Bitcoin Plunges By Nearly $30 As Largest Market Suffers Outage

MtGox seems like the weakest link in Bitcoin.<p>I don't understand why a Magic the Gathering site is the big exchange still, and yet people keep creating wallet providers (which is kind of cookie cutter and inessential), vs. an exchange (which is inherently centralized, very technical vs. UI/UX centric, security sensitive, technically interesting, and a natural monopoly). There's some value in being a wallet provider with great funding/redemption options, but that's a hard business which touches a lot of regulation and legacy banking.<p>I think the big opportunities in BTC are: hardware/trusted wallets, trusted cloud-hosted wallets, an exchange provider, and most interestingly, derivative issues (currencies, instruments, contracts) with BTC as the underlying. Not "yet another web wallet provider".<p>A wallet provider is essentially retail. An exchange is where wallet providers should be going to offload risk, ideally with the exchange itself taking zero risk; let market makers do it. The only thing the exchange needs to do is publish prices and handle execution/settlement (which is trickier due to the lack of a "bitcoin-USD", "bitcoin-JPY", etc., but can be approximated by retaining USD, JPY, etc. balances on account.

I feel a bit silly writing essentially the same comment twice in a week, but...<p>Holy cow. Bitcoin was at $145? I wrote a comment 6 days ago expressing shock that it was at $100, since the last time I checked it had been at $60.<p>If a 45% rise in one week coming on the heels of a 300% rise in one month doesn't raise your eyebrows, I don't know what will.<p>I continue to watch this unfold, fascinated, popcorn at the ready.

This demonstrates perhaps the largest real threat to the bitcoin ecosystem right now: the exchange markets are heavily concentrated. Confidence in the system is, right now, heavily based on the perception that Bitcoins can be traded readily for <i>something</i> (pizza, drugs, dollars, quatloos...). Anything that alters that perception will, of course, have a big effect on the price.<p>In fact, exchange risk could lead to something akin to a bank run - the exchanges only keep a small reserve of national currencies and Bitcoins to handle orders and are essentially acting as market makers. But a big swing in the demand for either Bitcoin or real currencies could push the exchanges into a tight spot. If they don't have enough Bitcoin, obviously, the price rises until the demand for Bitcoin subsides. But if they don't have enough (say) dollars, then the price <i>must</i> fall. And there's a natural death spiral: as the price falls, particularly after such a big run up as has happened recently, people might suddenly decide that it's time to get out. But that only increases the demand for (scarce) dollars. And so the value collapses.<p>Here's the real Bitcoin security question: can someone <i>precipitate</i> this situation? Maybe someone who benefits from a collapse of the Bitcoin price (say a law enforcement agency that wants to affect the Silk Road business or, if you don't like that, then say any entity with a significant short position on Bitcoin exchange markets). This is not a question I've seen previously addressed in Bitcoin literature or even musings on the various Bitcoin forums. It's a security economics question. I'm interested in the answer.<p>By the way, my current favorite term for such a situation is the "Goldfinger attack" on the theory that while Goldfinger wanted to steal the gold from Ft. Knox (in the novel version), such an adversary wants to invalidate the coins in Mt. Gox.

For those wondering why we don't have a Bitcoin ETF, this is one reason. Making a reliable market in decentralised and pseudonymous Bitcoins without an exchange is very difficult. An ETF needs a reliably liquid underlying market to keep a lid on tracking error [def]. We need more competition in U.S. dollar Bitcoin exchanges, preferably a FinCEN-compliant one.<p>[def] <a href="http://www.investopedia.com/terms/t/trackingerror.asp" rel="nofollow">http://www.investopedia.com/terms/t/trackingerror.asp</a>

Can we just chip in to a graph in the top-right corner that shows the exchange rate of BTC vs. USD, and leave it at that? I'm sure someone could write an extension for that.<p>Saves us a lot of this. :P

Wait a second... are we sure it was the Market Outage? I'd assume it was when Instawallet's hackers began cashing out on their attack?

I'm curious, are there any academic level economic arguments that discuss Bitcoin and it's future? I'm really curious how economists are viewing Bitcoin.<p>Right now, it is clear that the rise in price is due to investors who see the <i>potential</i> of Bitcoin, thus they are hoarding Bitcoins in anticipation of future avenues that could accept Bitcoins.<p>All it will take to unleash liquidity in the Bitcoin market will be a major online retailer to announce they accept Bitcoins as a currency. Otherwise, the vast majority of Bitcoin transactions will be trading in iliiquid markets and paying for underground goods and services. Bitcoin isn't going to shake up the traditional goods and services market unless a major online retailer signs up.<p>... and with a very illiquid market and an immature set of market makers in the currency, it is going to be a while before Bitcoin is legit. Not to mention potential regulatory issues that WILL crop up at some point.<p>Bitcoin - good luck. I think it can work, but will it work is a whole different story.

