Why is Bitcoin so volatile?

So another hack happened (surprise surprise), and this time they stole 120000 units of bitcoin from Bitfinex, a Hong Kong based bitcoin exchange. The overall value of that amount? Around $77M. The result? Bitcoin's value dropped 20% to around $480 per bitcoin. It did rebound to $550, and is looking to stabilize.

But the point is, why would someone trade in bitcoin exchanges? It has many haters in the financial world, including the Bank of England, which thinks it's a 'really really flawed concept of currency'. In 2013 it lost half it's value in a matter of just 6 hours, ad it's proven to be a relatively easy task for hackers to steal Bitcoin wallets. Which again, begs the question, what are the inherent properties that make it a worthwhile investment? Compare this to Ethereum, which has a market traded value of $1billion, was introduced with much fanfare as an alternative to Bitcoin, and which itself just got robbed off $30 million, making it plummet equally.

What does this mean for crypto currencies? Are they flawed because they're still being accepted as being new forms of money exchange, or because they're inherently a volatile investment?

 

It's volatile because so much of Bitcoin's reputation is predicated on the belief that the mechanics of the internet are ascendant. Bearing that in mind, when there are weaknesses of this system that are exposed (e.g. someone hacking a major exchange and making off like a bandit with millions of dollars) it undermines user faith in the currency. This exact same thing happened with Ether a couple of months ago and you saw a similar dramatic drop in value and then a gradual stabilization in the ensuing aftermath. Since blockchain currencies are still a relatively new concept, their value is going to be far more dynamic and therefore also more susceptible to newsworthy events. This is also worsened by the echo chamber/hype machine nature of the internet. It doesn't help that the majority of all the companies that mine for Bitcoins are based in China, and that for the most part Bitcoin is primarily used by Chinese to circumvent restrictions on yuan withdrawal limits and to launder money (or for kids to buy drugs, but that's a whole other issue). It really all just boils down to the fact that the driving force behind Bitcoin is China. Therefore because this theft was of a major Hong Kong exchange the effects of it are going to have greater implications than if it would have occurred in the West. That being said, I think you see Bitcoin return to the $640 range in a week or two.

'"The floggings will continue until morale improves"
 

Its just one big retarded market. People are so stupid that they would probably buy buckets of shit if they saw enough price appreciation.

I have a few prop trading friends that trade this market, which make sense. Stupid people=High volatility=Opportunity. But for the average Joe who's thinking about "buying" Bitcoin for the long run, he's gonna get his asshole handed to him on a plate.

 
45c345:

Sooner or later all of these people throwing money at bitcoin are going to get their e-wallets robbed big time

that's what they said about the tulips and now look at how...

If the glove don't fit, you must acquit!
 

Lol at "it's gone up so much it's hard not to buy" sentiment. I just have lost faith in humanity at this point.

I hate victims who respect their executioners
 

I mined some bitcoin when GPU mining was somewhat profitable. Held to about 200 from the last major climb. I put some of my money I still had on BTC exchanges back in about 2 weeks ago and made a nice gain on it. I was out as of 7 hours ago other than some very low amounts I have on various exchanges to trade whenever I feel like it.

 

I doubled my $2000 investment in 1 week thanks to this crazy e-currency but I have also been able to discover a lot of the issues existing behind this supposedly "progress". The biggest issue is the lack of regulation and infrastructure existing across all exchanges, basically you are expected to send these guys your money so that you can open an account and trade live but they can totally disappear in one day (e.g. check recent fall of chinese exchange) and more importantly the websites are absolutely unable to cope with the last few days of internet traffic, it's been crazy to see how slow these "trading platforms" have been, from the localbitcoins to bitstamp...this is actually the worst for me because this means that the instrument is fairly illiquid actually, even some website supposedly where you were buying bitcoins would not deliver it...the past few days have actually be a mess for most of the traders

 
Hawk11ns:

Bitcoin is a bubble. Think about the political risks involved. I would not be suprised is America bans the use of the crypto currency on US Soil. I would buy some Jan 15 put options if there ever were any.

It would be impossible to ban. People need to be educated on what BTC actually is. I am not saying buy now, quite the opposite. Bitcoin is NOT going away..
 

