Bitcoin Crash – Who, Why, and What’s Next
Early this morning, at approximately 8:30 am eastern time, Bitcoin reached a price of $266.00. Thirty minutes later, from about 9:00 am onward, an above normal supply of Bitcoins begin hitting the market on mtgox.com. Every 15 minutes between 2,000 and as much as 7,000 Bitcoins were dumped on the exchange. This level of selling continued for the remainder of the day.
Bitcoin trading is a tiny market, and a relatively small amount of buying or selling can cause the price to rise or fall significantly. Today we saw an above average number of Bitcoins sold without regard to price. In watching the trading on mtgox, it appears to me that the seller simply wanted to sell, and took absolutely no measures to maximize the total proceeds from the sale.
I have no first-hand knowledge of the identity of the big seller or sellers who dumped more than 60,000 Bitcoins on the market today in a span of less than 8 hours. It may have been several people who simply wanted to cash out. It may have been purely the result of the free market functioning properly, but if so, it was a rank amateur – or several – who doesn’t/don’t understand how markets function and the proper way to get the most for the items one is selling.
Or, it may have been a seller whose intent was to dump Bitcoins en masse in order to drive the price down.
That type of seller was clearly described in an emotional hit piece published today by the “Health Ranger” on the website Natural News.
I welcome discussion on the benefits and risks of Bitcoin. The Mises Institute, named after the great Ludwig Von Mises, has published several articles on Bitcoin, such as “The Money-ness of Bitcoin.” While I don’t agree with some of the points made in the article, I welcome open, public discussion in a reasonable, logical thought inspiring manner.
I do hope to address some of those points in the above referenced article in the near future. However, the article published today on Natural News was so illogical, unreasonable, and emotionally provoking that I felt the need to respond to it before responding to the Mises Institute article.
I could find almost nothing in the article by the Health Ranger that was based upon reason and logic. This was simply a hit piece. I have never met the Health Ranger and have no knowledge of why he would publish a hit piece on Bitcoin, but i can certainly recognize a hit piece when I see it.
Nearly all of the language used in the article is of an emotional nature. The words chosen will illicit strong emotions. There are virtually no facts, simply accusations, and then those accusations are referenced as proof of the article’s thesis, then this proof is used in an attempt to inspire an emotional response. This is an age old strategy.
The title of the article written by the Health Ranger is “How the looming bitcoin crash will be exploited by globalists to outlaw decentralized crypto currencies.” The article starts off by warning “of the financial harm that will be caused when the Bitcoin bubble finally implodes.”
I don’t agree that Bitcoin is a bubble, and will be publishing an article shortly on the reasons why.
The Health Ranger linked to his Bitcoin bubble article, and I read that one as well. It was also a hit piece full of emotionally-charged verbage but very little facts. Here are some of the emotionally charged claims made in Health Ranger’s Bitcoin bubble article:
“The reputation of bitcoin will be destroyed.”
“Bitcoin is headed for a disastrous crash.”
“Bitcoin has now become a casino.”
The Health Ranger offers virtually nothing in the way of factual evidence to support his claims. His entire article is based upon emotions, rather than facts. He even states that central banks will accumulate Bitcoins, then, “when the timing is right, start SELLING billions of bitcoins” in order to create a crash in the price of Bitcoin. this crash will lead to panic, and all Bitcoin holders “will sell at any price.”
Note to Mike: there aren’t billions of Bitcoins, and there never will be. 21 million is the maximum limit, and that level will not be reached for many decades. There are only about 11 million Bitcoins currently in existence. You should not only check your facts before hitting the publish button, you should also include a few in your articles in order to make them more credible.
The Bitcoin bubble article published by the Health Ranger had nothing in it that would convince me in any way that Bitcoin is in a bubble.
So, getting back to today’s Bitcoin crash article published by the Health Ranger, he states two simple steps that could be used to cause a crash in the price of Bitcoin:
“Step 1) Central banks buy up massive quantities of bitcoin currency, driving the prices into the stratosphere and encouraging millions of people around the world to jump on board the “get rich” bandwagon.
Step 2) Once bitcoin valuations reach a sufficient level of insanity, start a massive selloff by dumping the bitcoins you already bought onto the market, offering them for sale at any price (i.e. sell into falling prices, accelerating the loss in valuations).”
I do agree that those steps could happen, and it’s entirely possible that step #2 was witnessed today.
However, while the central banks certainly can create volatility in the price of Bitcoin, what they cannot do is create Bitcoins themselves and flood the market with billions of Bitcoins they’ve created instantaneously the way they do with the currencies they own.
