
Amid Bitcoin's Bloodbath, Silence from Silicon Valley Press - lmg643
http://www.realclearmarkets.com/articles/2015/01/16/amid_bitcoins_bloodbath_silence_from_silicon_valley_press_101490.html
======
GreaterFool
BTC volatility is nothing compared to the bloodbath that just occurred in CHF:

[http://www.bloomberg.com/quote/CHFUSD:CUR](http://www.bloomberg.com/quote/CHFUSD:CUR)

Yeah, it's "only" 20-30% move (depending on currency cross) but in highly
leveraged FX markets even 1% can wipe people out.

Personally I never cared about Bitcoin "value". In my mind it is a great
medium of settlement and not a store of value (which it might also be; given
long enough outlook).

First we need to grow the Bitcoin economy to a decent size and then we can
talk about "price stability". Transaction volume at the moment grows rather
slowly. The rest is just speculators.

~~~
moe
_but in highly leveraged FX markets even 1% can wipe people out_

The CHF spike _did_ wipe people out.

For example the world's largest currency broker FXCM;
[http://uk.businessinsider.com/fxcm-currency-broker-
news-2015...](http://uk.businessinsider.com/fxcm-currency-broker-
news-2015-1?r=US)

(okay they're not entirely wiped out, only $300MM in the red...)

~~~
m52go
To clarify, the CHF _spiked_ in value. People who lost had bet against it.

~~~
malka
People who bet against it were careless.

The money was under evaluated by the BNS for years. This was bound to happen.

------
dperfect
If we look at bitcoin for what it _is_ (the technology and theory behind it),
it hasn't lost any real value. If it did (e.g., if a major flaw were
discovered in the technology to render it useless), then people wouldn't still
be trading bitcoin. We have to remember that for every bitcoin sold (at any
price), someone on the other side of the transaction is still _buying_ those
bitcoins. If it were truly "dead" or indisputably flawed, trading would come
to a halt because there would be no bids for something truly useless.

Instead, what we're looking at with the recent price decline is simply a
reflection of how people _feel_ about bitcoin - and in this case, that opinion
has everything to do with factors that are irrelevant to the technology
(failed exchanges, criminal activity, etc). If bitcoin were a public company,
of course those kinds of things would matter (it doesn't matter if public
opinion is wrong; it can still ruin your business), but since bitcoin's
usefulness and underlying value do _not_ rely on public opinion, it remains
unaffected at the core by any of these recent events.

~~~
sillysaurus3
_We have to remember that for every bitcoin sold (at any price), someone on
the other side of the transaction is still buying those bitcoins._

Actually, "an exchange made it look like someone bought a coin."
[https://willyreport.wordpress.com/](https://willyreport.wordpress.com/)

Bitcoin probably can't ever prevent good old insider manipulation, because
every exchange affects every other exchange due to arbitrage. A price jump of
$20 on BTC-e will swiftly travel to Bitstamp and everyone else. So if BTC-e
decides to do something similar to what Mt. Gox did, there's nothing stopping
them. All it takes is one shady popular exchange.

Bitcoin's dependency on exchanges is its greatest strength and weakness.
Without exchanges, you probably wouldn't be able to sell bitcoins locally
except in a sporadic way. There wouldn't really be an agreed-on price. But
with exchanges, herd dynamics are always in full bloom, and you won't ever
escape them.

EDIT: People buy and sell bitcoins at current market rate, and current market
rate is defined by exchanges. That means if an exchange decides to make their
own price artificially jump up, then everyone else's price will jump up too.
That means bitcoin's price will be defined partly by whatever insider
manipulation is going on at the time.

~~~
dperfect
Bitcoin doesn't depend on exchanges any more than your HN karma might depend
on exchanges, yet karma still has value in its own sphere - with or without an
exchange rate. Anything that _can_ be traded _will_ be traded on a market if
there is demand for it. All of that (everything that happens due to market
forces, manipulation, etc) is irrelevant to bitcoin as a technology.

~~~
ingler
People have a habit of concentrating on the sizzle, not the steak.

