Those who read that article to the end will learn that Tulip Mania isn't much like what they think it is (summary: http://www.reddit.com/r/Economics/comments/1bm9fl/the_bitcoi... ).

That's crazy, I have my money hedged into Beanie Babies.

Something bad is happening at MtGox - they quote a price of $156 for the last trade - yet my order at $200 was not filled and is still marked as "pending".

It's just lagging horribly, as in, taking more than one hour between receiving an order and executing it: https://data.mtgox.com/api/1/generic/order/lag

HILARIOUS.

Note: I think Bitcoin is a cool idea, and a cool implementation, but I've recently noticed it tends to create zealots who spew crazy whenever there is an article that questions its suitability for specific purposes (gold alternative, replace the US dollar, etc.)

From what I can tell, its the same type of people I used to associate with libertarian+goldbugs+ronpaul, for whom 'fiat' is the worst four-letter word in the English language.

This is amazing timing because I received a text message from my mother roughly 3 hours ago wondering if I mine bitcoin and if it is something she should look into.

If you ever wanted evidence that this was a bubble driven by speculation look no further than how closely it resembles the dotcom bubble, right up to Joe and Jane Mainstreet looking to get involved right as the whole thing crashes down.

Here is the thing I can't get around... If Bitcoin is open source, what's stopping someone from setting up a competing currency? Perhaps it could have the promise of a more optimal growth mechanism over time, or some other feature. Once it's in use, the value of Bitcoin drops quickly, no? And what if there are many Bitcoin-like currencies?

There are. Probably the #2 most popular coin is 'litecoin' (http://litecoin.org/). It uses scrypt instead of sha256 in order for it to be harder/more expensive to use GPU clusters and FPGA/ASIC hardware to mine them. Mining using GPU is still somewhat quicker/more efficient than CPU, but the delta is much less than exists for bitcoin.

There are other coins as well, but I'm less familiar with them.

Because a currency is basically a _convention_ within a _community_. Bitcoin has a _community_, whereas an arbitrarily cryptocurrency launched next week probably wont have, unless a lot of groundwork is done first.

Right, but it can be done so perpetual scarcity is a fallacy, no?

It is not clear to me why Mt Gox did not suspend trading when the order lag reached 20 minutes and/or once the webpage began returning "Database error" messages.

A lot of people are commenting that this will be remembered as the day btc crashed the second time. In my opinion a more accurate characterization would be that today is the day that Mt. Gox crashed.

When Mt. Gox was hacked, everyone assumed they were done, and folks like TradeHill were the future of BTC exchange. Mt. Gox came back, TradeHill got out (though they recently relaunched after several months), and I'm sure that led to a feeling of bulletproofness on Mt. Gox's part.

Just for reference: as of 2:26ET last trade I can get from the mtGox API was for $157.

EDIT:

2:52:00 last trade: $142

2:56:58 last trade: $135

3:10:10 last trade: $117.57

3:20:52 last trade: $106.00 (this is the lowest price I've seen)

3:42:ish trades between $125-$150

When real-time trading data is available from MtGox these sites show up to date charts and seem to be the most up-to-date.

http://coinlab.com http://bitcoin.clarkmoody.com/

Two of the largest exchanges seems to be under DDOS (mtgox and bitstamp). And it wasn't 6 hours it was more like 1 hour.

Is that the likely root of that fall?

Any idea who/why someone is DDOSing them? And why they are so effective at it? Can't they just use Cloudfront which supposibly 'fixes' DDOS issues?

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I'm not sure if shutting down is a great idea to prevent panic.

Most major financial exchanges, however, are sure.

Why should they prevent panic selling? They didn't prevent panic buying...

> I wonder why MtGox doesn't shut down for the day to deter panic selling?

Because the next morning everyone panics that MtGox feels they can lock you out of your money and withdraws everything?

So far there's just been mysterious lag every time the price starts to drop that stops people from actually selling...

That 'lag' is every single person trying to sell their holdings at once.

