There has been much talk around about the bitcoin bubble. It stems from the huge surge in value we saw from the end of last week with bitcoin spiking at about $900 at one point last night, to then fall again to around $600. In an immature market, this sort of volatility can be expected but it has already got the naysayers banging their drums.
An article by Michael Santoli on Yahoo Finance comments that these sudden swings in price are undermining bitcoin's potential as a currency, advising investors to participate with "play money," for now. In an interview with Yahoo Finance Editor-in-Chief, Aaron Task, they comment that such volatility could deter widespread adoption. However, Task, says it is unlikely bitcoin will disappear anytime soon with the number of players already involved.
You can read the full article and see the video here
The dip in price, according to Tech Crunch's Alex Wilhelm is actually not as bad as it might seem. It's "not crashing", he says, "just slowly deflating".
Bitcoin! You almost have to shout it. The much ballyhooed currency has had a simply amazing last few weeks. It put on the finance nerd equivalent of a fireworks show, blasting from less than $400 per coin a week ago to a high of around $900 (Mt.Gox data).
The shot to the top was almost ludicrous in its intensity. When Bitcoin finally licked the $900 mark, it dropped in the same hour to under $600 before recovering, and dropping, and recovering, and dropping, and on and on and on.
But now, some time later, a trend is developing: Instead of Bitcoin suffering from a rapid collapse in its overheated price, the currency is experiencing a slower, if still very material decline. Currently trading just under $600, Bitcoin has shed one-third of its value in around a single day.
And our own analysis posted this week, notes bitcoin's price could drop much lower back to around $100 and still be within the margins of a long-term steady rise in value.
Talking of bubbles, a couple of articles on Forbes have been analysing bitcoin’s performance, including this piece by Kashmir Hill, saying bitcoin could reach $1,700 before the bubble pops. Another article by Tim Worstall says we mustn’t rely on the ‘bubble’ behaviour as an indication of bitcoin’s future success.
Why do you even ask whether it is? A price gyrating like this is proof perfect of bubble behaviour. However, please do note that the existence of a bubble is not evidence that Bitcoin will either fail or succeed. There are often bubbles in things that succeed, just as much as the rubble of a bubble shows a failure.
The bubbleicious behaviour is of course the price gyrations going on.
Bitcoin’s value hit $900 on Mt. Gox exchange around 5 p.m. PST Monday, up more than 70 percent from Sunday’s close and setting an all-time high in the process. But, it also just dropped to $650 within the past 30 minutes, highlighting the current volatility of Bitcoin. The value of Bitcoin only hit $400 for the first time last week, and $500 for the first time on Sunday.
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However, one of the most interesting pieces written about the so-called bubble comes from a merchant and miner’s perspective. David Feeney in the Austrian Insider talks of his experience as a bitcoin miner and as a business owner, accepting bitcoin. He wants us to ask a few questions before we “start repeating mass media rhetoric regarding Bitcoin bubbles”. Here’s what he has to say:
My mornings are very predictable these days. Immediately after I wake up I walk to the living room to check my Butterfly Labs Easy Miner application to see what the Bitcoin market looks like for the day. Lately I have been anticipating the day that I will turn off my 30Gh/s miner and sell it to the highest bidder with access to “free” electricity. Contrary to popular belief, mining for Bitcoin is not a get-rich-scheme, but rather a calculated capital investment risk akin to any other mining market. That is why it comes as a shock to me when I keep hearing people throw around the word “bubble” when talking about the Bitcoin market. This recent activity is the sign of an extremely healthy Bitcoin mining and exchange system and, quite frankly, it’s exactly what was expected by the pioneers entering the market. It is showing that the cryptocurrency experiment is actually working.
One of the main appeals that Bitcoin has to the general public is as a tool to protect oneself from inflation and monetary manipulation by centralized governments. The way that this is done is by essentially emulating the model of mining finite precious metals (such as gold and silver) out of the ground. Bitcoin does this by requiring “miners”, such as myself, to solve algorithms (think big math puzzles for computers) to bring the initial coins into existence. As time goes on, the algorithms get more difficult and require additional computer resources to solve at the same rate; just as one would need to dig deeper over time to continue mining gold and silver. Periodical leaps in technological advancement allow miners in both industries to drastically lower their input costs which in turn allows prices to go back down once ample competition enters the market.
The Senate hearings into the viability and associated risks of digital currency continue.
One Senator, at least, is doing his homework. Jerry Moran even reached out to the reddit community to get information, asking: I’m one of the Senators attending today's U.S. Senate Banking Committee hearing related to bitcoin. What would you like me to know?
Overall, the first couple of days have ben regarded as positive for bitcoin, with some, such as Josh Dzieza on Technology Review, even noting a few new allies for the digital currency within the US Senate:
The crypto-currency Bitcoin gained some valuable—and surprising—new allies at a U.S. Senate hearing on Monday: financial regulators, law enforcement, and even the chairman of the Federal Reserve. The value of the currency reached a record high shortly after the hearing.
Interested observers might have expected yesterday’s hearing on the potential risks, threats, and promises of virtual currencies to presage a regulatory crackdown: the hearing came just a month after the bust of Silk Road, a notorious online market that accepted bitcoins for guns, drugs, and other illicit goods. Though the hearing was nominally about digital currencies in general, the focus was really on Bitcoin, a currency that uses cryptographic techniques to allow money transfers directly between peers, rather than through a central authority like a bank or PayPal.
Some bad news for BIPS and those with BIPS wallets. The company have temporarily closed its consumer wallet intitiative after it says it was the "target od a coordinated attack."
And finally, just to end on a lighter note, you might have heard about the Word of the Year... This year The Oxford Dictionary chose SELFIE as 2013 word of the year. You might also be pleased to know that bitcoin made the shortlist of possible contenders. Maybe next year, eh.
FYI, their entry for bitcoin is:
bitcoin, noun:
a digital currency in which transactions can be performed without the need for a central bank. Also, a unit of bitcoin. [ORIGIN early 21st century: from BIT, in the computing sense of ‘a unit of information’ and COIN.]
The term first appeared in late 2008 in a research paper, and the first bitcoins were created in 2009. By 2012, the virtual currency was attracting wider attention and we began to see its steadily increasing use. A spike in usage was apparent in March – May 2013, which may be due in part to the market crash around that time.
