

Ask HN: Why is Bitcoin so volatile? - niico

Why does this happens?
Large amount of BTC moving?
Is this a manipulation by the large marketplaces such as Mt Gox, etc?<p>What are your theories?
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OldSchool
Thin market. Market depth is easily overlooked.

Imagine you have 1M shares of your smallish company's "public" OTC stock, last
traded at $0.10. Nice, you've got $100K right?

Usually that is until you try to sell. Your first sale might go off at $0.09
due to the spread, 1000 shares later and it's already $0.08, 10,000 shares
later $0.07, etc or worse. You've chewed through the bids quickly and ended up
with a lot less money that you thought you were going to get. The solution of
course is to use a limit order - it won't guarantee you get a sale, but it
will guarantee your price won't be compromised on any sale that occurs.

This can quickly happen on the buy side too; an increase in demand can lead to
a rapidly increasing price. That's why "penny stock" newsletters are fertile
ground for pump and dump schemes.

As a currency, bitcoin fits the "penny" category. Major currencies transact
perhaps trillions of dollars per day. Bitcoin market participation is
microscopic in comparison.

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waterlesscloud
For one thing, the price was almost completely driven by speculation. That's
not a problem in itself, betting on the future of a new technology is
something this site is devoted to. But the excitement got way ahead of the
actual adoption in this case, so the price has nothing meaningful supporting
it.

Bitoin (or more accurately cryptocurrencies in general) are a revolutionary
technology that will change the way we do business. But the network isn't
there yet. It will be, someday, but someday is down the road. It's not
overnight riches, though some were treating it that way.

Another factor is that mtgox, the main exchange platform, simply cannot handle
large loads. So when there's a panic, it's made much, much worse by Gox's
inability to keep up. People can't see what's really happening, and they panic
sell at market rates, which just sends the price down further.

If Gox were perfect, we'd still see big swings, but they'd probably be a
fraction of what they are now.

I think (I hope) that the gold rush mentality will be quieted now. Then
Bitcoin can grow at a more reasonable rate for a while. It might fail, but we
all win if more cryptocurrency infrastructure is figured out and built up.

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bdr
Yes, there is manipulation of the price via DDoS. MtGox has said so. But the
exchange rate would still be highly volatile and momentum-based without that
manipulation. Almost all of the current exchange rate is speculation, not
intrinsic value. It is the first successful cryptocurrency, and no one knows
what's going to happen.

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il
When the stock market drops more than 10%, trading is temporarily halted. This
addresses technical issues and stops a potential panic. Bitcoin has no such
controls. It looks like a grand social experiment. For everyone clamoring for
a completely unregulated, decentralized free market, you got it with Bitcoin.
Enjoy.

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the_cat_kittles
I think the volatility is a product of uncertainty about security and
(recently) massive speculation

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nimajalali
I think the volatility stems from people misusing the currency.

Bitcoin was designed to be a currency, a means of immediate exchange, however
it is becoming more and more apparent that people are using it as a short term
(possibly long term) investment.

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codemonkeymike
Too many people rely on MtGox for the price of BTC and obtaining BTC. So when
they have a 10 second lag on orders people go crazy and start to dump. Which
in turn snowballs down to the rest of the economy because they are locked on
MtGox priced BTC'

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rayk
Aside from the fact that nobody knows how to value BTC?

A large number of early adopters probably have no experience trading large
volumes of any security, and the of Bitcoin is likely to look very different
from any existing currency/commodity.

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Throwadev
Anyone know what their systems look like? What hardware, what databases,
OS'es, what language is their order matching engine written in?

And do they have any systems & developers on staff who know what they are
doing?

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mschuster91
Someone thought it'd be cool to hack some popular exchanges and info sites.
And now everyone sells in panic.

Most probably the hacker is short-selling BTC (or, dumping off stolen BTC from
an attack)

~~~
chollida1
> Most probably the hacker is short-selling BTC

How? Where can you short Bitcoin at the moment?

~~~
mschuster91
Convince someone to lend you BTC, or use coins you stole in an attack or
otherwise illicitly acquired.

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Tycho
Maybe because the market has weak infrastructure and also the majority of
investors (ie. mutual funds and institutions) are effectively barred from
participating. Just guessing though.