That is the most naive thing I have ever heard. It is totally possible to ban. It isn't about education, it's about central control. No government would ever give up central control of it's currency. Most everyone agrees that crypto currency is the future, I just do not believe that Bitcoin is the future. I believe that government will create thier own crypto currencies that they have strong control over and can inflate/deflate as necessary. If the world suddenly operated on Bitcoins, a pizza would cost $15,000, a new car $27,000,000, and so on.

 

I am not saying they will try to educate people on it if anything they will do the opposite and try to hurt Bitcoin. I am saying it would be impossible to ban. What are they going to do? Ban exchange websites? Try to halt all transactions to bank accounts from the exchanges? That will work so well because bitcoin isn't already embedded in the "deep web."

The point of crypto is that there is no large governing body controlling it.

If the world operated on bitcoins a pizza wouldn't cost $15,000. It would cost something like Ƀ .0005 It would be relative to the value of bitcoin to goods not bitcoin's current value to the USD. I would be fine with your example, everything is relative..

 

Your right, everything is relative. And currently, the value of bitcoin is relative to hard currency.

You are also right, no one can outright destroy Bitcoin but they can ban it. One of the reasons bitcoin is worth so much right now is because speculators believe that a lot of retailers will jump on board with this, exchanges will grow, and the masses will adopt it as an alternative currency. However, Governments can ban retailers from accepting it, exchanges will become subject to SEC scrutiny (most likely) and the vast majority of Americans will remain removed from the digital currency.

The only reason it is doing so well right now is not because it is the future, rather, it is because speculators are making a market out of it. It's like musical chairs. Everyone joins in the fun until the music stops. Those left standing are the ones that get screwed. The goal is to not be the one left standing.

 

I don't believe the government would be able to ban retailers from accepting it and regulate exchanges. I would think it either must be rejected as a currency (by the government ie ban it from retailers) or regulate exchanges ie it is a "real" currency.

As far as retailers.. Many people buy things online not to mention digital goods so there can still be a huge market for retails who are operating out of the US.

As far as speculation, yes there is a large amount of holders who are only speculators. However, the amount of retailers accepting it is growing and there is a large following that believes in crypto. Even you said "Most everyone agrees that crypto currency is the future"

Anyway, there are places to buy options for bitcoin. They just require a pretty large deposit to enter

 

Insane or not insane, some people made obscene amounts of money with this. And i mean really obscene, not a few hundred thousands. All wallets and transactions a re public so you can see the history. Look at this one. https://blockchain.info/address/1933phfhK3ZgFQNLGSDXvqCn32k2buXY8a

You can look at the graph of his investments.

He bought 40000 BTC when they were 2$ each, then progressively upgrad his stake to 100 000 BTC until jan 13, when they were around 10$.

Now his sallet is worth 70M$ USD. Yes 70M. And even if thee is a gigantic crash to say 100$, he still has 10M.

A couple months after its creation, this shit was trading at 5$ for 1000BTC, now its 700$ for 1 BTC.

I think the big winners are done for life, all monkeys investing now will make a few bucks like with any normal asset if they exit at the right time.

 

So I realize necros are pretty frowned upon, but I figured I'd bump my thread because Bitcoin and cryptocurrencies in general are far more topical now than they were when I first wrote it. And at least for someone who had this on his radar for about eight years now, the general vibe/view on Bitcoin feels to me pretty similar to how it felt when I posted this back in 2013, except with just more people knowing about it...

As an update, my roommate I discussed above who once laughed with me about this stuff is apparently a millionaire who has been active in the space. My close friend who first introduced me to the coin back in 2010 (the 300,000% return that I regretted missing out on) ended up possibly bagging up to X,000,000% return. I wouldn't be surprised if he's well into the eight figures now. The great part is he's still pretty normal otherwise (not one of those guys who splurged after hitting it big) and I'm extremely happy for him. And that wallet that was posted above was at one point worth in the billion(s).

As for me, I'm still a dumb shmuck working for the man without having owned a single one of these things. Such is life :)

I'm sure most people don't care what happened to me or my friends, but I bet at the time someone lurked in this thread and bought some Bitcoin. Maybe this will get someone else to change their mind and realize the past is not too different from the present...the replies from earlier read eerily like what one would read today.

Or maybe this time it really has peaked, and then what? I'm still the loser who was "right" several years too late after everyone else he knew became rich.

I guess life's not about avoiding every single lottery out of principle. Sometime it's just worth a gamble.

Anyone else from this thread end up getting into the space? Anyone thinking about getting in now who hasn't yet?

