[Bitcoin Sun] The economic impact of the Mt. Gox crisis

[carbonpenguin]

http://thebitcoinsun.com/post/2011/07/02/The-Economic-Impact-of-the-Mt.-Gox-Crisis

[billyjoeallen]

The Gox hack really screwed us all. The crash not only wiped out millions in Market cap, but destroyed the fragile trust that was developing in thousands of people. The real damage is what is not seen and can't be measured: the opportunities lost and growth that would have happened. 

We crucially need infrastructure development and that will be slower in coming now by orders of magnitude. The only up side I can see is that it allows us to buy more BTC on the cheap and to build businesses with less competition for a while.

[Hunterbunter]

It seems to me gox trading is still going fine?

I think more people have issues with people hashing 25% of the network for a couple days, then selling 10,000 shares without regard to price. Obviously completely $US driven practice, as they're exchanging around $100k per day, with probably little interest in bitcoins at all. Free to practice, but no one who wants to BTC can possibly like it.

People are surely concerned with gox (especially if they have a lot of money), but expect they've taken the time to fix their shit. I don't think security newbs will trust tradehill or btc7 any more or less than they do gox.

[Vandroiy]

"bitcoin's goods and services economy"

lol -- such a thing never existed in the first place. All facade; a few small deals as demonstration at best. The volume of actual trading was never anywhere near what would be required to sustain current prices.

I personally believe that the Mt. Gox hack only altered price by a little; we're still facing the chaos from the jump-to-30-then-drop-to-10 bubble. That was just stupid and most likely scared newcomers more than the downtime. The whole speculation game just looks much more unstable ever since that happened.

Sure, the hacks play a role. But that article is trying to blame a bit too much on Mt. Gox.

[Jack of Diamonds]

Vandroiy nailed it above.
Let's pull an arbitrary number out of thin air:

99.9% of the people who got into BTC lately, don't give a shit about bitcoins.

They want to earn fiat currency, and will dump their coins even at $0.30 per piece if it means they make 0.01$ profit. They don't want to 'earn' bitcoins or spend them.

They want to exchange them to any old currency as fast as possible even if it means crashing the market & going against their own interests in the long run.

All this idealistic pretending on the forum has clouded the judgement of wiser members.
It'd be better if we talked about things with their real names.

This mystical group of "other people" drive the market. 'They' are the majority of all speculators.
'They' couldn't care less if BTC failed in 2 weeks, as long as they can make a few bucks for 2 days.

That is reality.

[proudhon]

We crucially need infrastructure development and that will be slower in coming now by orders of magnitude. The only up side I can see is that it allows us to buy more BTC on the cheap and to build businesses with less competition for a while.

Of course, we can never know if this would have naturally been addressed in course of time, but security needed to be better; and the hackcrash compelled MtGox, other exchanges, and other bitcoin service providers to take a serious look at security.  Yes, it sucked.  But I think the whole project is the better for it.

[billyjoeallen]

Vandroiy nailed it above.
Let's pull an arbitrary number out of thin air:

99.9% of the people who got into BTC lately, don't give a shit about bitcoins.

They want to earn fiat currency, and will dump their coins even at $0.30 per piece if it means they make 0.01$ profit. They don't want to 'earn' bitcoins or spend them.

They want to exchange them to any old currency as fast as possible even if it means crashing the market & going against their own interests in the long run.

All this idealistic pretending on the forum has clouded the judgement of wiser members.
It'd be better if we talked about things with their real names.

This mystical group of "other people" drive the market. 'They' are the majority of all speculators.
'They' couldn't care less if BTC failed in 2 weeks, as long as they can make a few bucks for 2 days.

That is reality.

Fiat currency is only worth what you can trade for it. If you can get the same thing or more by trading BTC, then there is no need to sell BTC for USD.  That's a big "if", but I and others are working to make it happen.

[Jaime Frontero]

the exchanges need to separate their trading from their assets.

all assets should be held off-site, and updated every so often.  if the site is hacked or goes down, the assets are unaffected and can be gotten out.  yes - with the exception of the vanishingly small percentage that are actually involved with any issue.  there's no reason that trading can't be run against a real-time ledger, rather than against real assets.

80% of the Bitcoin economy was frozen for weeks by the MtGox issue.  there's no excuse for that.  people should have been able to get their assets out within minutes after it happened.  and trading would have resumed with barely a blip, somewhere else.

[dinzy]

the exchanges need to separate their trading from their assets.

all assets should be held off-site, and updated every so often.  if the site is hacked or goes down, the assets are unaffected and can be gotten out.  yes - with the exception of the vanishingly small percentage that are actually involved with any issue.  there's no reason that trading can't be run against a real-time ledger, rather than against real assets.

80% of the Bitcoin economy was frozen for weeks by the MtGox issue.  there's no excuse for that.  people should have been able to get their assets out within minutes after it happened.  and trading would have resumed with barely a blip, somewhere else.

But then Gox would have lost it's competitive edge.

[rizzn]

"bitcoin's goods and services economy"

lol -- such a thing never existed in the first place. All facade; a few small deals as demonstration at best. The volume of actual trading was never anywhere near what would be required to sustain current prices.

