There is speculation that Mt. Gox had been fractional for at least 6 months, and that Karpeles tried to buy back his losses and wound up igniting the $100-to-$1200 spike.
It's interesting that the price has fallen since then, and continues to fall. Either everyone is simultaneously becoming wary of Bitcoin, or there are other forces at work.
The other possibility is that since coin is concentrated into the hands of a few, those few can tank the price if they feel like bailing out.
Also, it's probably a good thing that the price has been correcting itself. It's still dangerous to its users, so until the fundamental problems are fixed, it probably shouldn't be priced too highly. I've written about why it's dangerous to its users here: https://news.ycombinator.com/item?id=7521906
This is one of those moments when I feel like I'm missing something obvious (or a key piece of info), but wouldn't the fact that Mt Gox had gone fractional mean that they had created a lot of artificial supply that should have put downward pressure on the price? Further, wouldn't that pressure be somewhat proportional to the upward pressure he created with the buy activity, given that he was trying to make those fractions whole again?
Edit: It just seems that there had to be some outside demand that subsequently dried up. Otherwise, we would expect to see at least a gradual, steady decline in price as he created more and more artificial supply. I suppose that could have then been folllwed by the dramatic rise if he was in too big a hurry in his recovery buying, but again, there seems to be some actual demand that went missing at some point.
Yeah, it would be, if all players in the market knew how many bitcoins (including the marginal bitcoins "created" by gox) were in circulation. /and/ if the value of all bitcoin was fixed over the time period.
Silk Road?
I forget what the other 'evidences' were but it seemed like they were trying very hard to drive the price up. And they would frequently shut down altogether if the price started to dive.
Most people who were paying attention considered Mt. Gox toxic and avoided them as much as possible since the $250 peak-then-crash of last year. It wasn't just the can't-really-prove-it suspicions, but also things like a trading engine lag of 4 hours.
Recently, a lot of the price fluctuation seems attributable to what Mt. Gox has been doing. When the price at Mt. Gox fell to $100, imagine how easy it would be for Mt. Gox admins to buy btc from their customers and then sell at bitstamp/coinbase for a giant return. Rinse and repeat. Only Mt. Gox should have been affected, but all of bitcoin tanked, suggesting that maybe Mt. Gox was actually doing a lot of selling.
None of this is proof. I have no proof more solid than what I stated. But I'm fairly convinced that Mt. Gox has intentionally and successfully tampered with the price of Bitcoin for the past year or more.
This is almost the opposite of public companies, which rarely issue new shares, and have a constant buy pressure coming from 401k plans and other automatic investment vehicles.
Right now the institutional news all looks negative -- e.g. the failure of mt gox and the unfavorable tax treatment in Japan (and now the US).
So that's an increase of .02% per day.
This doesn't come close to accounting for the price swings we've seen in the last 6 months. There are much larger forces at work. What these forces are exactly is...difficult to determine.
How about: "lots of people who bought at the top of the BTC hype are now abandoning the BTC market because they lost faith in their get-rich-quick scheme?"
The meteoric rise and slow but steady deflation in the BTC price you see now has all the properties of a classic, media-fueled bubble. At one point people who were never interested in monetary systems or cryptocurrencies at all, were asking me how they could buy BTC because they heard on the news it went from $100 to $500 in a few weeks. These are not idealists or miners, but just hoped to ride the hype train up and make a few quick bucks without actually having to work for it.
I don't think it's 'difficult to determine' why it's fading now. Maybe if you completely live in a kind of echo-chamber that HN appears to be on topics like this, but looking from the outside it all makes perfect sense.
1. In theory difficulty and hash rate should follow the bitcoin price, but they don't. You'd think that as price decreases difficulty re-adjusts as miners pull out but difficulty and hash rate continue to increase and are completely disconnected from the price. Charts:
Difficulty:
https://blockchain.info/charts/difficulty
Hashrate:
https://blockchain.info/charts/hash-rate
Price:
https://blockchain.info/charts/market-price
Because of the disconnect, you can conclude that most mining business models are based on the future price of bitcoin. The miners are either true believers in the future potential, or they are effectively stuck because they have sunk upfront real USD but are currently mining at a loss and have no choice.
