I have to say, after the big piece appeared about price manipulation / fraud / whatever on MtGox, I have zero confidence that this is a genuine rise.
Caveat: I'm not an "active Bitcoiner", just a casual observer. And I can tell you that my view is now irreparably tainted.
The "normals" I interact with continue to not use Bitcoin for anything. It's even stopped coming up in casual conversation (likely because the tide of consumer news stories has slowed). From my perspective, the Bitcoin economy continues to be powered by people who have either mined or bought BTC and are just exploring new ways to spend their windfall (Overstock! 50 Cent's new Album! Dish Networks!)
There is still no incentive to get paid in BTC, no incentive to use BTC, and no incentive to hold BTC (as the recent spike shows, it's still incredibly volatile).
For now, I'm holding on my belief that the Blockchain is the real story here -- and we haven't yet discovered the killer app (which I _don't_ think is BTC).
You are questioning trust in the markets connected to the Bitcoin network. You make it clear that trust can't be regained by saying it's irreparably tainted for you.
I agree with the assertion there may be things plugged into the network which affect price in either a (unnatural?) negative or positive fashion. /r/bitcoinmarkets has been talking about China intentionally pushing the price down for months now by way of implementing marketing sentiment, China style. However, I believe there are far more positive connections being added to the network (as you mentioned in your comment) and these connections will bring added value and stability to the market by acting as dampener to value manipulation.
Overstock has real sales with BTC. Sure, they aren't much, but it's a good start for what is essentially the world's largest startup. The only reason we're not all circle jerking each other over Bitcoin like we would something like Instagram (photo sharing site sold for $1B? really?) is because of what cryptocurrencies in general represent for humanity: computed trust. Trust implemented by a thing that we all run and none of us can stop except maybe for the devs, which requires consensus. That's a POWERFUL and scary tool.
When something messes with trust, interest and fear, you get the AWE response from humans. This results in either great joy from trusting and being interested it, or anger from fearing it. This is why discussions around Bitcoin are so polarizing.
Killer apps bring trust in a widespread way. Killer apps for powerful tools aren't invented overnight. It takes conviction and hard work to figure out opportunities and it usually requires lots of experimentation. Resenting or judging based on the fact some will fail in a given time range is illogical. I do hear you when you say you think the blockchain is the real story. I agree, but in a much broader sense of any type of computed trust.
To be successful, cryptocurrencies don't need "normals" to adopt them, or Walmart to accept them, or for the exchange rate to double every six months.
It's perfectly OK if they remain a primarily black-market phenomenon, the currency of System D [1]. Use dollars at Walmart, euros at the train station, and Bitcoin for remittances, VPNs and burner phones.
As repressive regimes restrict personal freedom in the "legitimate" economy, and as the global 0.1% extract ever more wealth from working people, System D will become larger, more sophisticated and globally connected.
Cryptocurrencies enable human freedom and dignity through System D. They provide independence from those who would control you and from parasites who profit from your labor.
Spend your dollars on consumer trinkets and meaningless entertainment. Save your Bitcoin for what matters.
For those who, like me, thought of the init system and were very confused confused:
> System D is a slang phrase pirated from French-speaking Africa and the Caribbean. ... They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of “l’economie de la débrouillardise.” Or, sweetened for street use, “Systeme D.” This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.
We're still very early in the bitcoin story. Every "chicken and the egg" market gains traction like this - the start is fueled by early adopters on one side (btc buyers and miners) while the other side slowly opens up to it (venders).
Since it has such low liquidity, it is also manipulated to hell and back by various bots, exchanges, scammers, etc. There was an article floating around that showed most of the last price rise was beside of a bot operating on MtGox:
http://willyreport.wordpress.com/2014/05/25/the-willy-report...
Nothing is stopping another exchange or malicious person from doing the same thing.
Chargebacks, while inconvenient for vendors, provide utility to consumers, especially online when there can be a long delay between paying and getting to receive/examine the product.
Chargebacks do provide utility to consumers, but they also provide utility to scammers and fraudsters, who use chargebacks to steal more than $10 billion a year in the US alone. The cost of this, and fraud prevention and dispute resolution, is ultimately passed back to the consumer as higher prices.
