Bitcoin Forum

Today and yesterday I saw a lot of reports about the price drop. It appeared on slashdot (http://slashdot.org/story/11/10/19/136259/value-of-bitcoin-crashes), arstechnica (http://arstechnica.com/tech-policy/news/2011/10/bitcoin-implodes-down-more-than-90-percent-from-june-peak.ars), ieee (http://spectrum.ieee.org/computing/networks/the-worlds-first-bitcoin-conference), all over twitter (http://twitter.com/#!/search/realtime/bitcoin), etc.

Could this mean that new people will be entering the market and drive prices up (specially if they think that right now is a buying opportunity)? I wasn't here around June when the media exploded with bitcoin news so I am not sure if this resembles what happened at that time...

There's even a nice article in the Guardian

http://www.guardian.co.uk/technology/2011/oct/18/bitcoin-value-crash-cryptocurrency?newsfeed=true

You can't get more mainstream than that.

Perhaps it piqued a few people interest to look at bitcoin - I know I first became interested after the mt.gox crash. Bad news is sometimes the only way people hear about something.

Well.. it wasn't the first time media said bitcoin crashed.. This is something like third or fourth time since the mtgox crash. Followed by mybitcoin crash.. and so on..

Nontheless, there are plenty of negative coverage about bitcoin that are copy pasted all over the net once again. I hope it does grab some people's interest.

Right and notice how the price has continued to fall despite the media attention.  Call me crazy but I've got this hunch that the media attention we've been getting since June isn't bringing enough new people in to stop it from crashing, or, rather, continuing to crash.

You guys are still too optimistic. When people read reports about how the price crashed from $30 to as low as $1 dollar, people want to run away from this, not start buying into it. Consumers are not stupid, they know about catching falling knives.

You stay away from something that has crashed like this. There is a reason it has crashed.

for myself I dont care what the value of it is, its still a great idea that has to happen in one way or another, its still the most efficient way of sending money internationally, among other things, and  in the meantime its still a great market for speculating, better then ever it seems to me

I have a feeling that for the recent drop, those that can or will run away has already run away.  There isn't much room to fall anyway

You see it all wrong!
It is a clear signal that something that is now worth $2 has the potential to be worth $30.
That's a clear -Buy-, i'd say.

God, the stupidity. There is nothing efficient about losing money between the time you convert dollars into BTC and the time you get your goods and services. It is an extremely inefficient way to preserve value.

I must be stupid because your going to have to explain the losing money part. how will you lose money in that time? after you send the money the other person has it, how can you lose on it? same as with normal money, just that the other person gets it straight away and no one pays a fee. try that with paypal or a bank check

You know that in 1983, the video game market completely crashed? It went from 3 billions $ to 100 millions$ in 1985. It's a 97% value drop. The crash allowed an opportunistic Nintendo to enter the market and completely dominate it. Check the state of the video game market after that...

Crash is an opportunity for newcomers. The only people who lose are the ones who were in the market during the crash. All those who where not in it didn't lost a single dime. They might even find the market interesting, because of its low value, it let those newcomers to come in and try things at a low risk.

Yes, from 32 dollars to 2 dollars is sure to attract lots of new blood.   ::)

Some of you need to get a grip on reality. 

Right -- since it's more or less an instantaneous transfer, if you're basing the value on standard currency (like USD), if both parties agree upon a price, then the transfer happens, as long as the BTC is EXPEDIENTLY converted to USD or whatever other currency, no value is lost.

look on the bright side, its still worth twice as much as a dollar ;D

Won't be so after this weekend. There are fundamental problems in the Bitcoin economic philosophy that needs to be checked.

I doubt that will be the case for long. I decided to sell 30+ BTC just now because I am
tired of holding them and watching them lose value. Better to get something out of it now
then to see it worth 50% less in a couple of weeks.

I can always mine more since I get free power but even then it is quickly becoming not
worth it while the hardware depreciates.

And some of you need to get a grip on history...

Between 1634 and 1638, there was a massive bubble in tulip prices. The bubble popped, the market corrected and the tulip industry hasn't crashed & burned. You can still buy tulips bulbs today for a reasonable price.

