
Bitcoin Plunges By Nearly $30 As Largest Market Suffers Outage - cooldeal
http://mashable.com/2013/04/03/bitcoin-value-plunges/
======
rdl
MtGox seems like the weakest link in Bitcoin.

I don't understand why a Magic the Gathering site is the big exchange still,
and yet people keep creating wallet providers (which is kind of cookie cutter
and inessential), vs. an exchange (which is inherently centralized, very
technical vs. UI/UX centric, security sensitive, technically interesting, and
a natural monopoly). There's some value in being a wallet provider with great
funding/redemption options, but that's a hard business which touches a lot of
regulation and legacy banking.

I think the big opportunities in BTC are: hardware/trusted wallets, trusted
cloud-hosted wallets, an exchange provider, and most interestingly, derivative
issues (currencies, instruments, contracts) with BTC as the underlying. Not
"yet another web wallet provider".

A wallet provider is essentially retail. An exchange is where wallet providers
should be going to offload risk, ideally with the exchange itself taking zero
risk; let market makers do it. The only thing the exchange needs to do is
publish prices and handle execution/settlement (which is trickier due to the
lack of a "bitcoin-USD", "bitcoin-JPY", etc., but can be approximated by
retaining USD, JPY, etc. balances on account.

~~~
gojomo
_I don't understand why a Magic the Gathering site is the big exchange
still..._

I think you answer your own question:

 _...an exchange (which is inherently... a natural monopoly)_

MtGox would have to stumble very, very hard to create an opening for another
exchange, which would have high start-up costs (because of those interesting
security and technical challenges). If you were sufficiently deep-pocketed and
bullish on Bitcoin, sure, but most are chasing lower-hanging fruit without an
incumbent leader in a natural monopoly role.

I'd agree that wallet provision is a weak opportunity, except perhaps as part
one of some deeper strategy.

I think some are attempting to take on MtGox obliquely: Ripple/OpenCoin via
its network's distributed books and TradeHill via its recently-restarted
professional investor services.

~~~
elemeno
The security and technical challenges aren't as high as most people seem to
think and are pretty familiar to people who work on the technical side of
trading in the financial world. I would imagine though that most of the people
with the knowhow are already in jobs lucrative enough that theres little
incentive to write a BTC exchange.

Or at least that's how my calculations go - while I've got the technical and
financial background to make me tempted to write a derivatives platform for
BTC, I already make a decent salary and my perceived risk vs profit
calculation doesn't work out to a number that would make it worth my while.
Unless I get bored enough to do it anyway!

~~~
gojomo
Exactly! Your unwillingness to solve those challenges on the cheap, against an
entrenched and well-funded leader, is what creates the "high start-up costs".

~~~
elemeno
I don't think they'd be quite as hard to displace as people assume either.
I've not spent very long looking at MtGox but I'm sure that all the usual
tricks that real-world exchanges use to boost usage would work against MtGox
as well - offering tighter spreads, lower transaction fees, encouraging market
makers with incentives such as refunded fees as long as they're covering the
market for a certain portion of the month, etc.

------
nlh
I feel a bit silly writing essentially the same comment twice in a week,
but...

Holy cow. Bitcoin was at $145? I wrote a comment 6 days ago expressing shock
that it was at $100, since the last time I checked it had been at $60.

If a 45% rise in one week coming on the heels of a 300% rise in one month
doesn't raise your eyebrows, I don't know what will.

I continue to watch this unfold, fascinated, popcorn at the ready.

~~~
ChrisNorstrom
I lost money in the last bitcoin crash because I bought right before it all
went downhill.

It's obvious people aren't using bitcoin to shop, but instead using it as an
investment.

In one quick moment heard mentality will respond by "cashing out" their
bitcoins for money (something that is actually accepted and can be used to by
things) and this will create a chain reaction. One by one everyone will flip
out, won't want to miss out on their cash, and start purging their bitcoins
for ever lower numbers until the currency is devalued.

There will be another crash, people will forget or think "things will be
different this time", and will once again start building the next bitcoin
bubble. I think I might actually buy some during the crash when they're real
cheap. Every year bitcoin's popularity rises and more people get suckered into
it.

