
Bitcoin’s Price Falls 12%, to Lowest Value Since May - conover
http://dealbook.nytimes.com/2014/08/18/bitcoins-price-sinks-but-causes-little-alarm-among-traders/
======
gexla
And I'm happy to be someone about to jump fully on the Bitcoin train and never
have to think about the price of Bitcoin.

As a U.S. citizen living abroad, Bitcoin is now at the intersection of
cheapest, fast (but not instant) and most convenient for receiving my money.
There are exchanges here which work automatically and have lots of options for
me to receive my money. At this point, I can't say there is a better method
available for me.

I'm getting the pathways setup (accounts mostly) and then all of my money
transfers will be going through Bitcoin.

When people like me who don't care about the price, but get real utility out
of Bitcoin (beyond just the gimmick of merchants accepting payments in Bitcoin
which make up less than 1% of sales but much more than that in marketing
publicity) then the prices will really start to take off. But, we still won't
care about the prices then.

Edit: That said, Ripple or Stellar may be an even better option for moving
money. Once Cryptocurrency becomes so widely used that Bitcoin is just another
option, then Bitcoin could drop massively. But we still won't care about
price. ;)

Edit2: I would NOT be holding Bitcoin. I would only be using it as a transfer
medium.

~~~
gexla
You guys have got to be kidding me. I write a comment about transferring money
to a 3rd world nation, which is one of the greatest possible uses of Bitcoin
in the future and my comment is getting attacked?

Of course people in 3rd world nations won't hold Bitcoin. Low income workers
can't afford any volatility and they often can't afford to hold anything
anyways.

What I'm trying to say is that Bitcoin is emerging as the best remittance
option. This is one of the most exciting uses of Bitcoin. But it's not quite
there yet for most people in the world. In the Philippines, it's here!

If an option is good for remittances, it's also good for an expat to remit
money to him / her self.

In this scenario, we don't care about what the price is.

What's the problem with that?

~~~
dragonwriter
> In this scenario, we don't care about what the price is.

You don't, but you rely on people who do on both ends, which means that the
long-term viability in the use case you are interested in is dependent on the
viability of Bitcoin to people who do care about the price, even if the people
using it for your use case do not directly care about that.

~~~
gexla
Maybe. We are getting into something which is a bit complex here. And I'm
assuming neither one of us are experts.

People who are interested in holding Bitcoin probably aren't people I'm going
to be interacting with. If you are holding, you aren't selling.

My use case will help Bitcoin by creating demand, and helping liquidity. I'm
buying and then turning around and selling. I using up available liquidity and
then selling to create more liquidity. That liquidity also helps other people
looking to do the same as me. You then have a pool of Bitcoin which is
basically just zipping between people who aren't affected by price.

People who are speculating on the very short term don't necessarily care about
price either. They may only care about up and down movements. Just as day
traders of stocks don't necessarily care about the name of the stock or even
the history. All they see is movement. In this case, volatility may actually
be good for these people (I don't know, I'm not a day trader.)

~~~
dragonwriter
> People who are interested in holding Bitcoin probably aren't people I'm
> going to be interacting with.

Sure they are.

> If you are holding, you aren't selling.

But if you are interested in holding, you are likely _buying_. And remittance
use case requires you to interact with both a seller and a buyer.

> I using up available liquidity and then selling to create more liquidity.

Which is basically a net zero impact, but sure.

> That liquidity also helps other people looking to do the same as me. You
> then have a pool of Bitcoin which is basically just zipping between people
> who aren't affected by price.

Except that if you want those transactions to get processed, you need miners,
who are interested in price, since they get paid in bitcoins (mining new
blocks and/or transaction fees; over time moving from the former as the main
reward to the latter.)

------
matthewbauer
I don't like the reasons this article gives for the decrease. I mean if
regulations had been the cause of this price drop we would have seen this sort
of thing happening in July.

