The reason for that is the death of Bitcoinica. Bitcoinica offered shorting, which stabilized prices at around $5. When Bitcoinica went out of business, the only way to make money on Bitcoin is to speculate its' price increase which will drive demand; which will drive its' price even more.
That being said, it might be the right time to buy Bitcoins, and sell before the bubble bursts. However, for a more stable Bitcoin, we need a shorting system and enough traders.
On the other hand, Bitcoinica also offered leveraged trading, which had a large destabilizing effect. There were big traders deliberately moving the price around, to force smaller traders into margin calls. That problem went away when Bitcoinica did.
Leveraged trading is trading with partially borrowed money. If you buy something with leverage and the price falls, you're forced to sell. A wealthy trader can temporarily lower the market price by dumping a bunch of coins on the market at once, knowing that the price will recover when he buys them back; this costs him money, because he gets a lower price for his coins and buys them back at a higher price. But it also forces margin traders to sell out their leveraged positions, at the lower price, which those same traders can capitalize on.
These sorts of shenanigans depend on there being unsophisticated traders using leverage (a bad idea for any non-expert trader!), and they get harder as the number of traders in the market increases. Many of the rapid price oscillations we saw were a side effect of this strategy. (Not all of them, of course; the initial rise was caused by the wave of publicity, the fall by loss of confidence when some people lost their coins by storing them on insecure computers or giving them to scammers pretending to be "online wallet services".)
No it did. The shorting stabilized prices, and if you don't have any economical background, you can check out Khan Academy videos on economics.
The price of Bitcoin started to raise since Bitcoinca ended operations. Certainly, it won't skyrocket in 24 hours. It'll take many days (and maybe weeks) to visualize the trend.
When bitcoinica shut down operation, there wasn't any signficant change in the price of bitcoin in either direction.
Also, it's a really bad idea to use ad-hoc reasoning after-the-fact to explain why the price rose or goes down. There could be multiple reasons and multiple events why the price of bitcoin rose as it did. Sometime, there's no reason at all.
User pirateat40 is running a BTC investment scheme with super-high returns (BS&T: Bitcoin Savings & Trust, a name suggested by investors). So high, that the community is split between the believers who can't resist the ROI and the non-believers who are convinced that Pirate is running a Ponzi scheme.
But that's not the fun part. The fun part is that pirateat40 and another member have agreed to participate in a sort of bet to settle the issue, which involves certain payouts under certain conditions. Mostly it's a bet that pirateat40/BS&T will default within a couple of months. Both have put 5000 BTC, ie. roughly 30k USD on the line.
What goes up could also go down. I've seen it happen in my adult life to gold (in the 1980s), to housing (twice, once mostly in Texas, completely killing off the savings and loan industry nationally, and more recently all over the world), and to petroleum multiple times. As I have posted before here on Hacker News, perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics. Many of the ideas about how to mine Bitcoins, store Bitcoins, and trade with Bitcoins as a medium of exchange illustrate both the strengths and weaknesses of any other medium of exchange in a world full of human beings. Seeing the discussion of Bitcoins here on Hacker News reminds me of the last time that the price of gold (in United States dollars) crashed, and the arguments beforehand that such an occurrence was impossible, for instance. "The market can remain irrational longer than you can remain solvent" is still an important principle of investment.
If the bubble keeps repeating, it is still an opportunity for speculators who can do the timing right.
Personally I'm long on bitcoins, I do dollar-cost-averaging. Good way to do this is for example bitcoinbuilder.com, or 10-line python script will do the same thing.
Perhaps a bit off topic, but would a finance nerd recognize this style of graph better? I've never seen such a thing before, and it took a little while to understand what the instructions were saying. But once I got it, I was immediately confused that there aren't more commonly known high information financial visuals beyond the standard two axis graph.
Is it just that most exchanges somehow don't publicly publish such granular data?
Ignore the green curve for a second. The gold curve is the 'bid' curve. It shows, at any given USD value (horizontal axis), how many Bitcoins people are willing to buy (vertical axis). So it says that, based on the orders currently in the market's books, at the $6.00/Bitcoin price point, you could sell up to 23,282 Bitcoins to get $549,907. This trade could happen immediately, because the matching buy orders already exist.