2. Most mining at the moment is being done at a loss. This continues from point 1, but if you look at a mining calculator your can work backwards and calculate at which electricity price point mining is currently profitable at.
As an input for our calculation, lets assume all miners are running the equivalent of a KnC Neptune, a new 20nm-based board that hasn't been released yet but it due out in a month or two (hah!):
https://bitcointalk.org/index.php?topic=347597.0
We will normalize their figures based on price per TH hashrate, and price per GW output. They promise 3TH for $10k, and they promise 2,300W.
So for each TH it is $3.3k upfront, and 733kw/h to power that TH.
Plug those figures into a calculator:
http://www.bitcoinx.com/profit/
Your gear is generating $32 per TH per day, so $96. To pay off only your hardware would take 104 days, this is with 0 electricity cost. You'd need to find electricity at a few cents per kw to break even[0]. The sums aren't good.
[0] This is possible in only a couple of places, mostly scandinavian nations with geothermal electricity supply or nations where electricity is subsidized like China and India. Even at a low 8c/kw your hardware (which is being delivered) is paying itself off in 118 days at todays difficulty rates (which won't hold).
3. A big problem with mining is that your investment decision is inelastic (not sure if that is the right term). You decide to invest at todays difficulty and bitcoin rate but outside of cloud-based mining you don't actually get started mining after placing your order for at least a month, often 5-6 months. So that means when there are little openings in the window for mining profitability everybody piles on, and you find when you get up and running that your mining estimates are an order of magnitude off because a lot of other people had the same bright idea.
The hashrate and difficulty charts show that with their increases. If you plotted the announcements of new generation mining gear against those charts in the same way Google News does you'd likely find that each big spike is equal to in time as new_mining_gear_announcement_date + new_mining_grear_delivery_date
4. Newly mined coins can't be transferred for at least 100 confirmations. This was an impromptu patch applied by the bitcoin project and a number of markets to defeat some sort of bug, but I can't recall or can't seem to find the details at the moment and can't recall what it was fixing or if the 100 number is correct. If anybody knows the details of this, i'd be interested in finding it again.
So when looking at the blockchain for newly minted coins, you'll never see them move immediately, there would be an at least 100 transaction delay (which isn't long in real time terms).
5. On non-volatile days the markets combined trade around 15M coins. On highly volatile days like today the combined volume exceeds 120M coins. 3,600 new coins are mined per day, so their input ranges from 0.01% of coins traded to 0.002%.
Note that this is traded volume, rather than percentage of coins, and the low trading days are often only a few million transactions per day.
6. You can follow the newly mined coins on the Blockchain. Ghash.io is anywhere from 35-50% of the total hash rate (which in itself is controversial) and their newly generated coins go to this address:
https://blockchain.info/address/1CjPR7Z5ZSyWk6WtXvSFgkptmpoi...
You can see that most of the coins remain unspent, and GHash.io is a unique case where you'd expect more of the coins would be spent, which i'll explain in my next point.
7. The hash rate and return itself has now become commoditized and can be traded like a derivative. cex.io was a pioneer here and they have an active market for buying and selling GH/s mining. Their pool is the GHash.io pool mentioned above.
Their current price for a GH/s of mining hashrate is 0.01058690 BTC, or around $4.03 USD. If you compare to the yet unreleased Neptune above, it is $4030 per TH/s vs the Neptunes $3,333 per TH with no electricity costs - and you can move in/out as you wish.
I have previously profitably traded on cex.io using an automated trading bot. It hasn't been active in a long time because I haven't updated it to suit the new conditions.