 

For me that was my biggest takeaway from missing out. I don't regret not jumping in based on the information I had. What I do regret is not going out of my way to get more information other than price charts, and my smug sense that I already "did the research" by reading tons of value investing books and having a cursory knowledge of the dot-com bubble and tulipmania...

I wasn't really doing my research. I was just being a contrarian for its own sake.

Back in 2010, I thought it was just a currency for terrorists and drug dealers. I was more arrogant in high school, so it didn't even occur to me that I was wrong, and I didn't look into it any more. When it popped up again in 2013 on my radar, I only thought of it in the context of the price action itself. I was thinking of all the value investing books I was reading while learning about finance. That contrarian feeling -- combined with what little I knew about the currency -- prompted me to list a bunch of problems I had with it actually having intrinsic worth. But most of my issues ended up being addressed by Ethereum, which launched soon after.

Then when it came up again over the course of 2017, I rationalized that there were so many altcoins, not just Bitcoin, that there wasn't anything left. I remember even reading some guy talking about Raiblocks (XRB) in a WSO thread, I laughed it off at the time, and now he's posting a thread about how he's a millionaire in college with proof. It turns out had I even read the whitepaper, I probably would've been willing to throw some cash in since I actually had some lying around at the time.

On one hand, I would say that it was a great life experience to learn about really taking the time to research one's ideas before writing them off. On the other hand I'd much rather have made the several million and learned that lesson later haha.

 

I think bitcoins are a cool idea, but at this point you're betting on it. A lot of amateurs, a lot of people with political motivations for buying them, etc. If you're using them to do something illegal, definitely. If you're speculating, well, I wouldn't.

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

Buy them when theres blood in the streets. Which is to say, not yet.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
 
crackjack:
BTFD?

In all seriousness though, it seems from your post like you're pretty risk adverse. The volatility on Bitcoins right now is ridiculous, but I think it's a long way to go before (if) it all collapses. If you feel like you can make some bank, go for it. Otherwise, I'll save you a seat on the sidelines of this roller coaster ride.

Bro, theres no fundamental value behind it. Its purely speculative, and though the same case could be made for other currencies, they at least have track records that are longer than a couple of years and histories that arent almost purely related to drug trading. There are plenty of other cheap investments out there, that are a lot safer/have less downside, no reason to get in to this one.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
 
seabird:
crackjack:
BTFD?

In all seriousness though, it seems from your post like you're pretty risk adverse. The volatility on Bitcoins right now is ridiculous, but I think it's a long way to go before (if) it all collapses. If you feel like you can make some bank, go for it. Otherwise, I'll save you a seat on the sidelines of this roller coaster ride.

Bro, theres no fundamental value behind it. Its purely speculative, and though the same case could be made for other currencies, they at least have track records that are longer than a couple of years and histories that arent almost purely related to drug trading. There are plenty of other cheap investments out there, that are a lot safer/have less downside, no reason to get in to this one.

Oh, I agree. Still, that doesn't mean that there aren't (or won't be) opportunities to make some money if you're willing to make a huge bet. At least in the next 3-6 months I don't see this fascination with Bitcoins to go away. The more hype it gets, the more likely it will appreciate again IMO. But I'm definitely not throwing my money at it. It will be interesting to watch how this progresses going forward.

 

I agree with Seabird. I've been saying for a while that the actual underlying value of the currency is essentially non-existence. The price of Bitcoins is being driven by scarcity in mining and increasing interest from consumers driving up demand and straining supply. I personally am not one who is willing to endure the volatility of Bitcoins therefore I would be neither long nor short. What I would suggest though is if FOREX exchanges pop up allowing you to trade options on Bitcoins then I would be all for that. I believe there are a few in existence and possibly some more coming but I don't know about existence of derivatives on Bitcoins. If they did come about, then I think a straddle position would be in order and could certainly net you some serious gains when the price of Bitcoins moves either way while minimizing the volatility of your position.

"Successful investing is anticipating the anticipation of others". - John Maynard Keynes
 
SvenS:
I agree with Seabird. I've been saying for a while that the actual underlying value of the currency is essentially non-existence.

But as Seabird mentioned there's no underlying value to fiat currencies. The USD is based on confidence that it will remain a medium of exchange, generally preserve purchasing power, etc.

Hypothetically if Amazon began accepting Bitcoins, and so did its suppliers and so forth then the system wouldn't be much different. I'm not making a case Bitcoins I like the idea of not being able to create credit out of thin air. Fiat currencies, on average, punish savers.