Similarly, the blue curve is the 'ask' curve. It shows how many Bitcoins people are currently willing to sell at any given price. So right now, at the $8.00/Bitcoin price point, you could buy 19,242 Bitcoins at a cost of $144,682.
Obviously, you'd be stupid to do either of those trades because they're far from the market rate. The action happens where those curves meet, currently at $7.10362-7.18242. This means that, currently, someone could buy at least one Bitcoin at $7.18242, or sell one at $7.10362. If someone were to put either a buy or sell order in between those numbers, then it would sit there until a match came in.
Which brings us to the green curve. This is the trade history. Like the other curves, the horizontal axis is the price, but here the vertical axis is time. It shows, trade by trade, what prices Bitcoins have actually traded at. Right now, the most recent is $7.10110; this is what people quote as the market price.
I'm the original creator of this site. The initial version had no market rate chart (the one in the middle). It was purely a live version of the bids/asks (see bottom graph http://bitcoincharts.com/markets/mtgoxUSD.html). After making that it didn't take much creativity to realize a price chart would fit nicely in the middle.
Isn't bitcoin trade on like a few million dolars per day globally according to some really rosy estimates ? If I'm reading this correctly it has 1.6M$ on the bid side. Do people realize that with such low liquidity the price is irrelevant ? Real news would be it doing $100M transactions in a day or having $100M on bids, not that it would be significant but that would show some real growth, this is just a few people playing with their savings.
My guess is that bitcoins are mainly used for college students' and drug hobbyists' $50 purchases of LSD and the like on silk road and not for big transactions.
Silk Road is famous, but it doesn't mean that illegal activities are the main economic activities in bitcoin.
The number of accounts is currently at about 22000, and the largest number of people online at any given time is 126 – a stable community, but much smaller than those who see Silk Road as being the single shadowy force keeping up the Bitcoin economy behind the scenes imagine. -- http://bitcoinmagazine.net/the-silk-road-report/
The problem is that CCs and PayPal is much easier to use and it is much safer than Bitcoins.
If you never use bitcoin, you wouldn't realize how convenient it is in some situation. For example, when I brought an album, I just sent some coins to the address and then it was a done deal. I don't have to enter my credit card information or enter my username/password.
If you aren't convinced about bitcoin but you have time, you should experiment and find if there's any usecases for bitcoin rather than just dismissing it outright.
Let also note that the security pressure by criminals have lead lot of bitcoin sites to adopt 2 factor authentication. Some figured out that they don't need their wallet online at all and can get away with just using the blockchain to process payment. This meant even if the server were to get hacked, there's no bitcoin to steal. The bitcoin team themsleves are also working on adding multi-signature transactions.
Also, I'd argue that BitCoin is very simple to use. Put in an address, type in the amount of money, and wait. Sure, transactions can take a while, but it's not very complex.
Given the amount of people who are victims of scams and frauds within the mainstream banking system, and the habit of paypal to freeze people's accounts and hold their money on a frighteningly regular basis, I am not sure that bitcoin is any worse from a safety point of view.
Of course paypal account feezes and scams do occur on paypal and traditional banking systems. However what is the percentage?
Every few months a bitcoin site gets lots of attention and boom they get hacked. Usually it is because the site is run by a teen or a college student wanting to make a quick a buck.
Hmm, I guess those statistics are from the SR forums, a separate site. The actual SR web site doesn't give out such statistics. You could perhaps estimate the usage by listings & reviews.
Apparently we're in the "pump" phase of the Bitcoin pump-and-dump cycle. Really, the entire Bitcoin market would fit comfortably inside the volume of your average OTC penny stock. Does anyone not think the Bitcoin game is rigged?
There are significant reasons why having a deflationary, digital currency (or commodity) would be quite useful, at least for certain people and use cases.
If there were no use case for Bitcoin, calling it a scam without presenting evidence would be much more reasonable. Given that there are use cases, calling Bitcoin a scam without presenting evidence is completely arbitrary.