~~~
modeless
You only lost money if you sold your bitcoins. If you bought bitcoins at the
instant before the last crash, you'd still have more than doubled your money
_even now_ after the $30 drop. Bitcoin may crash to $1 tomorrow; who cares?
The real question is where will Bitcoin be a year from now, and 10 years from
now?

~~~
Helianthus
Fool me once, shame on etc.

Bitcoin only gets so many chances in the public eye.

It's broken through enough that enough people are paying attention to Bitcoin.
And it's just in time to watch the textbook
crash--(<https://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png>).

"Where will Bitcoin be a year from now?" Oh--isn't that that one currency that
people lost a lot of money in 2013? Litecoin? BitBucks?

Good luck getting anyone to take it seriously again.

~~~
robbiep
You could say the same re the stock market about various swings etc

In my opinion the current volatility is more a sign of the immaturity of the
investors rather than the underlying concept being flawed (many markets are
conceptually flawed and absurd from an independent viewpoint however human
psychology maintains some weird interest in them that keeps them afloat)

The current volatility is clearly a bubble and the best explanation that I
like is that all these computer nerds across the world who haven't been
involved with stock markets before have dropped their cash on bitcoins and
facilitated the bubble and are unaware of the law of bubbles; that is; that
they pop

~~~
billybob255
The stock market has at least some value in the equity owned, bitcoins are the
ultimate castle in the air investment. That doesn't mean people shouldn't use
them, but they're a pretty poor investment.

~~~
shredfvz
Bitcoins have at least some value on the Deep Web, the stock market is the
ultimate castle in the air investment. That doesn't mean people shouldn't use
it, but it's a pretty poor investment.

I continue to watch the Wall Street bubble unfold, fascinated, popcorn at the
ready. In the end it'll be like sending herds of cattle through a cheese
grater.

------
deepblueocean
This demonstrates perhaps the largest real threat to the bitcoin ecosystem
right now: the exchange markets are heavily concentrated. Confidence in the
system is, right now, heavily based on the perception that Bitcoins can be
traded readily for _something_ (pizza, drugs, dollars, quatloos...). Anything
that alters that perception will, of course, have a big effect on the price.

In fact, exchange risk could lead to something akin to a bank run - the
exchanges only keep a small reserve of national currencies and Bitcoins to
handle orders and are essentially acting as market makers. But a big swing in
the demand for either Bitcoin or real currencies could push the exchanges into
a tight spot. If they don't have enough Bitcoin, obviously, the price rises
until the demand for Bitcoin subsides. But if they don't have enough (say)
dollars, then the price _must_ fall. And there's a natural death spiral: as
the price falls, particularly after such a big run up as has happened
recently, people might suddenly decide that it's time to get out. But that
only increases the demand for (scarce) dollars. And so the value collapses.

Here's the real Bitcoin security question: can someone _precipitate_ this
situation? Maybe someone who benefits from a collapse of the Bitcoin price
(say a law enforcement agency that wants to affect the Silk Road business or,
if you don't like that, then say any entity with a significant short position
on Bitcoin exchange markets). This is not a question I've seen previously
addressed in Bitcoin literature or even musings on the various Bitcoin forums.
It's a security economics question. I'm interested in the answer.

By the way, my current favorite term for such a situation is the "Goldfinger
attack" on the theory that while Goldfinger wanted to steal the gold from Ft.
Knox (in the novel version), such an adversary wants to invalidate the coins
in Mt. Gox.

~~~
nazgulnarsil
AFAIK MtGox is NOT a market maker but merely an order book.

------
JumpCrisscross
For those wondering why we don't have a Bitcoin ETF, this is one reason.
Making a reliable market in decentralised and pseudonymous Bitcoins without an
exchange is very difficult. An ETF needs a reliably liquid underlying market
to keep a lid on tracking error [def]. We need more competition in U.S. dollar
Bitcoin exchanges, preferably a FinCEN-compliant one.

[def] <http://www.investopedia.com/terms/t/trackingerror.asp>