Between 1719 and 1720, shares of the French Mississippi Company (a company which mostly played games buying government debt) experienced a massive bubble, which popped, the market corrected and FMC couldn't ride out the correction and so they failed. They went defunct in November of 1720.

In 1720 as the FMC was failing, the South Sea Company was created in England, similarly playing games with government debt, and actually began to intentionally inflate stock worth via a fraudulent bubble scheme - this became particularly common during the years to follow. The bubble popped, the market corrected and the investigation which followed led to the arrest of many corrupt politicians and businessmen and the seiqure of over 2 million pounds from SSC directors.

The entire U.S. stock market experienced a massive bubble between 1924 and 1929 as the massive expansion of consumer credit was used to buy stocks. The sudden increase in demand could not be sustained, however, as the demand was based on debt and when debts needed repaid, the bubble began to deflate. On Sept. 3, 1929 the Dow reached its high and on Oct. 24 (Black Thursday) the bubble popped. The market corrected (in the form of the great depression) and while a great many companies went bankrupt, many also survived much better for the trial. The economy in general recovered.

Between 1984 and 1989, Japan experienced a massive economic bubble mostly due to the combination of loose monetary policy, increase in money supply and decrease in interest rates. Massive speculation inflated the bubble to its peak in Dec. 1989 at which point the bubble popped, the market corrected and Japan experienced lower growth than any other major industrial nation for most of the 1990s. Eventually, though, they recovered and are now a major industrial nation once again.

Between 1995 and 2000, the U.S. internet sector experienced a massive bubble commonly referred to as the "dot-com bubble" fueled by massive speculation and over-confidence in the ability of internet companies to turn a profit, at its peak many companies actually had no source of income aside from venture capital and IPO profits, which is obviously unsustainable. On Mar. 10, 2000 and continued to decline until almost 2003. The market corrected, bad companies went defunct, good companies survived, and the market in general has recovered. The internet is still a powerhouse and still home to businesses of massive scale and profitability.

The take-home from this is twofold:

1. All bubbles pop. The very definition of a bubble requires "unsustainable growth" which necessitates a "market correction" often to below reasonable value for the commodity in question.
2. Some bubbles destroy their subject, others can be survived. The dividing line between those commodities that live and those that die seems to be the merits of the commodity itself. Tulip bulbs were a viable product before the bubble, so they survived to be a viable product after. FMC and SSC were both startups playing financial games with government debt, both perished when their bubbles burst. SSC and its fellow 1720s bubble companies were largely scams and so obviously died when the bubble burst. The entire U.S. and Japanese stock markets represent a massive array of companies, many of which weren't viable and many of which were - the bubble's bursting took most of the non-viable companies down with it while preserving the good (though some bad survived and some good perished, to be sure). The Internet is a tremendous force, and internet business has too many benefits to simply die in a bubble.

In all of these cases things with good fundamentals survived their bubbles while things with bad fundamentals did not. There is no question any more that Bitcoin price was subject to a speculative bubble - the question is: do you believe its fundamentals are strong enough to survive the correction we are currently in the midst of?

enmaku - well said and nicely presented.

I agree! Great post enmaku. You explained exactly what I meant.  ;D

yep, and its great for buying US$ too, its going to be around for a while is my guess

Agreed.


When you can buy a DVD for .5 bitcoins, and then you can't even buy a candy bar for .5 bitcoins, you've lost "money" (if you could even buy those with bitcoins). Forget USD. If you never switch out of Bitcoins, you will have lost the ability to buy the same things you could have in June by doing nothing but just sitting there with your bitcoins. Seriously, this isn't a hard concept.

But I understand this is what happens when you get "newcomers" who understand nothing of the history of currency, and why it is the way it is today. If you were around in the days (or at least read about them) where discoveries of giant gold caches devalued your currency so much you didn't know what the price of dinner was, you'd understand. If you ever watched speculation destroy markets and lives, you'd understand. But you don't, and you're taking an insanely complex financial system evolved to limit the damage of non-fiat currencies, undercapitalization, etc. and dumping it on BTC without any knowledge of why we have what we have.

