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Bitcoin’s Black Wednesday – Bottom Falls Out Of ‘Virtual Currency’

on Apr 12, 2013
Updated: Sep 19, 2019
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Two days ago, on 9 April, the Financial Times carried an item in its Tech Blog section entitled ‘How to spend it – Bitcoin edition’. This was a straight-up, as opposed to send-up, commentary on the growing purchasing power of bitcoins – even using this form of the word, ie lower case and no quotatives, as if it equated with ‘pounds’ or ‘dollars’ or even ‘euro’. (And if it’s good enough for the FT, it’s good enough for us.) More and more purveyors of goods and services world-wide, according to the item, were accepting bitcoins as a medium of exchange. And there’s even a symbol for this new money, which the FT had no qualms in using – ฿ – a capital B with a vertical line through it – but which you won’t find on your keyboard.

At that time – two days ago – ฿1, meaning one bitcoin, hit $236, meaning two hundred and thirty six United States dollars, on the Mt Gox exchange, an all-time high in the short life of the bitcoin. Barely two weeks prior, it’d first pushed through the $100 mark, and coined a huge amount of media coverage in the process. The kind of brand promotion that not even bitcoins can buy.

Given the cred that the FT was bringing to bitcoins two days ago, it’s odd – or perhaps not – that this afternoon, as this item goes to press, there’s no coverage on its digital front page of today’s bitcoin story. Which is that late yesterday, having continued rising after the FT piece was published, ultimately to $266, the bitcoin crashed. The BBC covered it though, with this morning’s story entitled ‘Bitcoin selling panic halves its value’. The item reports that, ‘From a high of $260 (£169) for each Bitcoin, the value dropped to about $130 (£84) in just six hours.’ Note that use of the upper case – the depiction ‘bitcoin’ has yet to enter the Beeb’s lexicon, an incidental indication of just how unfamiliar this subject is to a mainstream media which had largely ignored it until just a few weeks back.

As fast as you could say ‘Harlem Shake’, news of bitcoin’s slide travelled the Net yesterday. The meme started of course at www.mtgox.com – where visitors can watch the product’s movement against the dollar in what is apparently real time, and of course buy into or out of the ‘crypto-currency’, the exchange’s preferred terminology. But by around 8.00pm UTC (read, GMT) last night, businessinsider.com was reporting ‘a pretty ugly day for Bitcoin’ (upper case, note), with the ‘virtual currency’ down at $150, having slumped earlier in the day to $105 before staging something of a rally.

So what’s bitcoin doing now, meaning early afternoon UTC, on Thursday, 11 April? Until a very short time ago, meaning when we started to pen this piece, that would have been anyone’s guess, because the Mt Gox website was non-functional. You couldn’t get in and website checkers, like websitedown.com, were reporting a general outage at the site. But things move quickly in cyberspace and now mtgox.com is up and running again, albeit erratically. Complete with pricing info – last trade being reported at $144.10000 – and news of yesterday’s slide.

In the ‘News Feed’ box, the latest entry is this cheery post – ‘Hi everyone, just a quick update on the situation and what happened last night’. The linked press release would have us believe that the price slide – a drop of 46 percent in one day’s trading – wasn’t the result of market manipulation, or hacking, but rather that Mt Gox had become a ‘victim of our own success!’ Here’s how the explanation reads:
*Indeed the rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!*
The Mt Gox exchange operates out of Japan, which doubtless explains the less-than-native air to the English in this extract, with its aversion to the plural, but we can overlook that shortcoming. What is harder to ignore is the intimation, if this explanation is to be taken at face value, of just how flaky the bitcoin market is. Seemingly, undue traffic slowed down the critically-important ‘mining’ process, causing delays in the exchange’s recognition of individual trades and leading to ‘Panic Sale’.
Back to Tuesday’s FT blog – it noted that an e-commerce business called bitcoinblaster.com was selling a 10” Acer laptop at $257 but, since it accepts only bitcoins in payment, a buyer would need pay just ฿1.09 as of that date (฿1 = $236), ‘which marks a healthy discount from about ฿7, which it was going for six months ago’. But now, as this is written, with the bitcoin valued at $144 that same laptop would cost you ฿1.78, a price increase in less than 48 hours of 63 percent.
!m[‘Panic Sale’ Perhaps Best Sign Of The Product’s Inherent Flakiness](/uploads/story/1871/thumbs/pic1_inline.png)
If bitcoin owners really are panicking because of a glitch in data-crunching at the exchange, the bigger picture is surely of a very large presence in the market of immature speculation. Manifestly, no sane market can operate with this kind of price fluctuation, especially a market for real-world goods and services.
And by the way, right now, at sign-off point for this piece, mtgox.com has the ‘last price’ for one bitcoin showing at $115 – a drop of over 20 percent in the last couple of paragraphs. That Acer laptop just went up in price by the same percentage. It’s Mickey Mouse stuff and, one would have to conclude, best avoided. At least for now.
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