Just curious, but where are you getting this graph from?

http://bitcoinity.org/markets

Looks like paranoia is over. Spread returned to reasonable amount (1$) and price is steady going up - at the moment 190$. Fun day for Bitcoin holders. And someone made a lot of money today.

I'm sure it's been stated already... And well, I'm no Bitcoin fanboy, but didn't the price just go back up to what it was 2 days ago? That hardly sounds like a "crash" to me.

>didn't the price just go back up to what it was 2 days ago? That hardly sounds like a "crash" to me.

Every fucking time.

Oh look, Bitcoins are worth what they were two or three days ago. "BITCOIN CRASHED!"

Jesus people, really?

I signed up for mt.gox about a week ago, at that time the verification queue was >10,000 and I'm still about 5000 now. My plan was to buy one bitcoin to gamble with; presumably that was the plan of the several thousand others in the queue as well. So, based on that, with something like 1000 new verified (hence able to easily trade) people coming into mt.gox a day, I'd expect this to go on for a while...

So if someone decides to sell 1 bitcoin at $157, immediately the lowest price falls to $157, causes panic among other bitcoin-ers and they all start selling, is that how the market works? I am not sure what is going on, I placed an order to buy at $210 but that is still pending since yesterday.

No, whatever the current highest bid is will get executed, and you'll sell at that price, instead of $157 (assuming your offer is through the bid).

Just ignore the high/low prices and focus on the weighted average (223$ right now) which is a much better indicator IMHO.

I'm afraid bitcoin will always be too volatile to be used as a currency because it's not backed by anything, and can't be inflated/deflated. The government actually serves a useful function by controlling money in circulation, even though it's not backed by gold anymore, at least it's stable (as long as inflation rates are maintained) which allows it to be used as currency. Sure everyone complains that USD is being printed, but at least that gets people spending - using the currency, instead of hoarding/saving which is what's happening with BTC. At current levels of volatility, merchants will abandon the currency.

Perhaps there's a some theoretical solution out there, whereby the inflation rate of BTC is a function of volatility ... ?

This sudden drop sounds like an intentional attack on Bitcoin to lower the price. I have heard stories of hackers trying to sabotage the price of Bitcoin by forcing the price lower and then buying a whole heap of Bitcoin, sounds like one of those attacks finally worked. Looks like all of the Bitcoin publicity from the likes of Business Week and The New York Times has attracted some good old fashioned currency manipulators who want a piece of the pie.

Although there is no evidence to suggest this isn't an old fashioned bank-run, there appears to be quite a few reports of mining pools being attacked as well. Something is definitely going on here, but overall it won't stop the remarkable progress Bitcoin has made this year so far.

At this point I'm just flagging bitcoin price updates. We don't need these here.

To be fair, this isn't just a price update. This is an event that many people have been waiting anxiously to play out - if this were just a "Bitcoin is at $250" post, fine, I agree. But this is news - the bubble may be popping and that's newsworthy.

To buy a bitcoin you need to buy it from someone?

Does that mean a miner can only 'create' a bitcoin (or partial bitcoin) when there is a transaction.

So how did it start in the beginning? Someone would have had to be able to create bitcoins.

You get new bitcoins by creating a new block in the block chain (mining). If there are no other transactions in the block that's fine.

The first block is known as the Genesis block. You might find this useful: https://en.bitcoin.it/wiki/Genesis_block

This is interesting. But I think it's only test to see how they can actually crash it to zero later on.

And if we're voting here in Comments too, yes, let's have the Bitcoin submissions. Hacking a currency is interesting.

A downvote? Should I have capitalized They? As in all those in power who do not want to see alternative currencies succeed and have therefore infiltrated it to see what They can do to stop it? Does that make it better? (Yes, I expect a downvote now here too. Que sera sera...)

Dance, monkey, dance!

As I've said before, daily volume is the stat to watch. There's been a huge spike in trading today: 2.3m btc on Mt Gox alone, up from 150k yesterday. If markets stay this liquid (or some multiple of their normal liquidity) it'll be a hugely positive sign. We're up to $200m+ of BTC traded on Mt Gox today, and that's a huge fraction of the total value of bitcoin (~$1b). Great sign if volume stays high from here on: the volatility should be dampened quite a bit.

http://bitcoincharts.com/markets/

Mtgox engine has a 40 minute lag, things will eventually go back to normal.