My best guess is that this is caused by fear-based speculators who were trying
to get rich on Bitcoin.

~~~
patio11
It was almost certainly caused by microstructure of the Bitcoin market: at
least two exchanges allowed people to buy Bitcoins on margin, and published
widely distributed statistics of how much aggregate margin was outstanding on
a day to day basis. It did not take much Excel modeling to figure out the
approximate price points for Bitcoin where the exchanges' published margin
requirements would trigger cascading margin calls. [+]

If you can predict a cascading margin call in advance, that's tradeable. There
is a fairly straightforward way to predict the timing of one.

[+] I'm using a bunch of words here which may not be common hacker jargon,
though they're table stakes for trading. Margin is a loan securitized by
assets kept with your broker (exchanges, in the Bitcoin world, since they
don't separate functions) which allows you to employ "leverage", magnifying
the gains if you trade well and the losses if you trade poorly. Margin makes
it possible to lose more value than you started out with, something which is
not possible when buying instruments like stock or Bitcoins outright. To avoid
the problem of traders leaving the broker with the risk in the event of their
position getting moved against, brokers do "margin calls", obligating
customers to either a) post more collateral or b) liquidate positions
involuntarily if their position is moved against in such a way that the equity
threatens to go negative. If you're using margin to buy Bitcoins, a margin
call forcing liquidation causes you to sell Bitcoins. This will tend to
decrease the price of Bitcoins in the next few seconds. Decreasing prices
cause _other_ people to hit margin calls. This causes a "margin cascade"
feedback loop as the market _rapidly_ de-levers and a lot of over-margined
traders lose their shirts.

For an example of someone who _correctly predicted this outcome in advance_ ,
see the Bitcoin Talk thread entitled "The Bitfinex Credit Bubble Cannot End
Well."

[https://bitcointalk.org/index.php?topic=667105.0](https://bitcointalk.org/index.php?topic=667105.0)

Another example of people correctly picking the outcome in advance would be
the surge in BTC swaps (i.e. margin used by people shorting Bitcoin,
expressing strong confidence that it will fall in price in the short term) in
the 48 hours prior to the flash crashes. (I'm not necessarily saying that
those folks intentionally precipitated the margin cascade.)

~~~
foobarqux
> published widely distributed statistics of how much aggregate margin was
> outstanding on a day to day basis.

Do you have a link? I didn't find those stats after a cursory look at the
Bitfinex and BTCE sites.

~~~
vitobcn
I don't know about BTC-e, but the swaps information from Bitfinex is usually
available at bfxdata.com

e.g.
[http://www.bfxdata.com/combined/btc.php](http://www.bfxdata.com/combined/btc.php)

~~~
foobarqux
Thanks. I am not sure if this also captures their margin trading.

------
nhaehnle
This is pretty much a cheap and default comment, but I would be _so_ happy if
everybody ( _especially_ websites calling themselves the "DealBook") would
start plotting prices on a logarithmic scale.

~~~
idlewords
Currency exchange rates aren't supposed to need a logarithmic scale. That
would be a visual equivalent of burying the lede.

~~~
oleganza
Logarithmic scale makes sense for everyone. If you buy at X dollars and has
100% return when the price is 2X it does not matter what X actually is.
Logarithmic scale reflects relative changes which is the only interesting
metric for investors. If Bitcoin was traded at $98 12 months ago and now
trades at $480, it shows relative change of 400% while the prices themselves
do not tell you much.

~~~
idlewords
If bitcoin can go from $98 to $480 in twelve months, that's a glowing sign to
merchants saying "BITCOIN TOO VOLATILE TO USE". Investors are not the only
audience. I want that big, scary, spiky graph.

~~~
tlrobinson
Merchants don't care (except to the extent consumers care), they almost all
use BitPay / Coinbase to insulate themselves from volatility.

------
TomGullen
Price drop was most likely caused by cascading margin calls.

As exchanges add more sophisticated features (such as trading on margin)
amateurs continue to suffer and learn expensive lessons.