~~~
jpdoctor
Why would anyone want an ETF? They can buy the currency directly at the
exchange, and this way don't have to pay some intermediary's salary.

~~~
BrainInAJar
Same reason NYSEARCA:GLD and others exist, so you don't have to worry about
securing the underlying (your broker/trading platform takes care of it), you
can short it easier, etc.

------
kmfrk
Can we just chip in to a graph in the top-right corner that shows the exchange
rate of BTC vs. USD, and leave it at that? I'm sure someone could write an
extension for that.

Saves us a lot of this. :P

~~~
craftkiller
<http://bitcoinity.org/markets?exchange=mtgox>

~~~
anigbrowl
If this market isn't being manipulated then I'm a monekey's uncle. I've been
watching it on and off all afternoon, and I keep seeing it move rationally (ie
price changes are a function of the size of the trade) and then irrationally
(sudden discontinuities on tiny trades). For example, I just watched it
decline from ~126 to 115 over a few minutes, and then suddenly jump up by +10
on a 0.03 BTC trade. Maybe I'm misunderstanding the efect of lag here, but it
looks shady as heck.

Edit: Also, spreads of over 10% among different markets? Yeesh.

------
dragontamer
Wait a second... are we sure it was the Market Outage? I'd assume it was when
Instawallet's hackers began cashing out on their attack?

~~~
dublinben
Why would they dump large amounts of currency (and plunge the price) when they
can just sell it slowly? There's no risk from holding stolen BTC long term.

~~~
dragontamer
Sure there is. If Mt. Gox goes down before you dump BTC, then you wouldn't be
able to convert BTC back into dollars. Mt. Gox has been pretty unreliable
recently too...

------
blantonl
I'm curious, are there any academic level economic arguments that discuss
Bitcoin and it's future? I'm really curious how economists are viewing
Bitcoin.

Right now, it is clear that the rise in price is due to investors who see the
_potential_ of Bitcoin, thus they are hoarding Bitcoins in anticipation of
future avenues that could accept Bitcoins.

All it will take to unleash liquidity in the Bitcoin market will be a major
online retailer to announce they accept Bitcoins as a currency. Otherwise, the
vast majority of Bitcoin transactions will be trading in iliiquid markets and
paying for underground goods and services. Bitcoin isn't going to shake up the
traditional goods and services market unless a major online retailer signs up.

... and with a very illiquid market and an immature set of market makers in
the currency, it is going to be a while before Bitcoin is legit. Not to
mention potential regulatory issues that WILL crop up at some point.

Bitcoin - good luck. I think it can work, but will it work is a whole
different story.

~~~
gwern
> I'm curious, are there any academic level economic arguments that discuss
> Bitcoin and it's future? I'm really curious how economists are viewing
> Bitcoin.

Here, this may help: <http://scholar.google.com/scholar?q=Bitcoin>

------
dangrossman
MtGox just tweeted 5 minutes ago that they're being hit by a DDoS. Their site
is essentially non-functional beyond the public cacheable static pages.

<https://twitter.com/MtGox/status/319563995759652864>

------
dmiladinov
I might be mistaken here, but isn't Bitcoin the currency with an ultimately
fixed amount, with a known, predictable rate of growth (of the number of
Bitcoins in existence)?

How can this volatility then be attributed to Bitcoin, and not the other
currencies it is valued in? I freely admit, I'm less than a novice when it
comes to ForEx, but a statement like

> _"The value of bitcoins, it turns out, is highly sensitive to media
> coverage," wrote Reuters' influential financial journalist..."_

seems to me to be exactly the opposite, i.e. media coverage is causing other
currencies to fluctuate and the Bitcoin valuations are just a reflection of
this.

~~~
jellicle
I suppose when you leap up in the air, you can't prove that the universe and
everything in it didn't just leap downward away from you, in a coordinated
fashion to mimic a leap you might have made.

But Occam's Razor is not on your side.

