Thursday, April 11, 2013

Who's to Blame for Bitcoin's Flash Crash and What's Its Real Value?

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J.P. Hicks
Activist Post

Bitcoin's stunning rise in value in the past month was largely viewed as an unnatural market bubble that would inevitably burst. This is why most observers of yesterday's bitcoin flash crash were not surprised. If market manipulators were trying to discredit crypto currencies and cause panic among true bitcoin believers, they failed.

Yesterday, bitcoin went from a high of $266 down to a low of $105 before stabilizing at $172 in a single day. Certainly these wild fluctuations will result in some lost confidence in bitcoin which is probably the goal of the obvious market manipulation occurring. So, what happened and who's responsible for it?

Bitcoins anonymity is a double-edged sword in attempting to determine exactly who is responsible for these shenanigans, but some interesting theories are developing.

The Guardian speculates that the flash crash was initiated by someone with significant bitcoin holdings flooding them out for free. According to Business Insider, a Reddit user named "bitcoinbillionaire" gave away nearly $14,000 worth of bitcoins forcing a test of its value.

Mike Adams of Natural News, who predicted a bitcoin crash hours before it occurred, referred to it as a "calculated stress test":
The "bitcoin giveaway" that crashed the market today was a calculated stress test to determine the "buoyancy" of the bitcoin market. By injecting a predetermined amount of supply into the market and watching the price reaction, it can easily be calculated how many bitcoins will be required to crash the entire market down to a desired price level, causing a runaway panic.

Adams postulates that the price manipulation from its recent spectacular rise to yesterday's cliff dive was an orchestrated plot by central bankers to discredit the entire concept of decentralized currencies and, eventually, central bankers will deliver a devastating blow.

It makes sense that bankers would feel threatened by decentralized digital currencies no matter how   small of a market share it has in terms of being a competitive currency. And with their bottomless resources, there's little to stop them from wreaking havoc on bitcoin exchanges.

Or it can simply be wealthy Wall Street gamblers looking to make a profit on an easy market to manipulate. Yet if it is just speculators who are responsible, what do they have to gain by destroying confidence in the exchange?

Again, because of the anonymity in the system, we may never really know who's responsible for these games. We can only look at the winners and losers when they dust settles and point fingers at shadows.

But the more important question that we should be asking is what is the true value of bitcoins?

Real proponents of bitcoin don't view it solely as an investment like many of the Johnny-come-latelies do. They value it for what it is, an anonymous currency that cannot be controlled by a central entity and can be used to avoid taxes, capital controls, and high transfer and bank fees. In that respect, it will always have value.

Yes, large holders of bitcoins have proven they can mess with its value relative to dollars or euros, but they will never be able to control the intended peer-to-peer use of bitcoins.

The true value of bitcoins will only surface when people stop comparing them to establishment currencies and start measuring them against real goods and services. In other words, when the bitcoin economy is big enough that vendors don't need to cash them out for dollars to pay for other necessities, then we will begin to see the real value.

For instance, when I can sell my widgets for bitcoins and use those coins to pay for widget components and my supplier can then use bitcoins to pay his rent or employees, their value in dollars becomes irrelevant.

Although it may seem far fetched now, that day is rapidly approaching when this will be feasible.  Remember, bitcoin is less than four years old and there is already an amazing variety of things you can purchase with bitcoins.

The question is whether those who oppose bitcoin will be able to damage its credibility enough that it never reaches this point? Or will the failure of establishment currencies and more draconian capital control laws offset any efforts to discredit bitcoin?

Tell me what you think.

J.P. Hicks is an entrepreneur, info-activist, pro blogger, editor of and author of Secrets to Making Money with a Free Blog. Follow @ Twitter, or like on Facebook.


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mijj said...

the threshold to look out for is politicians being bribed in Bitcoins.

Anonymous said...

Dump Bit Coin.

Buy "PHYSICAL" Gold & Silver!

Anonymous said...

Just like online banking and banking in general, if you don't have access this stuff is never yours!

Stop falling for the new fraud!

Ryan said...

The problems were primarily caused by MtGox being responsible for around 70~50% of the BTC trading, and then having massive numbers of people joining the market.

What happened there was the servers for their data feeds and their trading engine were overloaded. Combined with massive increases in traffic to sites like ClarkMoody and Bitcoinity, information went dark.

The MtGox engine suffered serious time lags, while at the same time other sites suffered lags or simply ended up going off-line due to what looked like an unintentional DDoS from people trying to get information.

The combination of lag and lack of information caused panics. There will be plenty of buyer's remorse very shortly.