------
jacquesm
There is no blood. Bitcoin isn't viable (yet!) as a long term store of value
but anybody that thought that it was should outsource their financial services
to Nigerian princes for a better long term return on investment.

If and when bitcoin will be usable as a long term store of value we'll be a
decade down the line at least, and if it hovers around $10 by then then I
think it should _still_ be considered a small miracle. The hardest challenge
that bitcoin has is not to stabilize as a currency (because it isn't) but to
simply stay alive. So far so good on that front.

~~~
jerguismi
To me what you suggest sounds somewhat conflicting. If bitcoin might be a good
store of value in the future, it might be a good investment today. Which means
good store of value, but a big dose of risk.

I guess other way to say what you are trying to say would be: "Bitcoin is a
very bad store of value for those with a low risk-preference."

~~~
ska
"store of value" has a standard usage in this area, and you aren't using that
definition.

To be a good store of value means that you have predictable recovery, which is
the opposite of what you are say. BTC may or may not be a good (high risk)
investment at the moment, but it isn't a good store of value.

~~~
jerguismi
Ok, so store of value means low risk/low volatility, good liquidity.

~~~
ska
Or at least reasonable & predictable liquidity, yes.

------
lumberjack
I find all these elaborate theories for why the price has fallen, a bit
ridiculous.

Here's my simply hypothesis.

1\. People got bored waiting for legitimate uses for Bitcoin that aren't in
some way or another black market trade. I'm one of them.

2\. The recent online black market busts made even those who were just betting
on Bitcoin being a black market currency, uneasy.

~~~
smtddr
3\. People like me who were just in it to profit off swings ended up guessing
wrong; now stuck with overpriced coins have decided to pack it up and call it
a day. Really, my time & money would have been better off just being in the
S&P 500 index. I'll never lose track of my coins' private keys, but I'm done
trying to chase quick money.

------
rtpg
It's weird, because I feel like there is a story on the general volatility of
bitcoin. There's also a story on the general incompetence (as much as I can
say this as being completely unqualified in running a financial institution)
of the companies running exchanges and the like.

I don't get why that stuff isn't being covered more in detail (the headline
writes itself: "When will bitcoin exchanges stop screwing up?"), but the fact
that some guy invested a bunch of money in BTC when it was worth 3 times as
much? Get in line with literally everyone else with assets in it.

------
vertex-four
> subject to decline every time the compute power to "mine" the Bitcoins got
> cheaper

But the network reacts to that by making it more difficult, and thus more
expensive, to mine. That's very much not the reason bitcoins become less
valuable - assuming the same amount of money being poured into newer/faster
mining equipment, it'll always cost the same to mine a block.

------
markburns
The short-term market price doesn't have a lot to do with it's long-term
viability. Liquidity is relatively tiny hence shocking volatility.

Anyone's bitcoins only represent a loss on a particular day if they actually
choose to sell them or spend them. Same goes for people gloating when the
price is up.

There's 3,600 bitcoins per day being generated creating a significant downward
pressure on the price. But reward halving is ETA July 2016, marking a
significant change in supply and probably the day-to-day price.

I can understand the schadenfreude for anyone who has watched people become
very wealthy and watched other presumably greedy people subsequently 'lose'
tons of money.

The majority of my holding will be likely to sit for 10 years or so and I will
admit I was wrong if I've made a significant loss and I probably will sell
them off. People can have their schadenfreude then. In return, I'll agree not
to gloat if the price sky rockets.

~~~
matco11
Volatility is the result of several factors and liquidity is only one of them.
For example, the oil market is very large and liquid, yet still fairly
volatile. Volatility is obviously undesirable for anything that is intended to
function as a reserve of value. This is why, for example, there is no
discussion of oil being a reserve of value, or a currency. As for the example
above, greater liquidity in the Bitcoin market will not automatically make it
less volatile, or lower volatility enough.