Many Bitcoin advocates will heave at the idea of any form of regulation,
Bitcoin unfortunately appears to be most attractive to libertarians. Yet their
fellow advocates are suffering all around them for it. As an example, any
leveraged trading instrument regulated by the FSA in the UK is plastered with
warnings about leveraged trading, in a (admittedly probably lacking) effort to
warn amateurs of the dangers. I see no such warnings on Bitcoin exchanges
offering leverage.

~~~
STRML
Part of the issue is that most exchanges will liquidate your entire position
in the event of a margin call, rather than simply liquidating enough to bring
you back above maintenance margin.

~~~
GregorStocks
Why do they do it that way? Just because it's simpler to implement?

------
kolev
I think the true colors of Bitcoin "believers" become pretty obvious when they
are all so very preoccupied with the price per piece. I read some pretty
ridiculous explanations that volatility is good, because it attracts
"investors", and this is supposed to be good for it.

~~~
TomGullen
Volatility will attract traders, the only benefit traders offer is liquidity
(a marginal benefit).

~~~
kolev
I'm not discussing the validity of the ridiculous statement, just quoting
"believers" who would find all excuses for their beloved Bitcoin. The term of
the week is "flash crash"! The longer people repeat it (i.e. validating it's
not a "flash crash" as time passes by and the price is not recovering), the
more ridiculous it gets!

------
danbruc
This price fluctuations will not end until the destiny of Bitcoin has been
decided, either fail and drop to zero or succeed and rise probably well above
1000 dollars. It's kind of remarkable that it did not die within the first 5
years if you consider all the small and big disasters but in my opinion
Bitcoin is still in is infancy and it is far from clear where the journey will
end. Compared with other means of payment Bitcoin still plays no important
role at all - its still a very nerdy thing only a tiny fraction of people know
about and the hand full of opportunities to do something meaningful with your
Bitcoins besides speculating with them is not even a drop in the ocean of the
world's economy.

~~~
sunir
The fluctuations will never end unless bitcoin itself ends. Its nature
prevents a dampening force like a central bank to control wild price swings.

~~~
danbruc
Wouldn't mass adoption help? If the market capitalization was for example
10,000 times the current one, it seems to me it would be quite hard to move
the market as much as it happened in the past.

~~~
sunir
No because it is a deflationary currency. Gold also had huge fluctuations.
Silver too.

The counter argument (google "bitcoin deflationary") is that people won't hold
Bitcoin because it is a payment system but I think that is ridiculous because
the whole notion of bitcoin is that it is fungible property. Empirical reality
obviously demonstrates people are hoarding bitcoins.

Bitcoins are more like the condominium market. You can make more condos but a
diminishing number more a year. You can buy condos speculatively and not
inhabit them (eg buy bitcoins and not spend them). Condo prices are also an
unstable market. (Not to mention lots of interesting organized crime stories.)

------
avyfain
At the end of the article the guy says: “What really defines the price is its
reputation and expectations for the future.”

But isn't that true of any currency? Isn't that why a green piece of paper
with Benjamin Franklin's face on it is worth anything at all, just because we
believe in the US government's stability?

~~~
pjc50
"We" is doing a _lot_ of work in that last sentence. It's rather like saying
"English is only useful because so many people speak it".

The US dollar is, like the existence of the US itself, supported by the
collective belief of its citizens and quite a lot of people outside its
borders. That belief carries quite a lot of weight because it's difficult to
dislodge.

The reputation of bitcoin is shorter and less clear, and expectations vary.

------
gbachik
I love how this is news when BTC value used to change by 40-60% a day lol...

------
nickthemagicman
I shyed away from bitcoin after finding out about the group that captured 51%
of the blockchain.

Just knowing that's a possibility is a big nope for me

------
higherpurpose
And this is NYT-worthy news?

~~~
louhike
The bitcoin market is worthwhile $6.3B at the current time so its value is not
that negligible and might have an economical impact.

NB: I'm saying that "it may have" not that "it has".

~~~
Retric
Assuming every bit coin created still exists is a mistake. Nakamoto might
still be in possession of roughly one million bitcoins. But if they where lost
then it's a 6.0B commodity.

It might just qualify as part of the S&P 500, but that's not really a major
hurdle.