~~~
dmiladinov
No, I suppose not. Thanks for your feedback! I'm really glad for all the
discussion in response to my question!

------
PaperclipTaken
First I want to remember that Bitcoin cost $10 less 24 hours before the $30
plunge than it did afterwards.

Having said that, I don't believe that it will go back up, most speculators
will probably be ready to sell after today. It's also hard to say though,
because it looks like the volume of bitcoins traded today are equal or less
than other days. I can't say for sure, because Mt. Gox isn't loading properly
and I'm looking at an unfamiliar set of graphs.

People keep talking about the bubble bursting. Most people don't realize that
last time bitcoin flopped, it only lost 30-50% value initially, returning to a
value that was still higher than just 2 months before the crash. Bitcoin spent
5 months in a steady decline, not 5 hours. Most early speculators made a
profit, even if they couldn't sell until after the crash.

As much insanity as people are predicting, everything will probably be drawn
out. If you have bitcoins and are nervous, now is a fine time to sell. If you
think bitcoin will keep going up and you bought more than 30 days ago, you
will probably be able to come out ahead even if you are wrong.

But you have to appreciate that most of Bitcoin is speculation. Bitcoin seems
safe because it is inherently deflationary. That brings an unproportionate
amount of speculators to the currency, and causes the deflationary properties
to exaggerate. After enough time, the currency will become clearly overvalued.
The free market will take care of that in a cyclic fashion.

As long as Bitcoin is used by people for it's anonymous and cryptographic
properties, it will be subject to this hyperdeflation/crash cycle. The exiting
bits don't last long and ultimately don't make the currency gain or lose
terribly extraordinary amounts of value. After a crash, I'm sure bitcoin will
still be worth at least $60, which is still fantastic if you bought back when
it was less than $15.

~~~
Helianthus
I don't think you're wrong on any particular point.

But all of this is what makes Bitcoin irrelevant to the global financial
system.

A currency can't be used for daily purchases if you have to account for
cyclical periods where you just shouldn't spend them!

Couple this with the fact that this time enough of the mainstream media is
paying attention, and Bitcoin won't recover. I'd bet a Bitcoin that this is
the highest valuation of Bitcoin over its career as a highly interesting
experiment in economics.

~~~
danpat
What are your terms on that bet?

My take on it is that it's a mistake to think it's a currency. It has a lot
more in common with gold, but without the heavy lifting.

~~~
Helianthus
If it's not a currency it shouldn't act like one.

My terms are: if I win, you pay me a (worthless) Bitcoin. If you win, I owe
you a stupid amount of money.

It's meant to indicate my disregard for Bitcoin's chances of success.

~~~
danpat
I'll take that bet. Let's say, 2018-04-04 as the date, and use today's high of
$147 USD as the crossover point.

If I lose, I owe you a BitCoin. If I win, you owe me one. Feel free to pre-
purchase that coin. I'll stick a reminder in my calendar.

~~~
Helianthus
I'm not going to buy a Bitcoin. I'll just go into tremendous debt if I lose,
and if I win, well, you can just keep it ;)

Oh, and I wouldn't take today's high. I'm talking about this current hump.
After it falls below 100, it won't make it back up to 100, is the bet I'd
make.

------
jacob019
all this volatility makes owning bitcoin feel like gambling.

~~~
tibbon
A month or two ago, I spent $100 on Bitcoins. I figured this was an acceptable
amount to 'gamble' like I was in Vegas. Might go up, might go down- but I
found the risk to be acceptable for the amount.

~~~
Kequc
If I was lucky enough to be in your situation I'd cash out my ~650usd and call
it a day. I wouldn't feel remotely bad about it even if bitcoin kept going up.
At this point it was a sound investment that paid out well.

~~~
EvanKelly
I agree. I mined bitcoins for a few months early on (2010). I ended up with
about 100 of them. I didn't transfer the wallet when I reformatted the drive a
year later because I had completely forgotten about BTC.

My loss isn't $10,000, because there's no way I would have held on this long.
Realistically, I probably would have sold them once they were 5 USD / BTC.