I think the big question is whether normal is $300 or $30... or $3.

Seriously. It was at $30 a few weeks ago. It's hard to say what's normal when things are changing that quickly.

normal is when there's no lag. Now you can't trust those numbers

I have a casual interest in economics, markets, currencies, etc, but I don't understand why DDOS attacks would cause the price to drop as opposed to just causing trade and prices to halt altogether?

Someone else mentioned panic and that I suspect is right and part of the source for bitcoin that differs from traditional exchanges is that it is a much more risky currency at this point. It is very susceptible to panics, and rightly so. I don't think anyone could seriously invest in bitcoins; it would be the dumbest thing you could do with your money. You'd be better off eating your money and get the caloric value. I'm just being honest about it; maybe it will change one day.

People buy less, so those wanting to sell have to lower their prices, which makes others panic and sell at a low price, and there you go.

The CME (and other futures exchanges) avoid "DDOS"-like situations (basically, I'm talking about hyperactive algos taking up too much bandwidth) by penalizing them monetarily when they go over a limit. The penalties are large. The same could be applied to Bitcoin exchanges and would definitely improve performance. I'm not a buyer of cryptocurrencies, but if you're discounting the concept because of these events, your not considering the system's potential to evolve beyond them.

A good chart on price-spikes:

https://twitter.com/BarbarianCap/status/322071032934584320/p...

I know very little about BTC. I have a few grand and would like to but some at around 100.00 each in hopes of doubling and cashing out. Is there a good step by step for beginners?

I'm not worried about secrecy and track ability, more ease of use, being able to do this all from the comfort if my computer without trips to Walgreens or doing wire transfers. J have no intention of buying anything other than perhaps donations to reddit and Wordpress.

All I can think about is this image, that my macroeconomics professor showed to me : http://goo.gl/zBkCr

If I read that chart correctly, price fluctuated from 266 to ~100 during one day?!?!?

That tells a bit about the correlation of volume and volatility.

I'm not sure what's more upsetting, the fact that so many people are careless enough to create speculative positions in such an unconventional and abstract financial product on short notice, or that despite all the media hype over Bitcoins recently and what should've been foresight that this would happen, that I didn't try to catch the wave up myself.

Get ready for the massive pop sound...

I'm going to believe that will happen soon. However, right now, it seems to me that Bitcoin is really just going "SHIFT".

We have countries like Cyprus yanking money out of banks, so you get some people shifting their money out of country. So, what does it matter what a bitcoin costs if you are going to launder some cash out? 1:1 is a fabulous laundering rate.

Buy 200 Euro worth of Bitcoin from an account in Cyprus -> Instantly (or asap) sell for 200 Euro to an account in London. The current price doesn't matter as long as you exchange fast enough or at a profit.

How is someone in Cyprus going to buy bitcoins? If the exchange is out of the country, then it doesn't help, because you already have to move the money out of the country to get it to the exchange. If the exchange is within the country, then the rate offered is likely to be far less favorable than elsewhere in the world, because demand is higher.

If the exchange allows international traders then the price will equalise with the rest of the world due to arbitrage.

Arbitrage here implies the ability to move money in or out of the country using ways other than bitcoin.

I don't think you should coalesce money laundering and bank tranfers into one concept.

Can someone explain me why this could happen? Large amounts of BTCs moving at the same time? What are your theories?

> Can someone explain me why this could happen?

The market value of a speculative commodity can move for any reason at all, as its entirely a consensus among the people buying and selling as to what other people will be willing to accept for it in the future.

> Large amounts of BTCs moving at the same time

The charts from mtgox seem to show that volume picked up after the price had plateaued and maybe dropped a little bit and then volume shot up further again after it went through a trough and a lower peak and started back down again, and once it got down around 200 volume dropped briefly and then picked way up (with a lot more price volatility) again when it dropped further to below 175.