PS: If bitcoin wants to be a stable currency it may be well served by
invalidating any wallet without transactions for a long enough period of time
aka 10 years. Otherwise, in the long term there is going to be a lot of
possibly 'dead' coins which makes reasoning about the market difficult.

~~~
wyager
Suggesting "invalidating wallets" indicates a lack of understanding about the
underlying system. Wallets are an abstraction; they do not exist in the
Bitcoin protocol.

And why should we work to make the Bitcoin market easier to analyze? Our first
priority should be to have a strong long-term (well over 10 years) store of
value.

~~~
lucb1e
> Suggesting "invalidating wallets" indicates a lack of understanding about
> the underlying system

It might be a wording mistake rather than a lack of understanding, but I see
your point. If you think about it though, it's technically easy to do and
maybe a good thing too. Since you can see any transaction ever done, you can
easily lookup the last transaction done by any address with value (valueless
addresses can be discarded from memory anyway). If that transaction is more
than, let's say, 50 years ago, you could say that it can be discarded from
memory too (no longer included in the block chain to preserve space).

People may want to store coins for over 10 years in cold storage (hot storage
would simply be able to do a transaction to itself every few years) so maybe
that's too short, but 50 years seems like a reasonable time. Looking at the
future of Bitcoin (and I mean 100+ years), even though storage will get
cheaper and cheaper, it might be smart to discard really old addresses.

Of course this is all just an idea, I'm not saying it really surely would be a
great thing to do. It's just that it's possible and _not_ just a dumb remark
from Retric.

------
nfriedly
Awesome, my bot got me some while they were cheep :)

~~~
nfriedly
Ouch, -4 points - what's with the down votes?

------
StavrosK
Goddamnit, my $50 is only worth $44 now...

------
beedogs
This isn't the end of it either. In a month or two, 475 dollars will look
nice.

~~~
chollida1
> In a month or two, 475 dollars will look nice.

Based on what? Serious question. When people say this about stocks they are
either:

1) pulling it out of their ass..

2) They have done some quantitative analysis, based on some sort of CFA
teachings.

I'm assuming you are in camp 1 here. Not that there is anything wrong with a
"gut feeling", I"m just not going to invest based on it:)

As a question to anyone, what sort of analysis can one do on bitcoin to derive
a proper price for it? I'd be open to any quantitative analysis techniques
here!

My wheel house is market microstructure, but I'd love to work on a model to
value bitcoin with someone if they had any ideas.

~~~
yebyen
Well, if you're willing to ignore the existing base of bitcoin already mined
(and even in some cases the sunk cost of buying hardware that can be used to
mine them) go ahead and do your calculation based solely on the price per unit
energy as a starting point.

If you use this calculator[1] you can see that if your 50GH/s array spends
300w which you had to pay for, you are burning about $0.48/day at the current
price, assuming all of that from before. This is not top-of-the-line, but it
is some relatively modern ASIC equipment from BFL. Previous generation miners,
5 and 10GH/s "Jalapenos" from the 65nm fab. They are supposedly rolling out
28nm "Monarch" now which are at least 10x as powerful and certainly more than
just marginally better at power efficiency.

If you look at this chart[2] you can see an estimate of the next difficulty
and adjust your calculations for next week, it becomes pretty clear that more
people are turning on their Gigahashes than turning them off, even if that was
only marginally the case two weeks ago. You have to imagine those people are
mostly those with newer equipment.

I don't have a graph of price overlaid with difficulty, but it can't be too
hard to find one. A few months ago it was possible to scale them and
demonstrate a relatively good fit where price and difficulty were roughly
correlated, but since difficulty shows no signs of falling yet, I suspect that
fit is not so good anymore.

[1]: [http://www.bitcoinx.com/profit/](http://www.bitcoinx.com/profit/) [2]:
[https://bitcoinwisdom.com/bitcoin/difficulty](https://bitcoinwisdom.com/bitcoin/difficulty)

~~~
TheLoneWolfling
A better graph might be _change_ in hashrate versus price.