Here is my referral link to signup to cex.io, I get 10% of whatever you purchase:
Here is the base open source version of my bot, which doesn't have any of my strategies built in it, but which can be extended:
https://github.com/nikcub/cexbot
I'll likely bump the version currently there with my new strategy interface in the next few weeks since I believe there are new opportunities in GH trading again on CEX. If you're interested in trading strategies, get in touch. The most basic mechanism in that bot will take your mining return and pour it back into purchasing GH/s so that your returns are compounded.
A lot of the return you get in CEX is from the other coins that are mined alongside Bitcoin when you purchase GH/s.
Note that nothing in the bitcoin world really makes sense, so the rules from normal public stock markets or strategies that might work there don't apply in the bitcoin world. You can see from the disconnect between hashrate, difficulty and price that a large part of Bitcoin price and market movement is speculation and emotion driven. You can still take advantage of this, though - as a lot of the price is driven by news events and emotional reactions to them.
Since it is so easy to move in/out of mining on CEX, you'd assume their mined coins are more liquid than the miners who setup long-term projects and are looking for a return based on future bitcoin price, but even at the CEX.io address you see only a small number of coins being moved.
8. In theory it would be possible to go back through the blockchain and measure/quantify what percentage of newly mined coins in a certain time period are being spent. Anecdotally i'd estimate the percentage is very low, and that most coins in circulation are greater than a year old (eg. i'd estimate 99.5% of traded coins were mined +1 year ago).
tl;dr: the current mining business model is based on future bitcoin price, most newly mined coins are held.
The real reasons people continue to mine are one or more of these: -It is fun -It secures the network -They wrongly think they will make a profit
kw=kilowatt, a unit of power; kwh=kilowatt-hour, a unit of energy
Electricity is billed per unit of energy.
I think illiquid is the term.
(Edited for clarity)
This ignores efficiency increases in mining hardware. We've basically seen an increase in efficiency of at least 10,000 times, over the past years, from CPU mining (~5000W/GH) to ASIC mining (~0.2W/GH). This completely disconnects the Bitcoin price from mining, and this will continue to happen, as developing more efficient mining chips won't stop, although the rate of efficiency increases will decrease.
So difficulty and price will never correlate, because mining keeps getting more and more efficient.
so perhaps they hold onto their supply, instead of selling at what they think is an artificially low price. but perhaps they panic and decide to unload - prices falls further. either way, the calculation that got them started is much less attractive.
plus, if the incentive to mine drops, the processing power of the network drops, could eventually increase the likelihood of a hack.
https://blockchain.info/charts/hash-rate
The miners, never, stop. Completely disconnected from the market pricing.
(Please excuse the sketchy math in the following post. these figures are just based on searches on Ebay/Google. Most of all I don't know who's doing the majority of the mining and at what scale.)*
(Low End) ($490 investment in mining) At the current level of mining difficulty a machine that has a hash rate in the 200/g/. Returns about $6.00 worth of BTC a day. http://www.alloscomp.com/bitcoin/calculator.
I searched "200 gh/s" in a site that crawls Ebay, The machines for sale at this hash-rate costs about 490. You would recoup the cost of the machine in 81 days.
http://www.thepricegeek.com/results/200+gh%2Fs?country=us
If it takes 81 days to break even on your investment, even if bitcoin doubles in that time frame you basically made the price of the machine as profit ($490 in 81 days). (meh)
(High End) (18k investment in mining)
Machines in the single digit tera-hash realm come in at under 20k, they peak at 15-20K per machine. Let's average the price at 18k. They make $90 a day according to the calculator. This would mean you would need 200 days to recuperate the cost of the machine.
In this case it takes 200 days to break even on your investment. If bitcoin doubles in that time frame you made 18k in 200 days. (the online calculator said power costs in this time frame are around $70.)
I'm assuming individuals in both these positions are have long-term holding in mind. My rationale is: getting substantially richer in either case requires the price per coin becomes drastically higher. You're also not hemorrhaging money in either case (power costs seem reasonable). It makes more sense for miners to hold as much of what they mine as possible. Both positions seem to hedged on a BTC being priced a lot more higher, in this sense hard to imagine miners to be selling in great quantities.