To make an analogy - if I ask you to invest in my company that makes a brand new food item with no nutritional value or flavor, it's probably a scam. However, if I ask you to invest in my company that makes a tasty and nutritional food item, regardless of whether you think my food will do well in the market in the long run, it requires evidence to claim that it is a scam.
I didn't say Bitcoin itself is a scam, only that the market is so tiny that a single player could easily manipulate it. And if someone can, someone will. And while I see Bitcoin's legitimate use cases, few (very few) people are using it for actual trade. The market seems purely speculative, with no underlying Bitcoin economy to stabilize it (save possibly the money-laundering business).
I agree that the market is largely speculative. But I think the speculation is mainly very long-term speculation - so people predominantly want to get more bitcoins, or they want to hold them. This will tend to drive the price up.
I’m persuaded that in the long run -- that is, over many years -- Bitcoin is likely to appreciate far above current levels as it gains further adoption worldwide. Here's why: https://cs702.wordpress.com/2011/05/29/on-the-potential-adop... -- I wrote this more than a year ago, and still think it's correct.
However, I would not bet on the direction of Bitcoin prices in the short run, because I have no advantage over the many short-term traders and speculators who make up the daily Bitcoin market. (As Warren Buffett says, “if you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.” I don't want to be the patsy.)
A reader offered to buy a copy of my book if he could pay in BTC. I printed it out for safekeeping and to show my kids someday. I think that's about as far as I will invest.
I haven't read your post, but I agree with your projection. I'm happy to put a significant but disposable amount of my money in bitcoin while I can still afford to get a significant percent of all bitcoins ever (which I still can).
(EDIT: And by that I mean, say, something like .01%.)
Thank you. FWIW, my post both outlines the reasons why Bitcoin would appreciate and makes an effort to quantify potential appreciation under different worldwide usage assumptions.
Am I the only one who can't read this graph? It looks like it's rotated 90 degrees and there's no time axis so I don't see what this is representing. I don't understand what the legend for the Y axis means.
It's a market depth chart - the orange line on the left represents the cumulative standing buy orders, the blue line represents the standing sell orders, the green line is the historical price per trade with the latest trade (thus value) being at the bottom. The Y axis is a representation of the bitcoin value, and the X axis is the representation of the USD buy/sell prices.
Here's a traditional market chart showing USD vs BTC since the beginning of Bitcoin. Salient features: enormous bubble a year ago, and many months of stability at $5 before the recent runup.
http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25zv
I lost a lot of money in bitcoin. I learned a valuable lesson that's better than anything I learned in collage.
1) Easy to make, easy to lose.
2) Whatever you are thinking of doing, so is everyone else. If you're planning on outsmarting thousands of other people, just remember, they are planning to outsmart you.
3) Any market with a high volume of flippers (buys to resell and make money) vs users (actually use a product or service) might be a bubble. High rise bubble, mortgage bubble, housing bubble, Miami condo bubble
4) The worst time to make decisions is when you feel like you're going to lose out on something spectacular. When you have visions of grandeur. When the emotional side of you is most active, the logical side of you is being repressed. Watch out for that.
5) "This time is different!" is bullshit (when relating to bubbles and re-occuring events). Each new generation brings the same humanistic flaws of the last generation. Doomed to repeat itself forever and ever. Humans will be humans the same way sharks will be sharks. We are cursed with a primitive instinct that might have worked thousands of years ago in a tribal society but now is working against us.
6) Whenever you take a gamble, ALWAYS assume you are going to lose. If you're ok with the outcome of losing and find the gamble to be worth it go ahead and take a risk.
I didn't lose too much money in bitcoin but lets just say it was money that I was saving up for braces. That was the deal I made with myself. I'm still angry that I lost, there's no point in lying, emotions will be emotions. But the way I see it, I didn't lose the money in bitcoin, I invested it in some really good "real world economics" classes at a good collage somewhere...