------
vamur
Bitcoin price should stabilize if there are more transactions. Biggest issues
now are slow payment time, hoarders and over-reliance on few exchanges. I
think higher price and faster payment/withdrawal times would decrease the
price eventually as bitcoin holders would have more incentive to spend/take
profit while the price is high and exchanges would be forced to sell coins
after a transaction for merchant withdrawals. For hoarding, if protocol can be
updated to charge higher transaction fee for long-held coins, this should make
it less profitable to hoard and increase number of transactions.

------
ihsw
The conspiracy theorist in me suspects that the US Government may be involved,
sinking their tentacles into MtGox and tracking every transaction.

I seem to recall a global Skype outage shortly after MS purchased the company,
and this is eerily similar. I would haphazard to guess that most BTC
transactions are USD->BTC so the USG would definitely be interested in that.

~~~
wmf
Conspiracy theories are not necessary in this case. MtGox has had extensive
know your customer procedures in place for a while. FinCEN recently issued
explicit regulations for Bitcoin and MtGox indicated that they're already
"overcompliant" with them. And MtGox is moving from Japan to the US just to be
sure. There's no evidence that MtGox is sending _every_ transaction to the US
government, but it sure looks like they would voluntarily do so if asked; no
hacking needed.

------
jrs235
Why bit coin is a bad currency or store of value? If the grid is harmed then
but coins may rise in value but if you still have access to your store,
trading will be as reliable and fruitful as eating gold to survive. It's too
susceptible to an EMP attack and war (which brings down the infrastructure or
grid). Paper wealth only appears on paper.

------
rheide
Still worth more than yesterday.

~~~
pkfrank
Isn't this amount of volatility, even if it's trending upwards, a terribly
worrying sign, and one that points to a probable bubble burst?

~~~
rheide
To add to that, it also illustrates the over-dependence of the bitcoin
community on a single exchange site. What I was trying to show is that,
despite those pretty major problems, Bitcoin is still massively popular.
Hopefully it can come out on top in the end.

~~~
impostervt
No one loves Mt. Gox, but it's the biggest exchange...which is why it stays as
the biggest exchange, because everyone wants to use the biggest exchange.

------
andrewljohnson
BitCoin is back at 131, still up since the Euro-crisis went to bed yesterday.

------
bennyg
To think that last July it was at about $5.20, and I scoffed at buying when it
reached $6 cause that was more money than I was willing to spend... I'd be
rich by now.

~~~
qwertzlcoatl
That is pretty much everyone's thought that knew about Bitcoin since the
beginning. Which should be 90% of people frequenting this website.

~~~
chm
I mined for a week or so in 2011. I wish I had kept on going!

------
iguana
Everyone, sell your bitcoins, quick!

~~~
zalzane
This might have been funny if hundreds of people didn't spam it every day in
hopes of manipulating the price.

One of the worst part of the bitcoin community right now is the number of
armchair speculators who have absolutely no idea what they're doing and think
it's clever to go into the bitcoin IRC/forum and allcaps that people need to
start selling their bitcoins because "ITS GUNNA CRASH" in a baseless hope that
it will drive the price down.

~~~
iaw
From my armchair I'll simply say : "It's gonna be volatile!"

I've stayed out of bitcoin because the market drivers are non-transparent.
There are a lot of speculative investors in the market that are waiting for
more gains before they close out their positions. Whenever these investors
close out you have the potential of increasing the amount of liquid bitcoins
in the market. Presuming demand is growing at a continuous clip this would
drive the price down to a lower level.

Wash, rinse, repeat.

------
freefrag
Reminds me of this life-cycle of a bubble [1]. I know this drop wasn't caused
by a loss of confidence in the currency but in the exchange, still I wonder if
this was the bull-trap.

[1]
[http://i158.photobucket.com/albums/t106/OnlyObvious/CDOs/bub...](http://i158.photobucket.com/albums/t106/OnlyObvious/CDOs/bubble-
lifecyclegif.jpg)

------
superuser2
It's back at $126 now.

~~~
qwertzlcoatl
54 minutes later it's at $132.

