The price of Bitcoin is especially volatile today, but it’s like any old day on Mt Gox.
If you’re taking solace in the fact that the Bitcoin “bubble” has ostensibly burst (because you didn’t buy them), you probably won’t find much value in this post. If you’re a bitcoin enthusiast, you won’t find much value in this post either!
But to capture the absurdity of today’s Bitcoin fluctuations, I wanted to throw out 5 observations that hint at how ridiculous of a financial decision buying Bitcoins “as an investment” is:
1. You can’t tell whether a 60% price drop is a crash or a normal fluctuation
According to some bro’s technical analysis, today’s 60% price drop is to be expected.
2. Any of the reasons here could be at the root of a 60% price drop
The fact that any of these are asserted as a possibility is alarming.
3. Blog posts and articles on Bitcoin are only relevant for about 30 minutes
By the time an article on is copy-edited and posted, it’s irrelevant. The fluctuations in BTC outpace the speed of Twitter reactions.
4. On that note, Twitter search results like this are possible:
5. Bitcoin enthusiasts will try to explain away items 1-4
They certainly will.
The only reason I’m so vocal is that I’ve been watching Bitcoin very closely since I first read about them in 2010. Just 2 days ago, a friend asked me if I ever ended up buying any. I wrote back:
In the vein of cognitive dissonance, Bitcoins are bound to collapse. A fool’s gold if I’ve ever seen it!
In other words, no, I didn’t. I thought about it plenty of times. In fact, I have USD on Mt Gox waiting to be spent on bitcoins right now, but never pulled the trigger. I can’t justify it if I can’t figure out how to properly valuate it. It seems both volatile and without any sort of reasonable basis for valuation.
I believe digital currency has a future, but I don’t believe it will replace government-regulated currencies, like some expect it to. There are some things that an elected body of people can do better offline than a crowd of smart hackers can do online.
The rise of a world government and global currency is probably more likely than the dominance of digital currency. I’m not saying that’s a good thing.
If you’re familiar with Benjamin Graham’s concept of “Mr Market”, the current Bitcoin crisis is fascinating to watch. Never before have we really gotten to see a “panic” in real-time, with Bitcoin “investors” posting comments on Reddit, Twitter, and their blogs explaining their reasoning for staying strong or bailing.
Anyway, the Bitcoin crash is an amazing case study into how human emotion affects a market, and who the different players involved are. Sit this one out and try to learn as much as you can from it.