I think the awesome part of bitcoin is that it has really surfaced what the whole point of fiat, regulated currency, exchange regulation, reversibility, and non-anonymous transactions are. Sad to say that it had to be all of bitcoin's failings to make it great.

actually you got a dvd for the price of a candy bar, I fail to see whats wrong with that. and why forget US$, isnt that the solution to your problem? and the rest I cant really follow either but never mind

I'm feeling nice. If you bought .5 BTC for $15 in June, you could have bought a DVD with that. If you didn't, and decided to wait around until today, doing nothing with your BTC but sitting it or spending it for goods, or selling goods for BTC (i.e. not ever worrying about USD or fiat dollars or exchange prices or anything), you wouldn't be able to buy a candy bar for .5 BTC. You might not care about the USD/BTC exchange rate, but everyone else does, because it's the only way to compare its value to the goods it can buy.

tldr; If you do nothing with your bitcoins but use them, in June you could get a DVD, today you could get a candy bar for the same exact amount. You did nothing but lose. I promise an 86% loss in value is way, WAY beyond any transaction fees you care about.


Oh, I know.

http://upload.wikimedia.org/wikipedia/commons/d/d8/Tulipomania.jpg

The above is a page from a 1637 Dutch tulip bulb catalog. The tulip pictured is known as "the Viceroy" and sold for between 3000 and 4200 florins, about ten times the annual wage of a skilled craftsman. By May of 1637 the bubble had popped and "the Viceroy" was worth, well, about what you'd expect a tulip bulb to be worth (read: significanly less than the entire annual wage of a skilled craftsman).

Read the phrase "I can't pay ten peoples' annual wages with one tulip bulb any more, and that's a problem!" - did you get through it with a straight face? Do you see the problem in your argument?

Yes, volatility is a bad thing for a currency seeking widespread adoption. Bubbles are worse. Better to have the volatility of the bubble collapsing than for it to continue growing until it destroyed a lot of lives and economies with the pop.

So, the news is: burst bubble, major exchange hacks, bitcoin bank disappearing, wallet stealing malware, 90%+ fall in value from peak, negative media sentiment, web sites claiming bitcoin is a pyramid/ponzi/etc scheme.

This is meant to attract brand new investors?

Comparisons to share market crashes or industries aren't genuine.  Bitcoin doesn't produce anything, it does not represent an entity making anything and is used by very few people.

Not really. Most of the news are just 90% price drop. Some people see it as an investment opportunity, but maybe that's not the feeling of the majority of the speculators...

Yeah, we don't disagree, besides the silly attempt to suggest that tulips were ever conceived of as an actual currency. I guarantee there would be riotous applause around here at the suggestion we all receive our salaries in bitcoin.

In terms of Bitcoin's ability to store value (because that's one thing a currency is for), it has sucked, royally. I don't know if it will ever stabilize, but I see some serious hurdles for wide adoption:

• Volatility has to disappear for a long time before non-speculative people and merchants will trust it for longer than a couple days.
  
• Purchase into and out of BTC needs to remain easy and cheap. It's currently not, even with MtGox. Takes a week, minimum.
• With widespread adoption, you will attract regulatory attention. With attention, you'll get conflict. The US gov't does not want a competitor to the USD that can't be manipulated.
  
• There is a realistic market cap lower limit, given Bitcoin's publicity. Undercapitalization leaves it highly vulnerable to market manipulation at best, attack at worst.

Does anyone bother to even think about these things?

Right. Not all publicity is good, especially in financial markets where people can sell as well as buy.

See this clip from Fun with Dick and Jane (http://www.youtube.com/watch?v=rdf-jKsKA9k). Now that's negative publicity.

Wasn't suggesting tulip bulbs were ever conceived of as a currency, but it is easy to argue that in its present state Bitcoin operates more like a commodity, which tulip bulbs certainly are/were.