Bitcoin's volatility is structural (it goes well beyond the issues with the
exchanges). Effective currencies have several mechanisms designed to protect
their value and minimize volatility: Bitcoin lacks them and hence it's
structurally fragile and volatile. So, Bitcoin cannot represent a reserve of
value. Stable preservation of value is a key characteristic of a currency
(this is one of the reasons inflation is monitored by central banks, for
example), hence, if Bitcoin cannot work as a reserve of value, it cannot work
as a currency.

Perhaps, other crypto currencies, in the future, may be structured with more
robust mechanisms and work better.

~~~
dpweb
>> Effective currencies have several mechanisms designed to protect their
value and minimize volatility

Yes, government manipulation. I think many of the btc enthusiasts miss the
point. You can't have a huge important currency without _guarantees_.
Goverments have armies and taxes and so provide these guarantees. No world
government/control of btc = no btc becoming the "global currency".

~~~
ingler
To be fair, Bitcoin is the first form of international money to come into
existence without government decree. These are still uncharted waters.

------
ThomPete
There is only one relevant graph and it's the bottom of these two IMHO

[https://twitter.com/Hello_World/status/555454120258457601/ph...](https://twitter.com/Hello_World/status/555454120258457601/photo/1)

~~~
djrtwo
Fascinating! Are you suggesting an increase in use as a currency or just an
increase in trade as a commodity?

~~~
ThomPete
To be honest I am not really qualified enough to have an opinion on that. All
I have is my layman intuition being generally interested in cryptorotocol.

But in my opinion you see it growing because a lot more are thinking about the
blockchain protocol rather than the currency. But it purely based on a hunch
not actual data.

~~~
platz
All that volume isn't from regular folk, it's probably from miners. Miners
could decrease if its no longer profitable for them to continue or sink more
$$ into capital

------
azeirah
Why's everyone pretending bitcoin is dead now? It simply dropped in price in a
short time, it's not like it has never done that before...

~~~
rtpg
That's a bit disingenuous. Bitcoin's price has dropped over 75% over the past
12 months, in a constant decline.

Despite a lot of VC money pouring into BTC startups, there just doesn't seem
to be any traction. My guess is that Mt. Gox irrevocably destroyed faith in
the system for the "common user", because even the biggest exchange couldn't
bother with hiring some security people (well, at least bitstamp seemed like
that, what exactly happened at Mt. Gox is still a mystery to me).

~~~
zipwitch
As a non-bitcoin user, it seems to me that the value of the system as a medium
of anonymous transaction is mostly irrelevant to the current price. As long as
its stable enough for that, the only "problem" with the bitcoin price crashing
is for speculators...

~~~
runeks
> As long as its stable enough for that, [...]

It isn't stable enough for that. The price has moved +30% within a few hours
[1]. That's easily short enough to cause problems for both merchants and
consumers. For consumers, they risk the bitcoin price falling after they've
purchased bitcoins, but before they've purchased something with them. And even
if you succeed in buying something with your bitcoins before the price has
gone up in bitcoin terms, the store owner might lose if he doesn't cash out
the bitcoins he has earned before the price falls.

There are plenty of risks to non-speculators. But in fact, the speculators, by
providing liquidity, _help_ the non-speculators enter and exit a bitcoin
position quickly and with minimal losses (tight spread). Were it not for the
speculators, services like Bitpay couldn't exist. Speculators continuously
incur risk holding bitcoins, and market makers literally take on the risk of
holding bitcoins, transferring this risk away from the consumer and merchant
(who can quickly enter and exit the bitcoin market because there are
constantly people willing to sell and buy bitcoins (among them market makers
and price speculators)).

TL;DR: Have you thanked your local speculator lately?

[1] [http://i.imgur.com/zV6Iyte.png](http://i.imgur.com/zV6Iyte.png)

------
fnordfnordfnord
I'd love to see a good article on the subject rather than some jackass trying
to rub salt in peoples' wounds.

------
moe
Congrats to Adam Kessler for discovering that Bitcoin is volatile.

But how could this sharp minded journalist miss the _real_ silicon valley
scandal that nobody writes about?

Coffee is hot, millions of investors get burned _every day_!