Intuitively say that the first volume pickup was largely profit taking from the plateau and maybe the slight drop, after the slight rebound and smaller peak, I suspect the longer drop was panic selling, and right now (or, given the apparent delay, an hour or so ago) the high volume, high volatility oscillation is a combination of panic selling, bargain shopping for investment, and people taking advantage of arbitrage opportunities between the low price at mtgox and higher prices on other exchanges. But that's mostly just guesswork based on the look of the price and volume graphs.

Where it goes from here...well, we'll see.

The simple answer is that sellers kept taking the 'ask' prices on the exchange until the only ones left were significantly lower. See this graph of current 'market depth' (existence of bids and asks): http://bitcoincharts.com/markets/mtgoxUSD_depth.html

In a double auction market, there are bids (offers to buy) and asks (offers to sell). The 'market price' is the last price at which a bid or an ask was taken by a market buyer. Taking a bid or ask removes that bid or ask, queueing up the next in line. In an illiquid market, there aren't many bidders and/or askers, leading to price volatility. In a liquid market (such as for US Govt bonds) there are many bidders and askers, meaning the price swings are much more likely due to a significant change in information.

Hence my contention that daily volume is the most important stat to watch on the BTC market. It's a proxy for market depth, which is a precondition for liquidity and relative price stability.

I guess most people were buying BTC because its value was rising really fast. Any price drop could cause them to lose their faith in it and want to sell them. And the drop (or at least growth end) was inevitable, because the price was rising faster than exponentially.

My theory is that it's far easier to sell bitcoins than it is to buy or mine them.

So I am wondering.

Perhaps Bitcoins volatility which seems to potentially be huge is a great win for people who study economics and bubbles?

I am aware there are several difference between a crypto currency like bitcoin and the rest of the currencies out there but for a layman like me it seems like it's a perfect tool for research?

It's a crazy un-regulated trading market were you can get in some old fashioned market manipulation from some smart dudes and no one can do anything about it.

Personally I think Tulips were prettier, but I know most of you coders like bits.

Thank you sillysaurus, I was about to go buy BTC at 270 to a local guy (I don't have any other way for buying bitcoin here). I forgot to check the price again, but I didn't forget to check HN ;)

Its going down hard now.

Well looks like it tried to come back (I saw it touch $200) but the media and twitter picked up its fall and started the panic more than ever. Right now at $140.

I don't understand how anyone would purchase Bitcoin 'to make a quick buck' when it was running at an all-time high. Good way to run up a deficit.

If it doesn't recover today I'm buying another bitcoin tomorrow!

UPD: Actually it did and now is traded >200$

It's now at $159. It was at $164 one minute ago, and $142 a minute before that. This volatility is making some people really really rich, I imagine.

It's also making it very dangerous to use BTC as a way to shuttle money.

Funny that the value it "recovered" to (~$200 from your post -- looks like its about $190 now) is the value that the original headline on this thread noted it crashing to from $266.

I predict that Bitcoin will be banned in the U.S. before it would be adopted by any countries.

Someone is making out like a bandit on this deal.

Surprise!

Called it (sort of): https://news.ycombinator.com/item?id=5522100

Actually, I have no idea whether there's any causality, and I certainly would not have predicted the effects to be felt today, as opposed to months later when a more mature margin system came into place.

last post i heard said it was $90.. bitcoin fluctuates more often than most girls i know change clothes.

See, it's times like this people should remember that bitcoin is not yet a currency and is rather a toy for things like http://bitcoinpyramid.com/r/91 and http://satoshidice.com, or for speculators.

Oh weird, you accidentally left your referral ID attached to the URL for the pyramid site.

It is sorta a currency; you can buy things in selected outlets. But sure, right now the large movements of bitcoins seem to be speculators who treat it as an investment for capital appreciation rather than a currency, and that's not sustainable until it has some objective worth outside of itself.

> bitcoin is not yet a currency

Bitcoin is just as much a currency as Ithaca Hours are.

http://en.wikipedia.org/wiki/Ithaca_Hours

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