Why did the Bitcoin crash?

[rickylford]

I recently got into bitcoin after following it for quite a long while, and I never really understood how bitcoins crashed when they did. I don't even know if calling it a "crash" is right either. But I remember hearing a story a few months/six months or so ago that was going on about how the value of bitcoin went down DRAMATICALLY. What caused it? Is it bound to happen again?

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[DannyHamilton]

. . . Is it bound to happen again?

Bitcoin is traded in an open market. Like many stocks and other currencies, it is worth only what someone else is willing to pay for it.  If it becomes popular and lots of people want it, but only a few people are selling the bitcoin that they have, then the price will go up (those that have it will avoid selling at a low price, knowing they can get a higher price).  If there is a sudden flood of supply and/or it loses popularity, then the price will go down (those that want it will avoid buting at a high price knowing they can get a lower price).

It is impossible to predict what the exchange rate will be at any point in the future.  If you believe that bitcoin will continue to gain in popularity at least as fast as it has in the past, then you'll expect the price to continue to rise.  If you believe that bitcoin will fail to catch on, and will be abandoned, then you'll expect the price to drop.

[DannyHamilton]

. . . But I remember hearing a story a few months/six months or so ago that was going on about how the value of bitcoin went down DRAMATICALLY. What caused it? . . .

There have been a multiple times that the value has temporarily dropped in the past.  The most significant drop probably being between June 2011 and November 2011.  You can see the historical exchange rate here:

http://bitcoincharts.com/charts/mtgoxUSD#tgMzm1g10zm2g25zl


This past August (2012) there was a period of volatility where the price rallied up to a bit over $13 per bitcoin from about $9.50 on August 1, and then dropped back to  a bit over $9 between August 16 and August 20, working it's way back up and ending August at over $10 per bitcoin.  If you just look at Aug. 1 and compare it to July 1 and Sep. 1 you'll see the price go from a bit under $7 to a bit over $9.50 to just about $10.  So is the drop from $13 to $9 over 4 days in mid August a "crash"?

http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2012-07-30zeg2012-08-27ztgMzm1g10zm2g25

[ProfMac]

. . . But I remember hearing a story a few months/six months or so ago that was going on about how the value of bitcoin went down DRAMATICALLY. What caused it? . . .

There have been a multiple times that the value has temporarily dropped in the past.  The most significant drop probably being between June 2011 and November 2011.  You can see the historical exchange rate here:

http://bitcoincharts.com/charts/mtgoxUSD#tgMzm1g10zm2g25zl


This past August (2012) there was a period of volatility where the price rallied up to a bit over $13 per bitcoin from about $9.50 on August 1, and then dropped back to  a bit over $9 between August 16 and August 20, working it's way back up and ending August at over $10 per bitcoin.  If you just look at Aug. 1 and compare it to July 1 and Sep. 1 you'll see the price go from a bit under $7 to a bit over $9.50 to just about $10.  So is the drop from $13 to $9 over 4 days in mid August a "crash"?

http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2012-07-30zeg2012-08-27ztgMzm1g10zm2g25

I traded Second Life Lindens (SLL) against the dollar (USD) for a couple of years.  The second chart linked here looks like familiar territory.  From my perspective, it is good if the price fluctuates a bit all the time.  Of course I look for patterns.  The SLL would increase in value on Friday and drop in value on Sunday.  I interpreted this as people with day jobs purchasing SLL for a weekend in-world, and the merchants selling after the weekend to have the income in USD.

Although I have never examined the Bitcoin trading, I expect that there are rule of thumb patterns there as well. 

External events also matter.  I would think that the value would drop with the imminent release of ASIC miners.  It seems to be doing the opposite with the uptick in the number of USD / Bitcoins beginning about Jan 15 or so. 

Thanks for listening.  Still posting to get out of noobie jail.

[Got BTC]

I honestly think there's something bigger that's controlling BTC than just the demand. I think the amount of demand has little to do with what the prices are as RIGHT NOW. If you think about it someone could be making millions on the rises and falls of BTC, I honestly think it has something other to do with demand/rarity/BTC mining saturation.