At the moment, MtGox has taken trading off-line for a "cool-down". They need time to recover, and traders/buyers/sellers need time to recover.

This has NOTHING to do with bitcoin. This have everything to do with exchanges being young and there being limitations on how much traffic can be handled.

MtGox spills over as it is so large, and that has been a problem. Had they better infrastructure, none of this would have happened and bitcoins would have continued to soar in value.

Look into it. Understand the deeper issues here. This was basically a hardware and software failure due to massively increased adoption of bitcoins. It is not a stain on bitcoin; rather this is a testament to just how powerful an idea it is.

Oh, and I also own gold and silver. :P :D

Anonymous said...

Jesse Livemore, famous trader, market manipulator from way back, used to test markets both on the upside and downside by injecting a set amount into a particular market, say stock XYZ and then calculating the reactions in price behavior. This was nearly a century ago.

But, more advances, computer power,and money can accomplish the same sort of tests with more feedback today.

Anonymous said...

The old adage never fails. If you do not hold it in your hands YOU DO NOT OWN IT!

Anonymous said...

yes, but i hold it in my usb stick though!

Anonymous said...

This stuff was set up to crash, set up to take money from people who are upset by the Fed, FIAT money etc.
Taking advantage of desperate people is what the bitcoin fraud was all about.
Soooo, who promoted this stuff, who effectively sold the concept by constantly reporting on it??? Who?

Anonymous said...

If you had control of a virtually infinite supply of digital fiat Federal Reserve dollars, surely you could spend them on any amount of any thing, to drive up the price. Then sell off that same thing, to drive the price down.... and when the price hits the floor, buy it all up for pennies. This might not profit you anything, but it would certainly ensure that nobody else profits-- which would be the reason for such actions.

Anonymous said...

If one were truly interested in an alternative currency, there are plenty of other digital currencies available, and in the next two years, a clear market value will be stabilized. There's no way TPTB can control this. Meanwhile, I just took delivery of another 60 oz. of physical silver today. Feeling less stressed every day now.....that's nice.

stevor said...

This was as predictable as the CRASH of the real estate current bubble and the stock market current bubble are. Somebody is scamming somebody who is trying to scam somebody else and it's just who scams whom first. (usually it's the Banksters or the government who scam "best")

GrinNBarrett said...

It is still a fiat currency with nothing backing it but faith. No fiat currency has succeeded for very long. As you see here it can be manipulated not good.

Blogger said...

But the more important question that we should be asking is what is the true value of bitcoins?


Anonymous said...

If technology fails for whatever reason - hacks, grid failure, solar flare??? You can kiss your *bits* goodbye. People say, I have it backed up on my stick, well, where are you planning to put your stick when you have zero computer access. Maybe I'm missing the big picture here, but I still believe you need to have something *physical*. If Bitcoin is the way of the future, well I will let others give it a good going over first.

Anonymous said...

I have to question to way one acquires Bitcoins.

You need a computer to solve algorithms and it's called mining?

Technically, I can sleep all night while my high speed computer is working to earn Bitcoins?

Maybe I'm old school, but I still believe in earning my *coin* the old fashioned way.

Anonymous said...

I just wish people would stop promoting Bitcoin as anonymous - IT'S NOT

abinico said...

Bitcoin is a fraud.

Anonymous said...

You can tell if bitcoins are any good if the beggars in other nations (which claim to be self sufficient and do not need foreign aid) demand their beggared cash from the USA be paid in BitCoins and not be paid in Euros like have before.

Albertarocks said...

There are only 11 million Bitcoins in existence. So it simply is not possible that it was "the bankers" who crashed the Bitcoin market. What did they do, go into the Bitcoin futures to crash it? No! If anything they sold off their Bitcoins and now they have none left to crash it again the next time. The whole idea that the Bitcoin market was "crashed" by "somebody" is preposterous. It can't happen like it does in the futures markets.

The Bitcoin market crashed because that lame duck website who handles 80% of all Bitcoin trades crashed. Then they took it upon themselves to think "they" were the Bitcoin market and decided to shut down their site for a day in order to "cool the market down". At least that's what they said initially, but they later recanted and admitted that they had lied about that. MtGox is a complete buffoon of a site.

Eventually there will be more sites available where Bitcoin can be traded and the market will behave much more like a real market. In fact, it behaves more like a "real market" than any other market in existence for the simple reason that the slimy banking mafia isn't able to crash it on the Bitcoin futures market.

Michael Stephen Mone said...

Bitcoin was a fraudulent marketing scam to get one guy rich and that was satoshi or who ever he was. Check this site out for more info on bitcoin.

Anonymous said...

how you guys feeling now?

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