I didn't lose too much money in bitcoin but lets just say it was money that I was saving up for braces. That was the deal I made with myself. I'm still angry that I lost, there's no point in lying, emotions will be emotions. But the way I see it, I didn't lose the money in bitcoin, I invested it in some really good "real world economics" classes at a good collage somewhere...
Bitcoin is still the best investment I ever made. That's because I realized that I can't beat the market.
There are times when it is indeed different. When Columbus landed, it was genuinely different. (Especially for the natives.) When general artificial intelligence arrives, it will also be genuinely different. (Especially for us.)
I'm not sure if you just implicitly suggested that we (humans) will be mistreated by the general AI (and its offsprings) just like the natives were mistreated by people who followed after Columbus.
Or on the flip side, we might treat the AI's worse due to being so scared of them, as in the situation in Neuromancer where all the AI's legally have to be built with a kill switch.
Each new generation brings the same humanistic flaws of the last generation. Doomed to repeat itself forever and ever. Humans will be humans the same way sharks will be sharks. We are cursed with a primitive instinct
My comment has nothing to do with Bitcoin. Just want to point out that I am very tired of this old bromide. People do make mistakes, misjudgements, etc. However, humans do not have instincts (which are automatic pre-programmed behaviors). Moreover, humans individually and, particularly, as a society, can learn from past mistakes. Thus, there is just no valid comparison to, for example, a shark.
You're basically just repeating a secular version of "Original Sin" and it's no more valid than the religious version.
"However, humans do not have instincts (which are automatic pre-programmed behaviors)"
Wow. You just insulted over 100 years of psycological, biological study, observation, & evidence. Not to mention you're completely ignoring the fact that we are wired for sex from birth and all the evidence and research that has gone into that. The first instinct a human has is to start sucking as soon as something touches its mouth. Without this vital automatic pre-programmed behavoir we would not exist because children could not be breast fed. I'm not sure why you see instincts as something bad or what you're trying to protect by denying something so obvious and so well studied but I worry about your education.
Wow. You just insulted over 100 years of psycological, biological study, observation, & evidence.
Not really, because there is no observation of or evidence for humans having instincts. :D
Not to mention you're completely ignoring the fact that we are wired for sex from birth and all the evidence and research that has gone into that.
That is precisely my point. Think about it. We do not have an instinct to have sex. We choose who to have sex with, and when. And our sexual desires are mediated by our preferences (which, in healthy well-functioning people, are chosen, although some people may not rise to that task). Sex is not an "automatic" behavior. Contrast this with the sexual behavior of, for example, sharks. There is a humongous difference there.
Now, in certain Muslim societies, it is considered a woman's fault if she is raped when she exposed some skin, because they believe that men do not have a choice about sex and cannot control themselves. That is abhorrent and wrong. But when you insist on humans having instincts, you are taking that side of this intellectual argument.
The first instinct a human has is to start sucking as soon as something touches its mouth.
It may be that pre-conceptual humans--that is, babies--have instincts. Since a lot of people use "instinct" sloppily, I'd have to think about it before I came down on either side. But when we talk about "humans," we really mean (at least primarily) "adult humans." So I would not say that babies having an instinct to suckle negates my point in the least.
I suspect it is more an "automatized reaction." Calling it an instinct just doesn't seem right to me.
but I worry about your education.
Haha :D. Well, I would say I've demonstrated a lot of rational, independent thinking here. So, for that reson, I am not worried about my education. (As a sidenote, I am very highly educated in the formal sense... but that is not as important as being able to think an a rational, independent way.)
The last thing Bitcoin needs is another speculation craze based on its high value. If Bitcoin's value is growing, that's fine, let it keep growing naturally. Don't start publicizing it so it starts another speculation roller coaster, at least until the Bitcoin market is big enough to not be impacted much by speculation-based transactions.
After the initial bubble , it now seems fairly stable and growing slowly at a rate that resembles what one would expect from an inflation hedge. It would be nice if it was able to avoid another bubble, but I think it will still happen. As long as another bubble is purely a function of speculation and market size and not due to manipulation or other corruption, it will eventually build a track record for credibility. I think this the route every non-government linked currency has to take at first. The road to credibility is a long one but I'm confident that over time there will be some like Bitcoin that will get there.