 

When prices fall on such momentum it is always more prudent to wait for another huge move down... if it doesn't happen and you miss the opportunity so be it.

I'm not a Bitcoin guru but what is scary is that the UK shut down in-trade... it is inevitable that governments will eventually target Bitcoin. I'm just not familiar with its architecture and whether governments will actually be able to shut it down. If you're a Bitcoin owner in a G20 country then you will eventually have to exchange Bitcoins for the USD, EUR, YEN, etc... I can see governments colluding with the big banks to enforce that they do not accept transfers from a Bitcoin platform. Then again there can be some sketchy dealings to be exchanged into Eurodollars or something.

 

I'm intrigued by the convexity of it if nothing else. I may dip my toes in the water. It does take like a week just to get the bank transfer processed to be able to buy the coins too fyi.

 

I think of it as an option on a fad that could easily go to 0 but could potentially go to the moon. I can pay a relatively small price (say buy 10 coins for $1000 or so) for the chance to make an outsized payout if this really catches on (use your imagination). To me that option is worth more than I'll have to pay for the 10 coins.

 

Bitcoins had no following and no attention a year ago. Now they have a following and demand. And unlike the toilet paper we put in our wallet, this currency mathematically replicates a gold standard. I don't think it is going to replace the USD, but people crave something of value.

I'm sorry, but I am all out of faith in this government. The USD exists and is preeminent because there is nothing else better. American has become the worlds fat chick at 2am.

 

Guys, go lowjack your schools finance lab and mine these suckers. It isn't worth it to do it at home, but if you can get a computer lab or something you can do some serious mining.

 
cheese86:
Haha I hear you Blackhat but for $1000 i'd like to dream otherwise.

that was the most fitting picture i think ive ever posted on this site

I hate victims who respect their executioners
 

Lost $25 lol.

Not even sure why I bought it to begin with, the chance it could hit $5000 I guess.

Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."
 

The top post on the Bitcoin subreddit is a Suicide Hotline. The people who lost their shirt on this deserve it. If you want to throw a few $k's in to see what happens...fine, but I don't feel any sympathy for those who just got completely wiped out.

Please don't quote Patrick Bateman.
 
DBCooper:

The top post on the Bitcoin subreddit is a Suicide Hotline. The people who lost their shirt on this deserve it. If you want to throw a few $k's in to see what happens...fine, but I don't feel any sympathy for those who just got completely wiped out.

I don't understand the reasoning behind people losing their shit and wanting to kill themselves and whatever when their stocks or currency falls a lot.

1: If you don't need the cash immediately, just wait. Chances are, it goes up. Who cares?

2: Holy shit, people actually kill themselves over lost money? You'd rather be dead than poor? What the fuck?

3: I've never felt like life wasn't worth living anymore, but I almost feel like it would be liberating. Like, you would give no fucks about anything. I'd just start doing incredibly risky and stupid shit. Why just shoot yourself?

I'd drive to Brazil and go into the jungle and die fighting exotic animals. Or put on a Bat Man costume and go urban crime fighting. Start a car chase for the laughs. Whatever. Why would you not have fun with it?

 
bic:
DBCooper:

The top post on the Bitcoin subreddit is a Suicide Hotline. The people who lost their shirt on this deserve it. If you want to throw a few $k's in to see what happens...fine, but I don't feel any sympathy for those who just got completely wiped out.

I don't understand the reasoning behind people losing their shit and wanting to kill themselves and whatever when their stocks or currency falls a lot.

#1: If you don't need the cash immediately, just wait. Chances are, it goes up. Who cares?

#2: Holy shit, people actually kill themselves over lost money? You'd rather be dead than poor? What the fuck?

#3: I've never felt like life wasn't worth living anymore, but I almost feel like it would be liberating. Like, you would give no fucks about anything. I'd just start doing incredibly risky and stupid shit. Why just shoot yourself?
I'd drive to Brazil and go into the jungle and die fighting exotic animals. Or put on a Bat Man costume and go urban crime fighting. Start a car chase for the laughs. Whatever.
Why would you not have fun with it?

You'd want to be bitten and slowly eaten alive/bleed out ?

speed boost blaze
 

Read about Bitcoin last year when it was trading around $70. Kicking myself b/c I didn't buy back then, but it seems this is just momentum from all the hype its been getting in the media lately.