From the most negative point of view, the chargeback mechanism could be seen as a sleight of hand marketing trick that was necessary to get consumers to accept new payment methods, by hiding the real costs.
When people mention "no charge-backs" as an incentive to merchants to use bitcoin, they seem to not realize or gloss over the fact that for that benefit to be realized would require the merchant only transacting in bitcoin. It's not like they can say, charge-back scammers have to use bitcoin, everyone else, credit/debit is fine.
I can't imagine that there are many business where the cost/benefit of only accepting bitcoin to eliminate chargeback losses makes sense.
It doesn't have to be so black and white as that. You can take into account other factors such as country of origin of the consumer and identifying information provided as whether to accept a credit card payment or not.
I have never ever had to request a chargeback from my credit card company. I have, however, returned many items which were voluntarily refunded by the merchant, even those items paid with cash or cash equivalent. But then again, I also don't buy from sketchy vendors that have no incentive to want to gain/maintain your trust.
I made a purchase from a site operated by an artist I had been a fan of for 8 years. The order was never fulfilled despite my PayPal account being charged. No one from the site ever returned my messages. I reversed it without issue. If it had been bitcoin, I'd simply have lost the money.
Consumers like knowing they have an element of protection when buying something from a store they can not visit from people they'll never meet. As someone that has worked with ecommerce websites for the past 15 years and currently has $110 worth of bitcoin in my wallet, I don't think that is likely to change anytime soon. Especially not with the current pitch of bitcoin.
Collectively we (as a generation, let alone a culture) haven't reached a point where more shopping is done online then in person. Until we start to approach that point we don't start to a bigger push for online digital currencies form the general population.
And even then "online digital currencies" aren't really particularly needed where there are satisfactory online digital payment mechanisms denominated in traditional currencies.
The report you refer to, about the bot at MtGox, is itself speculative, interpretative, and proves nothing. Just a heads up, before you jump into your radical conclusions:
An Occam's Razor approach to understanding the data, is that the bot was performing legitimate buys for an institutional investor who would have made a deal offline, and directly, with MtGox. There is a perfectly plausible explanation to the bot that is not nefarious. So, please reconsider you "irreparable" decision, since its basis are far form solid.
There are many reasons to believe the rise is 'real', especially that the fundamentals are enormously more solid now than when it crossed $650 now than when it reached that price for the first time (in november).
Fundamentals, you say? I am afraid that there are more serious ways to learn about those than whether the "normals" you interact with are using it or talking about it just now. Your personal perspective might not necessarily provide the whole picture! I recommend you get your data from a site like http://www.bitcoinpulse.com/ check it, please, and tell me if you still stand by your arguments.
Also, 'volatility' is not argument enough to eliminate the reasons why people like to be paid in Bitcoin. I prefer Bitcoins over Dollars without hesitation, and I am very glad I have been paid in Bitcoin in the past. Other people just want to accept any kind of money their customers want to give them, and eliminate the volatility exposure by using Bitpay and the like.
I didn't downvote you, but I am guessing you were downvoted because your comment didn't add value. It's basically just saying, "I agree" which, by the way, you could have indicated by simply upvoting your parent.
I've a similar attitude towards Bitcoin. To use it I'd need to understand it and why it's seemingly so easy to get taken by an exchange. Understanding that takes an investment of time. I've yet to see something more compelling (to me) than "no charge backs" to justify that investment of time.
Some people have been expecting a ~May-June rise for months [1]. If you look at a log plot, and believe that the future has something to do with the past, this conclusion has some legs. News articles like this will tend to drive the hype again, repeating the cycle, perhaps with smaller amplitude.
If enough people believe it to be true, it will happen, at least temporarily.
The efficient markets hypothesis has a hard time explaining behavior in real markets.
In theory, traders search for asset prices that are higher or lower than fair value and profit by arbitraging back to fair value.
But in real markets, rising prices encourage more buying, which drives prices even further from fair value. Falling prices encourage more selling, pushing prices lower still.
Markets don't price to what traders think is fair value. They price to what traders think other traders will think the price will be.[1]
We have reached the third degree where we devote our intelligences to
anticipating what average opinion expects the average opinion to be.
The very existence of persistent booms and busts debunks much of efficient markets theory, and consequently the illusion that free markets can regulate themselves.