Obviously, you are absolutely right. Then again, as much as I despise myself for it I did make a killing last time a bunch of idiots started buying them for >20$ a pop so I wouldn't mind. Taking money from speculators and giving money to geeks... I'm sure someone could spin this into something positive.
I don't think it's going to hurt bitcoin, it's proven itself to withstand it and is here to stay.
I don't think I'm a speculator. I just started mining back in the day when CPU mining was still viable. Early in the day when we got a 50 bitcoin batch every other week. I didn't buy a single bitcoin. I just sold the ones I mined. Is this really speculation?
You speculated that the electricity you used to mine the bitcoins would be worth the cost of mining them. I'd say it was as safe a speculation as one could make. =pp
By that definition any and all investment is speculation. Does this word mean anything on its own then? Though the fervour with which I deny being one proves it must.
It's a new currency, it would be illogical to assume that the price of bitcoins will be wildly irratic as it catches on. The one thing I know about bitcoins is that I don't know what they'll do. The volatility makes bitcoin trading attractive to me, also, you can only lose what you put in, the trading costs are ridiculously low, and I started my account with $100 bucks. Initially I lost value but I just waited it out and turned $100 into $130. That's a huge return in less than a year. Obviously this is more of an exercise, I wouldn't get stupid with how much I put into bitcoins, the whole thing could collapse tomorrow.
I've been asked in the past if I could accept Bitcoin. I believe there are even services that convert Bitcoin on the fly to US dollars for you when you accept a purchase. It doesn't really seem like a smart business decision though. What are the legal ramifications of accepting money that came from Bitcoin? Is the IRS going to come knocking at your door? My gut tells me to avoid BTC like the plague, but it does intrigue me.
Would they/why would they, these are the questions I'm asking because I'm uncertain how these things even work. With currencies backed by nations I can see the IRS not caring, but Bitcoin isn't just "any other currency." It's a currency not made up or backed by any nation. In a way it's money out of thin air. That's what worries me.
The IRS doesn't care where your income comes from. They care that it is (1) reported, and (2) correctly valued. They have, for example, rules for reporting bartered income[1]. Barter is certainly not "any other currency" either.
I'm not advocating the purchase of bitcoins, simply providing an answer. I have no opinion on whether or not bitcoins are a good "investment."
The transactional friction is a reason the market is small. If it's easier to transact and more people can do it, the supply/demand curves will push the price up in the future. Assuming demand is proportional to the size of the market.
The barrier to entry is a good thing, kind of a safeguard for new users. You are storing real money on your computer, you need to be able to keep that safe. I'm sure someone will offer banking services in the future to solve this "problem" and make it work like any online account, which just happens to be denominated in bitcoins.
Ok but given current pricing of GPUs, is it profitable to mine the coins, given I have access to free electricity (my office building does not charge for that).
They are cutting the rate of bit-coin generation in half in January. (The total bit-coin's always stay under 21million but they don't use an exponential curve just cutting the rate in 1/2 every few years.)
You probably know this, but for people that don't—
"They are" is the wrong pairing. The subsidy halves every 210,000 blocks (~4 years) as part of the innate core rules of the system enforced by every participant.
So it would be more accurate to say "They cut" (past tense as this was established years ago), or "The system will" (no human actor).
Also it looks like the halving will be early December to late November. (The block number is fixed, not the time, and because the difficult updates lag rapid increases/decreases in computing power can shift the date around a bit)
>Before investing significant amounts in mining equipment those operators who rent and plan to take advantage of utilities being included might wish to review the lease documents to become aware of any “commercial use” exclusions. Also they should be aware of the potential that a month-to-month lease could suddenly change where utility submetering or other cost transfer might be imposed.
Edit to add more info: I'm told the expected generation output, from 1000000 Mhps, at current difficulty 1751454.53534068, is 574.2818 BTC per day or 23.9284 BTC per hour.