I also feel that people DIRECTLY buying and selling bitcoin would dwarf the selling pressure of the majority of miners. The barriers of entry for this also seem much lower than setting up the hardware.
You need also to take demand into account.
Of course, Bitcoin is not issued by a QUANGO whose chair appointing government has 10 aircraft carriers, over 5000 nuclear missiles and so forth. Anyone can start up a Bitcoin like currency (Litecoin, Dogecoin etc.)
Bitcoin the Currency doesn't have a chance of taking off until all of the above go away. When they do (if they do?), THEN we can have a real conversation about the future of money. Until then, however, this is going to be the same pattern we've seen over and over again for thousands of years. I hope for the sake of the folks that have invested $millions (VCs, etc.) that this time it's really different.
For money transfer, I freq hire foreign employees for a variety of things like scouting large markets in Lagos to see what kinds of apps can be made for it, a survey on local Pakistani payment methods and currency exchange storefronts, translations in various countries ect. Paying by using existing remittance methods like western union and others had me flagged immediately and all my outgoing transactions were seized for "proof of income" and all sorts of other nonsense, even for small amounts like $150 transfer to Sri Lanka. It doesn't matter if I do this completely transparently, and operate through a business once you start moving money to the developing world and they aren't family members problems arise.
I now send them bitcoins and direct them to whoever is cashing it out on localbitcoins.com.
In every case, they made more money than what I sent them since supply of bitcoins in those countries is scarce so worth much more than the price I paid(1). Argentina localbitcoins is paying almost 2x what I buy them here for.
(1)Of course I've also lucked out, there hasn't been a massive price drop between sending the coins and cashing them like there was the other day when it fell almost $200
Edit: Another bonus of bitcoin is 3rd party payment. I can pay somebody local here cash at a cafe a block away and they directly load the bitcoin address of my contractor, so I don't even pay micro transfer fees, or even need to handle coins myself. Usually it goes straight to their localbitcoin.com account and within 20mins they can sell the coins, reducing price fluctuation risk.
I foresee the same for Bitcoin. It will crash hard - heck, one could argue that it already has - but once people stop seeing it as an "investment" and start seeing it as something useful, cryptocurrencies just might rise again.
For most people that's true. I certainly can't pay my rent in BTC, so they'd have to be converted into actual currency to be of any value to me.
The dollar fluctuates in value too. It is just older and bigger, so it moves far slower.
To me it also shows how speculative markets poison everything they touch (solar panel bubble 2011-2012).
Here's an even better one: http://www.forbes.com/sites/timothylee/2013/04/11/an-illustr... It has a few crashes up until April 2013.
Get over it.
The VCs who have peddled this garbage are going to look like a bunch of frauds and fools. Not that it will materially affect them. The Cassandras who have been warning about Bitcoin will continue to be ignored, the press will still beat a door to put a microphone in front of these snake oil peddlers. With the talk of a bubble - if there is any sign of a bubble, it is a bunch of useless hashes like Bitcoin becoming worth $5-12 billion.
I suggest anyone who bought Bitcoins go read the Bitcoin FAQs of why Bitcoins are worth anything. It is complete nonsense. Moreover it is not falsifiable. It is basically "they are worth something because people think they are worth something". So even if Bitcoin crashes, that theory can still stand, since it can not be falsified. That stripe of value theorist can just say people stopped thinking Bitcoins were valuable, so their price fell.
Wise people can take the rise and fall of Bitcoin and ask real questions about where the value of commodities come from. The answer of the Bitcoin theorists, which is not that far off from mainstream economists, is a far cry from what economists like Benjamin Franklin, David Ricardo, Adam Smith thought the value of commodities came from.