MtGox just tweeted 5 minutes ago that they're being hit by a DDoS. Their site is essentially non-functional beyond the public cacheable static pages.<p><a href="https://twitter.com/MtGox/status/319563995759652864" rel="nofollow">https://twitter.com/MtGox/status/319563995759652864</a>

I might be mistaken here, but isn't Bitcoin the currency with an ultimately fixed amount, with a known, predictable rate of growth (of the number of Bitcoins in existence)?<p>How can this volatility then be attributed to Bitcoin, and not the other currencies it is valued in? I freely admit, I'm less than a novice when it comes to ForEx, but a statement like<p>&#62; <i>"The value of bitcoins, it turns out, is highly sensitive to media coverage," wrote Reuters' influential financial journalist..."</i><p>seems to me to be exactly the opposite, i.e. media coverage is causing other currencies to fluctuate and the Bitcoin valuations are just a reflection of this.

First I want to remember that Bitcoin cost $10 less 24 hours before the $30 plunge than it did afterwards.<p>Having said that, I don't believe that it will go back up, most speculators will probably be ready to sell after today. It's also hard to say though, because it looks like the volume of bitcoins traded today are equal or less than other days. I can't say for sure, because Mt. Gox isn't loading properly and I'm looking at an unfamiliar set of graphs.<p>People keep talking about the bubble bursting. Most people don't realize that last time bitcoin flopped, it only lost 30-50% value initially, returning to a value that was still higher than just 2 months before the crash. Bitcoin spent 5 months in a steady decline, not 5 hours. Most early speculators made a profit, even if they couldn't sell until after the crash.<p>As much insanity as people are predicting, everything will probably be drawn out. If you have bitcoins and are nervous, now is a fine time to sell. If you think bitcoin will keep going up and you bought more than 30 days ago, you will probably be able to come out ahead even if you are wrong.<p>But you have to appreciate that most of Bitcoin is speculation. Bitcoin seems safe because it is inherently deflationary. That brings an unproportionate amount of speculators to the currency, and causes the deflationary properties to exaggerate. After enough time, the currency will become clearly overvalued. The free market will take care of that in a cyclic fashion.<p>As long as Bitcoin is used by people for it's anonymous and cryptographic properties, it will be subject to this hyperdeflation/crash cycle. The exiting bits don't last long and ultimately don't make the currency gain or lose terribly extraordinary amounts of value. After a crash, I'm sure bitcoin will still be worth at least $60, which is still fantastic if you bought back when it was less than $15.

all this volatility makes owning bitcoin feel like gambling.

Bitcoin price should stabilize if there are more transactions. Biggest issues now are slow payment time, hoarders and over-reliance on few exchanges. I think higher price and faster payment/withdrawal times would decrease the price eventually as bitcoin holders would have more incentive to spend/take profit while the price is high and exchanges would be forced to sell coins after a transaction for merchant withdrawals. For hoarding, if protocol can be updated to charge higher transaction fee for long-held coins, this should make it less profitable to hoard and increase number of transactions.

The conspiracy theorist in me suspects that the US Government may be involved, sinking their tentacles into MtGox and tracking every transaction.<p>I seem to recall a global Skype outage shortly after MS purchased the company, and this is eerily similar. I would haphazard to guess that most BTC transactions are USD-&#62;BTC so the USG would definitely be interested in that.

Why bit coin is a bad currency or store of value? If the grid is harmed then but coins may rise in value but if you still have access to your store, trading will be as reliable and fruitful as eating gold to survive. It's too susceptible to an EMP attack and war (which brings down the infrastructure or grid). Paper wealth only appears on paper.

Still worth more than yesterday.

BitCoin is back at 131, still up since the Euro-crisis went to bed yesterday.

To think that last July it was at about $5.20, and I scoffed at buying when it reached $6 cause that was more money than I was willing to spend... I'd be rich by now.

Everyone, sell your bitcoins, quick!

Reminds me of this life-cycle of a bubble [1]. I know this drop wasn't caused by a loss of confidence in the currency but in the exchange, still I wonder if this was the bull-trap.<p>[1] <a href="http://i158.photobucket.com/albums/t106/OnlyObvious/CDOs/bubble-lifecyclegif.jpg" rel="nofollow">http://i158.photobucket.com/albums/t106/OnlyObvious/CDOs/bub...</a>

It's back at $126 now.