[Forbes] The Bitcoin Crash

[tacotime]

The Bitcoin Crash
Timothy B. Lee

Bitcoin, the world’s first peer-to-peer digital currency, has lost almost half of its value against the dollar since the start of August, falling from $13.50 to around $7.

It’s now looking increasingly likely that the record-high price of $32 on June 8 represented the peak of a speculative bubble that is now slowly deflating. The interesting question is: where will the price decline stop?

http://blogs.forbes.com/timothylee/2011/08/07/the-bitcoin-crash/

[1715287276]

1715287276

[1715287276]

1715287276

[1715287276]

1715287276

[joepie91]

The puzzling thing about Bitcoin, which I pointed out back in April, is that the currency doesn’t seem to have any fundamental value at all.

Then he doesn't appear to have looked into it very much.

The fundamental value of Bitcoin is Bitcoin itself - a decentralized currency that no single entity can seize control over in any (probable) way.

[JCbit]

agreed
this guy probably has no idea of the fundamentals of bitcoins
he just hears about this so called crash, and agree's with it because its the most likely pattern. (in his mind)
how can he lose telling people about a sinking ship, as it appears to be sinking.

i hope most btc users are smart enough to distinguish this.
After all its only a BLOG therefore this authors OPINION
we need confidence in btc more then anything right now, and articles like this written by people who did minimal research just hurt the community and value.

[stsbrad]

"In contrast, there’s no significant community of people who conduct commerce exclusively (or even primarily) in Bitcions."


He didn't even proof read his article before posting.

[enquirer]

The fact that there are 300 million Americans who use dollars for their day-to-day transactions creates a floor for the value of dollars.

soon we learn where that floor really is

[evoorhees]

The fact that there are 300 million Americans who use dollars for their day-to-day transactions creates a floor for the value of dollars.

soon we learn where that floor really is

+1 

[JoelKatz]

First, let me just say that I fully agree that the properties of the bitcoin system create a floor value that typical private currencies wouldn't have. However, I do think that there are really only two possible explanations for the crash:

1) A short-term speculative bubble has burst. The price has dropped to one based almost entirely on the current usefulness of bitcoins as a medium of exchange and long-term investment vehicle. The price will shoot back up if there's another speculative bubble. Otherwise, it will gradually rise or fall as the value and usefulness of the bitcoin system changes due to adoption, competitors, and so on.

2) Unique events (early adopters selling, stolen bitcoins being dumped, etcetera) have pushed the price way down. If not for these, the previous increases (whether due to speculation, the usefulness of the bitcoin system, or whatever) would have continued, and as soon as this stops, the price of bitcoin will begin sharply increasing until the next such unique events.

Most likely, the truth is between these two.

Or, in summary, once this unique event ends, the price of bitcoins will go up, go down, or stay about the same.

[cunicula]

First, let me just say that I fully agree that the properties of the bitcoin system create a floor value that typical private currencies wouldn't have. However, I do think that there are really only two possible explanations for the crash:

1) A short-term speculative bubble has burst. The price has dropped to one based almost entirely on the current usefulness of bitcoins as a medium of exchange and long-term investment vehicle. The price will shoot back up if there's another speculative bubble. Otherwise, it will gradually rise or fall as the value and usefulness of the bitcoin system changes due to adoption, competitors, and so on.

2) Unique events (early adopters selling, stolen bitcoins being dumped, etcetera) have pushed the price way down. If not for these, the previous increases (whether due to speculation, the usefulness of the bitcoin system, or whatever) would have continued, and as soon as this stops, the price of bitcoin will begin sharply increasing until the next such unique events.

Most likely, the truth is between these two.

Or, in summary, once this unique event ends, the price of bitcoins will go up, go down, or stay about the same.

In 1), do you have a reason for picking "has burst"/"has dropped", rather than "is bursting"/"is dropping"? I would expect a more careful choice of words from you.

[JoelKatz]

In 1), do you have a reason for picking "has burst"/"has dropped", rather than "is bursting"/"is dropping"? I would expect a more careful choice of words from you.