I already mentioned how precious metals have retained value over millenia. Some Bitcoin advocates point to the dollar and say if the dollar retains value, why can't Bitcoin? This is a complex issue which would take too long to go into here. For one thing, the dollar does not retain its value - a dollar from today is worth much less than a dollar in 1978. Also, the conspiratorial gold bugs who say the dollar is about to collapse are probably overstating the immediacy of the problem - but that does not mean there is not a kernel of truth to their worries about paper currency. Just look at the history of currency from antiquity up until the Weimar Germany Mark to see why. No magic bullet has been found since then making the dollar bullet proof. Their worries may well be found to be correct, although probably are nothing to worry about for several decades.
I'm sick of people treating the exchange rate of bitcoin as a metric for how successful it is. It doesn't matter.
>There's a reason precious metals like gold and silver have retained value for millennia, and schemes like this have not.
Ironic you would mention that. Gold only has value because people believe it has value. It's also somewhat volatile and not immune to bubbles.
Paper currencies are far more widely used and accepted than bitcoin and work just fine.
Not true, gold has both ornamental and practical value (can be used in semiconductor components for instance).
Gold and silver don't really have bubbles, they are kind of anti-bubbles. When it seems the music is about to stop in the musical chairs of the world economy, people pay a premium for precious metals because they feel safe in that they have value. Bubbles tend to happen in a go-go economy, precious metals become temporarily overpriced when people are worried about the world economy. Like the era when the Hunt brothers were buying silver.
http://colabopad.blogspot.com/2013/04/bitcoins-agent-smith-p...
I think there is a future in virtual currency but it will have to be anchored to reality.
"they are worth something because people think they are worth something".
gold and the paper currency is printed on is only worth something because people think they are worth something.
Paper currency is backed by a government promise. Of course, if people lose faith in a state or a government persistently debases the fiat currency, people will lose confidence in it. But as I've pointed out before, while there have been many hyperinflationary episodes, it's not that frequent of a problem relative to the number of countries and currencies in existence.
Gold has value. It can be used by dentists. It can be used in electronics. It has been inherently valuable for millennia.
As I said, paper currency is too complex a topic to go into fully here. Unlike gold, it obviously is not inherently valuable. You can look at Weimar German marks, Confederate dollars etc. to see that. Or even a US 1978 dollar versus a US 2014 dollar, to some extent. People who think Bitcoins can be worth something because the dollar seems to have some value are going to learn a hard lesson.
Here is a post I made 143 days ago, at a time when Bitcoin was seeing high after high every day -
https://news.ycombinator.com/item?id=6753545
Bitstamp Bitcoin was worth $460 that day. Today it is worth $350.
People who would have listened to me and those who agree with me then would be a lot better off now, especially if they had shorted Bitcoin (which is doable, sort of).
I was right saying Bitcoin will go down. It will continue to go down. That the Bitcoin bagholders and snake oil peddlers of HN will downvote me into oblivion is instructive. Not that I mind, I am only losing a little bit of HN karma while they have obviously lost thousands of dollars. They would be better off cutting their losses and trying to learn a lesson about their mistaken belief system then deciding to remove karma from those who observe that the emperor wears no clothes.
Yeah, because gold and silver are good to use as money. They are fungible, long lasting, easily identifiable, can be divided without losing total value.
Kinda like bitcoin, except it can be traded with anyone with a computer over the Internet.
Bitcoin has plenty of uses that gold and silver can't touch. But that doesn't make it a precious metal by any stretch.
In the greater scheme of things this fall is no more significant than the last falls when bitcoin dropped from $30ish to $2, or when it dropped from $267 to $50ish. The question still remains: will bitcoin become a standard for online payments and a medium of savings? If it will, it will be a bargain whether it's $10, $100 or even $1000, and all these price movements, and the kerfuffle they cause will seem amazingly quaint to those looking back on the past (our present).
From a purely technical perspective, there's no buy signal (yet).
Catching a falling knife is always a bad idea but seeing them before they fall can be highly profitable. It's just a shame there's no readily available vehicle for playing BTC on the short side.