Haven't looked more closely at the numbers here, but there are only 50 * 6 = 300 BTC created per hour. If each of these is averaging 24 BTC per hour, then that's practically 8% of the total computing power in the bitcoin network. That would mean that 13 of these would have more power than the entire network.
Even if this were the case, the gains from such a scheme would be short-lived, though, as the difficulty adjusted to compensate. Then you're competing with everyone else who has bought these, and fighting over the marginal cost of electricity vs. the upcoming reduction in the reward.
$4,000/day at current exchange rates, it should pay for itself in less than 8 days. Of course the rate of BTC generation will go down over time, but it looks like these rigs would easily pay for themselves for several years yet.
The bitcoin system adapts itself to keep the rate of coin creation constant. So it's impossible to say what their return will be in the future. Perhaps a few monts later someone puts out a run of 28nm ASICS at 1/4 the price with 4x the performance and they're bought in massive waves.
I was a big opponent of bitcoin- still wouldn't use it for anything that matters- but there are some great use cases.
With government bans on online gambling bitcoin could really take over(that market). And, of course, there is the illegal drug trade.
When people say that "it's not backed by anything" all they need to do is fire up tor and take a peak at silkroad. It's backed by one of the most in-demand products ever.
I wonder if it's liquid enough to do an "instant trade". Essentially, you could route (possibly international) financial transactions through BitCoin and avoid big fees by doing a buy on the buyer's side, transferring the coins to the seller, then having them sell the coins in their local currency.
The best part about this is that neither the buyer nor the seller needs to have the slightest interest in BitCoin and it doesn't matter at all if the value of the currency is reasonable so long as it's reasonably stable. Even better, neither side needs to know the other's bank details, just a throw-away BitCoin account number. This isn't just an IMT-killer, it's a PayPal killer as well.
Assuming the BitCoin market is more or less efficient relative to currency markets, and assuming those transactions could be cleared within ~1 day, you could absolutely kill the international transfer market (known for high fees, long delays and shitty exchange rates).
This can be done but I believe it is a bit more expensive than via banks, since you have exchange fees and the spread as liquidity isn't quite high enough (assuming you want to transfer ASAP. If you are willing to wait on both sides you can do a lot better)
Example exchanging 500 GBP to EUR (via intersango at current rates):
You're right, that's not good. I imagine it would get better if people started doing things like that in higher volumes, but that's a bit of a Catch 22.
Until then, there are a couple of mitigating factors:
- You may not get the market rate from anyone. The UK post office is only giving me a rate of 1.2260 to the Euro.
- If you need to pay a fee for a transfer it could be worthwhile for small amounts. The UK post office doesn't charge a fee, but it has a min transfer of £250. www.tranzfers.com charges £7 or $15AU. I've paid more elsewhere.
I've seen a lot worse at the airport. Assuming that people are using bitcoin for reasons other than a favorable exchange rate, 7 points isn't going to be a deal killer, or even a deal slower.
This is also my opinion.
For me, BTC doesn't make sense when purchasing, say, computers. But for buying e-goods, MMO game items, or anything else where there are huge margins, it actually makes sense.
Government currencies have the benefit that the government creates demand for them by using it as denomination for tax debts. Non-government currencies have no such external creation of demand.
It's actually quite curious that Bitcoin was able to take off the way it did despite this lack of initial forced demand. I wonder which was more important: the fact that there are so many anti-government ideologues out there, the fact that Bitcoin can help with illegal transactions, or simply the fact that it's a neat technology. I'm certain all three played a role, perhaps to a different extent at different times.
Independent currencies don't have that particular source of demand, but economies are made of much more than tax debts. And you could argue that overbearing policy itself creates demand for currencies that enable untaxable (and other illicit) transactions. Government itself could be said to encourage demand for both forms of currency.
I doubt that the 'neat technology' aspect contributes much to the exchange rate; or little more impact than coin and banknote collectors have on mainstream currencies. You don't need to put much money in, or participate in many transactions, in order to examine the technology itself.
That being said, it might be the right time to buy Bitcoins, and sell before the bubble bursts. However, for a more stable Bitcoin, we need a shorting system and enough traders.