Yes. In the short term markets are a voting machine. In the long term it's a weighing machine. That's to your point about arbitraging back to fair value.
How hard is it to short Bitcoin? That will determine the susceptibility to manias and panics.
How many do you have? What is "sufficient" collateral?
If someone has the cash, is able to withstand volatility, and the rates are low enough this trade is a no-brainer. BTCs have no intrinsic value and are propped up by speculators. Aside from speculative interest, they only have value in so much as they can be exchanged uniquely online, but they are just as useful for doing that at $0.0001/BTC as they are at $1000/BTC. Long-term I would not be surprised to see them go to 0 or some nominal amount.
ETA: Odds are nobody will loan you enough at a low enough rate to make this trade worth putting on. It's like how you can short leveraged long and short ETFs and make money due to volatility decay, but nobody will lend them cheap enough for it to be worthwhile.
People said shorting Bitcoin was a no-brainer when the exchange rate was $2. When the exchange rate rocketed to $10, many serious, smart people just knew it was a speculative bubble.
Rinse and repeat for each leg up ... $32, $90, $240, $1100. Same arguments every time.
Given historical volatility, I'd say fair collateral for a short sale would be 300% of the current exchange rate in USD, EUR, CHF or gold, with a margin interest rate of 6% per month.
In order to exchange them someone needs to buy them first. So, depending on how much they are used for trade, the amount held transitively for this purpose will vary.
Since there is a fixed number, the more popular they become as a trading platform, the higher the price will go, since if many people, P, need to trade at the same time, and they need an average of $X worth at any given time, and there are B bitcoins available, then $X * P / B is the minimum price a bitcoin can be.
So, if the amount used for trade becomes somewhat stable and/or continues to grow, it means there is some real base dollar value for a bitcoin in order to support this. Given this base value, along with its other features of easily being kept safe and transferred across national borders, it then makes them attractive to store wealth, which increases the value much more. And then, given the group of people willing to store wealth in bitcoin, it makes people even more confident in it as a store of wealth. And so on and so on...
The January effect can be explained by the impact of taxes and various metrics used to gauge performance of money managers. Large cap and small cap stocks react differently to the January effect. There is a correlation between January and performance but no causation. If these other factors changed the January effect could disappear or move to another time of year.
There are limits to arbitrage. Little players can't really move prices and big players are the ones causing the effect.
I don't believe the market is efficient, especially short term. I believe that in the long term it is efficient-ish. Value strategies try to take advantage of mispricing from short term thinking but stocks can stay mispriced for a very long time.
For those who have been using Bitcoin for years now it's completely fascinating that people still doubt a technology like this that's seen _so many_ ups and downs and yet it just refuses to die. It stubbornly refuses to fail despite everyone's best wishes that it inevitably should.
It is possible it refuses to fail because a lot of people are heavily invested in it financially and monetarily and are still able to artificially prop it up. Support like that cannot last for ever.
I don't think it's meant as a model of wealth redistribution. I personally just like the fact that Bitcoin allows me to pay for things in a one-time sort of way. For example, paying for pornography would be brilliant. I don't want something as edgy as that linked to my physical address or credit card in any way.
Bitcoin is also driven by market sentiment, and the current sentiment is quite positive after the much needed Gox purge and the latest news (DISH, UK Gov support, etc)
Btc has recovered before from serious crashes and I'm pretty sure next Christmas could smash the current ATH... It really feels like last September/October or March '13.
I wonder what the financial gurus with bitcoin-is-going-to-10-predictions [0] say about that if finally their predictions fail...
Noticed this jump over the last few days, randomly checking the price with DDG. It's never clear what's behind these things, but I'm sure there will be some explanation (when the jump has reversed, no doubt).
The "Bubble Watch" graphs have been updated daily for several months in anticipation of a future bubble. Bitcoin's market price has spiked seven times since its inception, every 220 days on average, and the above graphs overlay the previous bubbles with the current performance to predict when a bubble might occur.
Such charts may be a self fulfilling prophecy, though it's interesting to see how well the past bubbles align with the current spike.
To get another view of the past bubbles, go to bitcoinwisdom.com, set "Settings -> Scale -> Logarithmic", and change the view to 3d.
You know what WAS 15 days ago? Our launch. I can't share transaction volumes or any other metrics right now, but I will say they have been substantial and are growing naturally and introducing a brand new group of people to Bitcoin.