I personally believe that the Mt. Gox hack only altered price by a little; we're still facing the chaos from the jump-to-30-then-drop-to-10 bubble. That was just stupid and most likely scared newcomers more than the downtime. The whole speculation game just looks much more unstable ever since that happened.

Sure, the hacks play a role. But that article is trying to blame a bit too much on Mt. Gox.

I think your cynicism blocks your understanding of the issue - if there was a reasonable way to spend BTC on things people valued (like groceries, gas or entertainment), they wouldn't be so eager to cash out.

Let them trade and keep the market active while the bitcoin economy gets its act together on the commerce side. It's only a matter of time, really.

[Babylon]

Vandroiy nailed it above.
Let's pull an arbitrary number out of thin air:

99.9% of the people who got into BTC lately, don't give a shit about bitcoins.

They want to earn fiat currency, and will dump their coins even at $0.30 per piece if it means they make 0.01$ profit. They don't want to 'earn' bitcoins or spend them.

They want to exchange them to any old currency as fast as possible even if it means crashing the market & going against their own interests in the long run.

All this idealistic pretending on the forum has clouded the judgement of wiser members.
It'd be better if we talked about things with their real names.

This mystical group of "other people" drive the market. 'They' are the majority of all speculators.
'They' couldn't care less if BTC failed in 2 weeks, as long as they can make a few bucks for 2 days.

That is reality.

People with that motivation will lead to stable prices (at least if they are any good at speculating)

[Vandroiy]

People with that motivation will lead to stable prices (at least if they are any good at speculating)

lol² ... if they are any good at speculating. I'm sorry to inform you this doesn't appear to be the case.

The only thing this is leading to is all the money accumulated with the maybe 1% that actually know how to speculate. Problem is, unless these people are rich from the start, they will continuously withdraw money in fiat due to A) the Kelly criterion forcing them to not risk too much at once and B) them withdrawing whenever things don't look too good from a fundamental perspective. What does this do for Bitcoin? Just reduces purchasing power.

The speculation maniacs serve mainly one purpose: push media attention. If they fail at that, long-term value doesn't change due to these guys buying -- unless they really never ever sell again. And currently, they seem to fail at drawing attention. Forum activity, Google trends, News mentions, Web reach: all down during the past week. If another such drop happens, there will be little reason for day traders to remain active at current price.

[Babylon]

People with that motivation will lead to stable prices (at least if they are any good at speculating)

lol² ... if they are any good at speculating. I'm sorry to inform you this doesn't appear to be the case.

The only thing this is leading to is all the money accumulated with the maybe 1% that actually know how to speculate. Problem is, unless these people are rich from the start, they will continuously withdraw money in fiat due to A) the Kelly criterion forcing them to not risk too much at once and B) them withdrawing whenever things don't look too good from a fundamental perspective. What does this do for Bitcoin? Just reduces purchasing power.

The speculation maniacs serve mainly one purpose: push media attention. If they fail at that, long-term value doesn't change due to these guys buying -- unless they really never ever sell again. And currently, they seem to fail at drawing attention. Forum activity, Google trends, News mentions, Web reach: all down during the past week. If another such drop happens, there will be little reason for day traders to remain active at current price.

It is a good thing for the people who are actually good at speculating to cash out, that keeps the price of bitcoins from going higher than it should.  They also know they can make money by playing the market, so they aren't going to cash out entirely, they are going to take profits and stay in the game.  Unless the market becomes too stable for them to take profits, at which point it will be much more useful for merchants.

The percentage of successful speculators is going to grow because the unsuccessful ones will run out of money while the successful ones will not.

[flashy]

people should have been able to get their assets out within minutes after it happened.  and trading would have resumed with barely a blip, somewhere else.

Why, so the people who had hacked other people's passwords could grab tons of BTC and trade somewhere else? There were hundreds of accounts with unsecured passwords cracked within hours, 10% of them probably had 1 or 2 or 10 BTC on it. I had what I always considered a secure password and mine was hacked after a day. Yeah, it F@&ked the markey, but freezing it was the best thing they could have done.

[niemivh]

Vandroiy nailed it above.
Let's pull an arbitrary number out of thin air:

99.9% of the people who got into BTC lately, don't give a shit about bitcoins.

They want to earn fiat currency, and will dump their coins even at $0.30 per piece if it means they make 0.01$ profit. They don't want to 'earn' bitcoins or spend them.

They want to exchange them to any old currency as fast as possible even if it means crashing the market & going against their own interests in the long run.

All this idealistic pretending on the forum has clouded the judgement of wiser members.
It'd be better if we talked about things with their real names.

This mystical group of "other people" drive the market. 'They' are the majority of all speculators.
'They' couldn't care less if BTC failed in 2 weeks, as long as they can make a few bucks for 2 days.

That is reality.

Well according to the numerous libertarians and/or Austrians there is nothing wrong with speculation.  It's good, they tell me.  If something is good in small doses it's usually good in bigger, so the more speculation the better.  (according to the majority of people on this forum)