------
rrggrr
Merchants lose about $500 billion/year to transactions fees, chargebacks,
fraud and equipment fees. Want to know what the inherent value of Bitcoin is?
Then think in terms merchants desire to avoid payment processing fees in a 3.6
trillion dollar marketplace. Guys like Draper, with wealth sufficient to
absorb significant paper losses to volatility, are playing the long game and
betting on bitcoin reducing transaction fees globally.

------
susan_hall
Regarding the price that people are willing to pay for Bitcoin, what has
become relevant is how people judge, not merely other people's willingness to
pay, but other people's estimate of how others might be willing to pay.
Relevant here is the Keynesian beauty contest, a reference to a practice in
which towns used to give awards to those who could get guess who the prettiest
girl in town was, with "prettiest" being determined by the other people in
town:

"It is not a case of choosing those that, to the best of one's judgment, are
really the prettiest, nor even those that average opinion genuinely thinks the
prettiest. We have reached the third degree where we devote our intelligences
to anticipating what average opinion expects the average opinion to be. And
there are some, I believe, who practice the fourth, fifth and higher degrees."

(Keynes, General Theory of Employment Interest and Money, 1936).

[http://en.wikipedia.org/wiki/Keynesian_beauty_contest](http://en.wikipedia.org/wiki/Keynesian_beauty_contest)

------
crm416
"I think the technology used to implement the Bitcoin payment system is
fascinating - public ledgers and crypto and block chains will all be game
changers. Bitcoins themselves? More of a necessary component to creating a new
financial system."

Another article that seems to suggest that the blockchain has value with
Bitcoin. I've heard others (pmarca in particular) promote this view, and I
think it's far from validated. At the moment, BTC is the most important
incentive to mine, and mining is the most important factor in establishing the
blockchain's security.

It's true that, in the future, we might be able to come up with other
incentive structures to encourage mining (the Bitmessage protocol is one such
example). But if we want one blockchain, and we want it to be as secure as
possible, how could we ever come up with an incentive that is as universally
desirable and infinite as money?

~~~
natrius
There's a common view that Bitcoin's proof of work is the only way to maintain
a secure blockchain. That view is the product of a herd mentality of people
who have bought bitcoins and want them to increase in value, so anything that
could prevent that must be wrong. This Bitcoin maximalism leads to false
conclusions, and it should be avoided.

Plenty of non-Bitcoin blockchains are secure.

------
runeks
> Their value was always in Fantasyland and subject to decline every time the
> compute power to "mine" the Bitcoins got cheaper, which it does every day.

The creation of new bitcoins is limited by the network adjusting the
difficulty in case new bitcoins (blocks) are created too quickly.

The network hash rate has increased enormously over the past few years, by
several orders of magnitude. Yet the average number of bitcoins created per 10
minutes is still only 28.7920673077, or around 15% above the target value of
25.

This is measuring from block 210,000 to the current block (339,357). This
period has taken 780 days, so far, so the average number of blocks per 10
minutes is: (339357-210000)/780 / 24 / 6 = 1.151682692 (or 15.168% above the
target of 1 block per 10 minutes).

------
ingler
Yet another article from someone who has an obvious personal issue with
Bitcoin. For some reason, Bitcoin destroys objectivity in journalists.

Remember when Bitcoin crashed from ~$32 to near zero and everyone said that
Bitcoin was dead? I do. THAT was a crash. Even I gave up on Bitcoin for a few
days. The author of the article missed a chance to detail Bitcoin's crashes
and its recoveries from those crashes.

Even if Bitcoin goes to zero because the network gets attacked, the blockchain
itself is now just as much part of network technology as any other protocol.

Digital cash ain't going anywhere, be it Bitcoin or an improved version of the
idea.

------
chmartin
The Bitcoin crash is similar to crashes in other financial markets and is a
signature of self organized criticality:

[https://charlesmartin14.wordpress.com/2015/01/16/the-
bitcoin...](https://charlesmartin14.wordpress.com/2015/01/16/the-bitcoin-
crash-and-how-nature-works/)

------
danbruc
If you have no stakes in Bitcoin, you don't care. If you believe Bitcoin will
succeed, you want positive press. If you believe Bitcoin will fail and you are
still invested, you want positive press to get out as well as possible. Nobody
really wants negative Bitcoin press.