I'm getting downvoted with a previous comment because it probably looks like spam but you can find me online if you want more details on who we are and what we make.
My company launched a Facebook Bitcoin wallet two weeks ago and we've been seeing a lot of organic viral growth. We've had a few people in the Bitcoin community say that they're sure that it must be our app and the press related to such consumer friendly Bitcoin applications.
I have zero evidence to support this except, perhaps, Occam's Razor and Bitcoin history, but I believe this to be either fraud or manipulation. In fact, I believe the majority of Bitcoin's price, whether volatility or stability, is not the product of natural market forces.
How does an asset with virtually no underlying value remain so remarkably stable for long periods? Then, how does that same asset suddenly experience such sharp increases in value and volatility?
There are those with huge holdings who have an interest in stability for the sake of its adoption as a currency, and its long-term value. They can easily manipulate the market towards stability. And, as we saw with Mt Gox, unsecured and unregulated exchanges can also be a vehicle for market manipulation and outright fraud.
I know that opinion is unpopular with some, especially without hard evidence, but many also believed the increase before the Mt Gox fiasco was organic.
I am not a Bitcoin hater, and have dabbled myself for a decent return. I just think its past time to secure it properly and earnestly acknowledge its vulnerabilities. That vs. pretending that any of this makes sense from a traditional market perspective.
How does an asset with virtually no underlying value remain so remarkably stable for long periods? (...) There are those with huge holdings who have an interest in stability for the sake of its adoption as a currency, and its long-term value.
Long periods? Long-term? When has ever Bitcoin experienced this? Looking at the graphs, I don't think I can find a single month where Bitcoin remains even close to stable.
"There are those with huge holdings who have an interest in stability for the sake of its adoption as a currency, and its long-term value. They can easily manipulate the market towards stability."
I didn't say that it was "suspicious". I said it was manipulation. It appears that you agree?
But, maybe you meant to ask why such manipulation is bad, unhealthy, or similar?
In any event, my comment was directed at the general pontificating about why the price is on the move, which always occurs during periods of volatility. That discussion takes place as if we are talking about, say, an asset that is traded in a free market. But, my point is that it is not a free market and that the price is instead dictated more by manipulation and fraud.
This could just be a correlation but the BTC/USD price seems to be inversely correlated with MtGox news. Trending down when rehabilitation/takeover looks promising, trending up when Willy report comes out and the momentum of the takeover bids seems to stall.
It will be interesting to see how this will work out in the long-term. Currently the cost of Bitcoin transaction is already at around $50 which makes Bitcoin transactions quite expensive. The only reason why this cost doesn't matter yet is because the inflationary factors (new coins, etc.) are smaller than the deflationary factors (more adoption, etc.).
I see Bitcoin as something like the 2nd-gen P2P file sharing systems (Gnutella, etc.) where a radical decentralization approach was taken to counter weaknesses of the earlier generation (P2P: Napster, Currency: E-Gold). In the P2P world we figured out that a small amount of centralization provides benefits and is acceptable (e.g., Bittorrent). I suspect that in the e-currency world we'll be going a similar route, where successors to Bitcoin will use Ripple-like concensus systems instead of proof-of-work [2]. This should not only allow to significantly reduce the cost per transaction, but might also allow to make the network more secure in practice (as the number of validators in a concensus approach will be much larger than the number of mining pools with signficant hashing power in the Bitcoin world).
[2] Proof-of-stake is a nice theoretical approach but due to the complexity involved it will probably take some time until a solution is found that also works well in practice. Proof-of-stake as implemented in Peercoin is basically outdated, something like Slasher (http://blog.ethereum.org/2014/01/15/slasher-a-punitive-proof...) looks more like a viable solution.
EDIT: As there has been some confusion about the $50 transactions costs: I'm not talking about direct costs for the person who initiated the transaction, but about externalized costs that are paid by the whole network. See my responses below.
The cost of a bitcoin transaction is not $50, it's about $0.06. Often times, such as for large transactions or moving old coins, you don't need to include a fee at all.
The direct cost per transaction (= the mining fees paid by the person who initiated the transaction) is $0.06. The externalized cost per transaction (= the block reward divided by the number of transactions) is $50.
