. . . 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#tgMzm1g10zm2g25zlThis 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#rg60zczsg2012-07-30zeg2012-08-27ztgMzm1g10zm2g25I 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.