~~~
comboy
There are those who understand the implications but didn't get any bitcoins.
In their opinion it's too late to buy right now, so they are just waiting for
"the next thing" wishing Bitcoin all the worst. So there is quite a bit of
negative press. Not much from rational sources though. Rational agents fit
your description.

~~~
Bkty
And there are those that think Bitcoin is the holy grail and the only shot at
electronic currency thats worth any effort. In their opinion anything else is
just a nuisance in Bitcoin's glorious path to world domination, not fascist at
all!

------
jordanpg
Maybe these publications are hesitant to comment because they realize they're
not economists. They write and think about products. If we concede for the
moment that, as product, Bitcoin is sound then we are left with what Bitcoin's
role in the economy is. This is uncharted territory and lots of people have
already been burnt being overly optimistic or pessimistic about them. But no
one knows.

Because of this uncertainty, Bitcoin has had a major PR problem since the
moment it went mainstream. And since the perceived value of a (quasi-)fiat
currency means a lot, it has been a net negative for the future of Bitcoin. It
has suffered under the weight of tremendous doubt, however slight.

------
toomim
This guy has the causality wrong. Bitcoin gains value when there is press
coverage.

The drop in value is BECAUSE of the decline in press coverage, not the other
way around!

------
programmarchy
Maybe the Bitcoin Foundation should lobby Congress for a bailout. The
blockchain is too big to fail!

------
waps
Welcome to market reporting ... the S&P 500 has dropped about 5% in the last
month. And in my newsfeed I find "up 2%" from a dozen places.

Now this is not a lie. That particular day the S&P was up 2% (and it does
indeed mention that the days before it was down 3% and 1%), but the point I'm
making is there was little mention of downward market movement the days
before.

It's weird. In every other reporting it's bad news that sells, and you have
trouble finding good news. In market news only upward (or very large downward)
movements get mentioned.

------
SippinLean
An article makes the front page of HN that uses "epic FAIL" in a non-sarcastic
way?!

------
Udik
The maximum number of bitcoins is capped at 21 million. The current number in
circulation is around 14 million. Now, my intuition tells me (but I might be
wrong) that if a currency is used to pay for goods (and not just for
speculation), the value of the currency in circulation should roughly match
the total value of the goods that can be exchanged with it. If this is true,
and the total of e-commerce sales is now (completely ballpark estimate) around
$1.4trillion, then in a world where all online transactions are made in
bitcoins, the value of a single bitcoin should be of approximately $100k. That
means that in the process of a widespread adoption of bitcoin as a real
currency for online transactions, its value should rise from the current $200
to $100k, a factor of 500. And this is a huge problem, because any currency
that is used for buying goods must have a value that is consistent (and
possibly slightly decreasing) in time, otherwise nobody really wants to use
it. It's completely foolish to part from a bitcoin in exchange for a phone
today, when at some point in the future that same bitcoin will be valued 3,
10, or 500 times more.

Bottom line: the bitcoin is trapped. The more goods can be bought with it, the
more its value rises, the less people are actually willing to use it. And this
cycle will go on forever, as the total value of goods will keep increasing at
a high rate, while the number of bitcoins increases at an progressively lower
rate until it stops completely at the cap of 21 million.

------
eli_gottlieb
People don't like to publish much while they're still smarting from losing
large amounts of "money". It helps that Bitcoin wasn't just an asset, it was
an _ideology_ : that the deflationary shrinking-resource represented by coin
mining was _necessarily valuable_. People don't like questioning ideologies
like that: it threatens their entire sense of how the world can be a good
place at all, it feels from the inside like a nihilistic pit of darkness.

~~~
throwawayaway
I'm more of a buttcoiner myself, but all this past tense "bitcoin is done"
reeks of "foregone conclusions" and I don't think that's wise.

I will say that it's possibly less of a crime that the self interested
unbridled optimism of its advocates.

~~~
throwawayaway
remember! all these downvotes are actually good for bitcoin!