I'm stating the two theories as the extremes. The truth is likely in between those extremes.

[HappyFunnyFoo]

You guys are in the DENIAL phase, since you're denying reality.  Have fun @ $1 / bitcoin soon

[Raoul Duke]

You guys are in the DENIAL phase, since you're denying reality.  Have fun @ $1 / bitcoin soon

Yup, I will have a lot of fun with $1/bitcoin...
I'll have fun buying it

[cunicula]

In 1), do you have a reason for picking "has burst"/"has dropped", rather than "is bursting"/"is dropping"? I would expect a more careful choice of words from you.

I'm stating the two theories as the extremes. The truth is likely in between those extremes.

I wasn't disagreeing that some combination of unusual events and a speculative bubble is at work, but I want to focus on the speculative bubble part.

The speculative bubble could be "is bursting"/"is dropping" or "has burst"/"has dropped". Distinguishing between "is -ing" and "has -ed" requires a crystal ball. In your description of the speculative bubble, you pick "has -ed." Is there reasoning behind this selection, or did you just choose your words carelessly?

[Bimmerhead]

First, let me just say that I fully agree that the properties of the bitcoin system create a floor value that typical private currencies wouldn't have. However, I do think that there are really only two possible explanations for the crash:

1) A short-term speculative bubble has burst. The price has dropped to one based almost entirely on the current usefulness of bitcoins as a medium of exchange and long-term investment vehicle. The price will shoot back up if there's another speculative bubble. Otherwise, it will gradually rise or fall as the value and usefulness of the bitcoin system changes due to adoption, competitors, and so on.

2) Unique events (early adopters selling, stolen bitcoins being dumped, etcetera) have pushed the price way down. If not for these, the previous increases (whether due to speculation, the usefulness of the bitcoin system, or whatever) would have continued, and as soon as this stops, the price of bitcoin will begin sharply increasing until the next such unique events.

Most likely, the truth is between these two.

Or, in summary, once this unique event ends, the price of bitcoins will go up, go down, or stay about the same.

Or,
3) an on-going world-wide credit contraction that will dwarf the events of 2008 is compelling btc holders to liquidate into the one asset class that is rapidly shrinking: USD.

Although it would be helpful for gold to drop to give credence to that theory.

[JoelKatz]

The speculative bubble could be "is bursting"/"is dropping" or "has burst"/"has dropped". Distinguishing between "is -ing" and "has -ed" requires a crystal ball. In your description of the speculative bubble, you pick "has -ed." Is there reasoning behind this selection, or did you just choose your words carelessly?

I specifically choose the most extreme version to contrast as dramatically as possible with the other option. The question of how much of the speculative bubble "has burst" versus how much "is bursting" is largely the same question as how much of the present value of bitcoins is due to investment value and how much is due to the inherent usefulness of bitcoins as a medium of exchange. My own opinion is that currently most of the value of bitcoins (80%?) is as an investment/speculation vehicle but that this value is at least indirectly grounded in the reasonable belief that bitcoins have a chance of acquiring significant future value as a medium of exchange.

[pent]

Hold on, Timmy, hold on... Its the final phase of bitcoin hype cycle.

[hugolp]

Or, in summary, once this unique event ends, the price of bitcoins will go up, go down, or stay about the same.

Spoken like a true professional economist. 

[JCbit]

You guys are in the DENIAL phase, since you're denying reality.  Have fun @ $1 / bitcoin soon

Yup, I will have a lot of fun with $1/bitcoin...
I'll have fun buying it

LOL

[joepie91]

Claim:

You guys are in the DENIAL phase

Supporting argument:

since you're denying reality.

Some bulletproof debating skills you have there.

[cbeast]

There are nearly 7 billion people in the world that do not use USD. Does this mean that the USD will soon be worthless? Probably so.

[TheMalon]

There are nearly 7 billion people in the world that do not use USD.

FALSE!
Today ... the reserve currency of the world is USD ... which means that all the fiat-money in circulation are another faces of the same thing ... USD.
(of course there are gold/siver etc too but they are a very small percentage of a national reserve)