I agree with all of your bullet points and yes, some of us do bother to think about these things  ;D

According to http://bitcoinstats.org/count.html (http://bitcoinstats.org/count.html) there are about 270,000 Bitcoin clients scattered about the web. Now granted that's not unique users, but even if we assume two clients per user that's 135,000 users - a scant .002% or so of the world's population or about .04% of the U.S. population - that might seem like a big number and I'd love to see any project I work on get that kind of adoption, but realistically we are a very small group. Part of what secures the value of, say, the U.S. dollar against massive volatility is that some 307 million people are participating in *that* project and they all agree over a short-term at least what a dollar is worth. In order for the dollar's value to make a significant move, a huge number of people must gain or lose faith in it: 5% of the U.S. Dollar's market is 15.35 million people, 5% of our market is 6,750. Inciting panic in or otherwise manipulating several thousand people is significantly easier than tens of millions.

We need adoption to create stability and we need the stability to drive adoption. The trick is to promote our way to the "tipping point" at which volatility is acceptable enough that further adoption drives itself. Unfortunately I have no idea how to reach such a point. It's vital that we figure this out at some point, so I for one am holding out hope that folks with a stronger economics or marketing background than myself will come up with something.

I think you're sliding down a slope into an argument for BTC as a currency.  It may not have all the makin's for a good currency as of yet, but it is definitely a nice tool for transferring funds in a pinch when it would otherwise be impossible or greatly more difficult.

Now you're sounding like Atlas. You don't "market" a good currency. If it works better than current options, it will be adopted. The other way is to command it into existence. But you need a monopoly on violence to make that work.


Potentially. As in, if its fundamental problems were solved, it has a few nice features. The point is I can't see a moment where these problems are ever outweighed by its nice features. The first two bullets imply the problems with the last. The third is its own self-defeating issue.

I can't say with any certainty that the third could happen, but I think the lawsuit in France is a good starting indicator about who will care with a large BTC presence. I can't say with certainty that the fourth will happen, but all of the altchains are a nice starting indicator about what could happen with low market capitalization.

Google trends for Bitcoin is now at its highest level for a long while. http://www.google.com/trends?q=bitcoin&ctab=0&geo=all&date=mtd&sort=0

I definitely see this as a good thing, Bitcoin is so small and insignificant that any attention is overall a good thing. This might even spark a short term bounce in price, not only because of this but the technicals are looking good and $2 has been a very strong support level so far.

Excellent posts by enmaku btw, to me it's just funny how some people think this is the death of Bitcoin. That is absolutely clueless thinking. Bitcoin hasn't even started yet. This price crash and all the bad news are a massive challenge for Bitcoin, that's very true, one that Bitcoin might or might not overcome. But it's not the end yet, not even close.

My bet is on Bitcoin recovering eventually, probably next year. But it'll be a long road for Bitcoin, building a new type of economy takes many years.

This point can't be stressed enough, I suggest that people who don't really know what to think of all of this to look at the whole thing from a different perspective. What is very common with all the negative talk is timeframes, it's all focused on the short term. I hate that kind of thinking, but even I get caught in it at times.

Don't get too caught in it. Bitcoin is only 2 years old, it's not going to be judged based on what happened during the last 4 months, it's going to be judged based on what development happens from year to year. Look at what Bitcoin was a year from now and look at what it is now. Do the same thing in 12 months and that'll be an indicator that actually matters.

I'm willing to say Bitcoin has issues if it is in worse shape in 12 months than it is now. In fact it probably has very big problems if that's the case. But I can also say that I highly doubt it. 

Sorry but that graph is completely meaningless. I too am a believer in google trends, but the scale on that graph is so small it is no difference at all.

It took WWII to restart the economy, and the DJIA in real dollars didn't recover until 1959. (http://www.itulip.com/realdow.htm) Thirty years.

Japan still hasn't recovered from the 1989 crash. Not even close. The Nikkei peaked just below 40,000, and now it's under 9000. That's without inflation adjustment. Japan's GDP peaked in 1995, and still hasn't come back.  In 1995, they were close to catching up with the US. Now, China is about to pass Japan. (http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:JPN&dl=en&hl=en&q=japan+gdp+graph#ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_mktp_cd&scale_y=lin&ind_y=false&rdim=country&idim=country:JPN:CHN:USA&ifdim=country&hl=en&dl=en)

If it survives. Take a look at the altcoins. 51% attack is an unavoidable feature. So is low market cap with many eyes (a scenario that did not exist last year). Things have changed, Technomage, and projecting the irrelevant past onto the new future is a losing proposition.

But don't take my word for it. Invest!