(1) That's not made apparent in the sentence (why leave it for a footnote?), and (2) you haven't explained why that number is actually meaningful.
Edit: I don't know much about this stuff so please correct me if I'm wrong but wouldn't the cost of the "externalized price per transaction" be (price_to_mine-block_reward)/number_of_txs. price_to_mine and block_reward would approach each other over time.
The block reward will continue to half in regular intervals during the next decades, while the price of a Bitcoin can't continue to double in regular intervals during the next decades (see: limits of exponential growth, etc.).
This leaves us with two options:
1) Instead of being financed by the block reward miners will require higher mining fees in order to include transactions. With a decreasing block reward those mining fees will eventually approach the actual cost of a transaction (currently: $50).
2) There will be less miners so mining a single block will be cheaper. This will lead to a decreased security of the network and make the network more vulnerable to attacks.
Why don't you factor in the possibility of more transactions per block? The idea is that as the Bitcoin transaction volume climbs, the need for a block reward decreases.
Secondly, you're assuming that the mining pool is currently constrained by what is profitable. From what I have read about large mining operations, they are significantly into the green on profit margin right now, so there seems to be room for a decrease in profitability without losing significant portions of the mining network. Every time the mining difficulty changes this is tested already so we know that there is at least some wiggle room in the mining profit margins.
You mean that the number of transactions grows faster than the mining capacity? I've covered a similar case in https://news.ycombinator.com/item?id=7846564 (it's #2). In general, if you want more transactions you also need a better security, which leads to increased mining costs.
That does not seem like a similar case to me. You specifically say "less miners" in #2. Plus what do you mean by mining capacity? If you mean actual GH/s then that's not a meaningful measurement because better hardware in the future will give higher mining efficiency at the same mining cost.
It just seems like you're oversimplifying a really complex equation with lost of potential outcomes. Perhaps this short comment style just isn't allowing you to explain everything. Have you written a blog or anything that details your thoughts on this?
This externalized costs basically result in inflationary factors, as it increases the number of Bitcoins in circulation. So everyone who is holding Bitcoin is paying for them. Currently those inflationary factors are offset by the deflationary factors (more users, more adoption).
This is not a "cost" because no one pays it. The 25BTC are created out of thin air as a reward to the miner. I don't see the relevance of this metric to your argument, but I hope that you will edify me.
You can't create money out of thin air. It's the same as with dollars (and any other currency). The more money you print the more you will devalue each individual unit (due to inflation). In Bitcoin this currently doesn't matter as deflation is much higher than inflation.
Currently the cost of Bitcoin transaction is already at around $50
That's a meaningless soundbite.
The figure you cite is a function of the current network difficulty/hash-rate, tx-rate and USD/BTC exchange rate. It's devoid of any meaning when looked at in isolation because it is by definition already factored into the exchange rate.
50$ of transaction fee? At current price that means 0.075 btc per tx. I can assure you that you can mv btc from one address to another for a lot less. Even without paying any fee at all. It all depends on how "old" are the btc you're moving, the amount of btc , the number of addresses involved in the tx and if you're in a hurry or not.
I'm pretty excited that Apple seems to be loosening their terms around cryptocurrency apps. Maybe that helps explain the spike? I'm hoping for some neat p2p ios apps.
This was very confusing for me and it took me about 5 minutes reading the site before I could understand what I was looking at. There's so much information on that page that is irrelevant to a person following that link. Perhaps I could see this being valuable if people used it like pastebin, but why do people have to pay so much to post something?
Caveat: I'm not an "active Bitcoiner", just a casual observer. And I can tell you that my view is now irreparably tainted.
The "normals" I interact with continue to not use Bitcoin for anything. It's even stopped coming up in casual conversation (likely because the tide of consumer news stories has slowed). From my perspective, the Bitcoin economy continues to be powered by people who have either mined or bought BTC and are just exploring new ways to spend their windfall (Overstock! 50 Cent's new Album! Dish Networks!)
There is still no incentive to get paid in BTC, no incentive to use BTC, and no incentive to hold BTC (as the recent spike shows, it's still incredibly volatile).
For now, I'm holding on my belief that the Blockchain is the real story here -- and we haven't yet discovered the killer app (which I _don't_ think is BTC).