Might cash out my short term portfolio and dump it all in if it keeps going in this direction.
I don't want to be kicking myself again!
It might stabilise now, but my hunch is it will stabilise around the $200 mark.
The major impact of that last decision will be on consumer adoption. Now, every time I want to make a transaction, I need to keep track of my taxes. I know that some wallet services are already developing ways to keep track of this automatically, but that's just an extra headache for the average consumer. This in essence will force consumers to think of bitcoin more as an investment, rather than a "currency" they can spend, and that will impede adoption.
I know nobody here likes to hear it, and I feel like a lot here in SV are tuning this out, but bitcoin is really, really struggling to find a relevant use case with consumers. Regular consumers have absolutely no reason to use bitcoin. The "1-click" payment and 1% price discount are not appealing enough to the average Joe who already gets 1-2% cash back, airline miles, and consumer protection on his credit card (and 1-click checkouts on many e-commerce platforms). And more regulation isn't helping the "crypto-anarchist" decentralization angle either. Add price volatility to that and it kills the consumer use case.
But... how about micro-payments? Consumers have always hated them. http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.ht.... (Shirky, 2000)
But... how about international transactions? Hard to beat the fees at https://transferwise.com.
Bitcoin is great, FOR MERCHANTS.
BUT PAYMENTS IS A TWO-SIDED MARKET. A winning product must appeal to both sides, the buyer and the seller. Bitcoin appeals to the seller at the expense of the buyer.
Consumer adoption is going to determine whether or not it succeeds on a grander scale. Unfortunately, Bitcoin does not solve a problem for consumers. Especially with tap-tap mobile payments around the corner.
When it comes to money, consumers want to be insured and cuddled and protected and not run the risk (however small) of being criminally liable for transactions and have someone to speak with if they make an erroneous transaction or have their card stolen. And they can already do all that, which makes it tremendously difficult to compel them to change the habits they've had in forever to adopt a system that does not provide them with significant advantages.
I've been in bitcoin since 2011 and used to be a big believer, but I don't see bitcoin gaining traction with consumers, in part because of the huge regulatory risk. Any significant threat to the banks' business will be met with harmful regulatory control (friendly reminder: Wall Street banks fund the largest political lobbies in Washington). It could be destined to eternally remain a store of value (like gold) or find very targeted applications (like specific types of machine-to-machine payments). The underlying blockchain technology could be of more use (if adopted by the banking system, for example) but that is still far in the future.
I don't think it is really that bad. To keep things simple you can just have two accounts one for your long term BTC investment where you have cap gains and losses and another for your spending money that is empty unless you want to buy something and then you buy enough BTC for your transaction which you immediately spend so you have no gain or less to keep track of.
I expect Bitcoin to start raising again after April 15. Why? https://plus.google.com/100577178258662783679/posts/crrFWPrc...
Taxes also apply the moment coins are mined. See question Q-8 in the IRS notice.
Too many investors not enough users?
As someone who owns no bitcoins I find the whole thing fascinating to watch.
This, very much. Bitcoin was designed as a currency, not as an investment vehicle. Most use it as the latter, which causes problems.
They won't be hurt for a long time.
If it takes me a few months to recoup my losses, that's okay. My biggest concern is that it'll level out around $95 and never rise up to $800 ever again.
It is good that the price is going down since more people will buy Bitcoin now.
Also, probably more importantly, Mt. Gox was constantly pushing the prices higher because nobody could withdraw USD, so the only way to get out of Mt Gox was to use all your USD to buy bitcoins and then transfer them to another exchange.
(not saying it won't take months, but we've seen the price go up 5x in a couple of days..)
wish I had money at this moment.. would be buying :\
1. https://news.ycombinator.com/item?id=7210538
2. https://www.youtube.com/watch?v=eYDkGJmSfy0
__________
Disclaimer: Don't copy what I'm doing unless you understand the risks; I could very well lose all my money... in fact I probably will lose it all :-P
Thanks for the tip, guys and gals.