Yes, they can accumulate Bitcoins which will drive the price up. and it follows that yes, they can in the future – days, weeks, months or longer – engage in a wholesale dumping of the bitcoins they previously purchased. It’s also true that a big price dip will demoralize a portion of the Bitcoin community.
However, the reasons for getting into Bitcoin will remain, even if central banks drive the price up and then crash it back down.
The FACT is that Bitcoin is a peer-to-peer, and is an honest currency, free of the theft by debasement that central banks do with their dishonest currencies. Even if the dishonest central bankers drive up the price and then crash it, Bitcoin will remain an honest alternative to dishonest, corrupt, central bank currencies.
Just because the central banks may try to demoralize me with wide price swings in Bitcoin will not make me lose faith in Bitcoin and go back to using their currencies whereby I would once again be subject to their corruption.
The Health Ranger’s article claimed that Bitcoin is “almost a perfect reflection of the tulip bulb mania of 1637 in these two ways: 1) Most people buying bitcoins have no use for bitcoins (just like tulip bulbs), and 2) The rapid increase in bitcoin valuations cannot be substantiated in any way that reflects reality.”
I fully, wholeheartedly disagree.
as to point 1, everyone should have some money in savings. I realize there is a whole lot of poverty in the world (the vast majority of it is a result of central-bank-issued, dishonest currency), and that many people spend every last cent they earn just to try to provide life’s most basic necessities. For the very poor, saving money is not an option. But saving money is something we should all do, even if some cannot. The question becomes, where to hold the money that has been saved?
In an honest currency or a dishonest one?
In a currency that is continually being diluted in value, or one that isn’t?
In an account that can be seized by the bankers (like Cyprus), or in an account that is beyond the reach of the bankers?
I can live my life just fine without tulip bulbs. I would have great difficulty living my life without using any currency.
I would prefer an honest one.
I would prefer one that isn’t being debased.
I would prefer one that I, and I alone have access to, and is not in the hands of anyone else. Let alone a dishonest banking system.
Mr. Health Ranger, EVERYONE that is holding Bitcoins has a very strong “use” for those Bitcoins:
It is a form of savings held in a currency that is not being diluted.
It is an honest currency, based upon mathematical protection and community verification.
It is a method to store one’s wealth outside of the grasp of the greedy, corrupt, criminal banker control freaks.
Mr. Health Ranger, to say that “Most people buying bitcoins have no use for bitcoins” totally ignores the incredibly strong reasons for choosing to hold some savings in Bitcoin in the first place. You’ve lost any credibility by making such an outlandish statement.
Regarding your other statement that “The rapid increase in bitcoin valuations cannot be substantiated in any way that reflects reality,” I completely disagree.
While Bitcoins are gaining in popularity, there is a long, long way to go before they capture a major share of all financial transactions. They may never reach that point. But the 4 year track record of Bitcoin is impressive. The trend is clearly towards greater acceptance.
Mr. Health Ranger, you claim that the current price of Bitcoin doesn’t reflect reality. I disagree. The reality is that the 3 reasons I listed above are very, very strong and offer great appeal. The reality is that Bitcoin is limited by design. The reality is that Bitcoin is not being debased by an central bank. The reality is that more and more people are discovering the appeal of an honest currency. The reality is that Bitcoin has tremendous room for growth in demand. Mtgox recieve about 78% of all Bitcoin exchange volume. Three weeks ago, the daily volume on mtgox was about $7 million.
Today that volume has grown to about $20 million. Twenty million in daily transaction on the largest Bitcoin exchange. Apple stock trades that much value every 75 seconds that the stock market is open. That’s just one stock. Daily currency trading is $4 trillion. If Bitcoin captured a mere 1% of daily global currency trading, the price per Bitcoin would be in the range of $400,000 per Bitcoin.
Whether or not Bitcoin will somehow be prevented from gaining a market share equal to 1% of daily global currency trading is certainly a valid question. Given an honest playing field in which Bitcoin was allowed to freely compete against the dishonest central bank currencies, there’s no question in my mind that Bitcoin would capture far, far more than 1% of the currency market.
The majority of people prefer an honest currency to a dishonest one.
Of course, we all know that Bitcoin will not be allowed to freely compete against the central-banker currencies. We know it will be attacked. But each attack has resulted in a strengthening of Bitcoin. And each attack gains publicity for Bitcoin; that publicity doesn’t always result in people being frightened away from the honest currency.
The reality is that today’s valuation of Bitcoin, unlike nearly any other market, genuinely reflects real-world conditions. Bitcoin is currently a pure market, undefiled by the bankers with their phony supplies created out of nothing, their derivatives tail that wags the dog, their iron-fisted control over price discovery, and their army of regulators protecting their cartel activities.
Bitcoin is simply a tiny, but growing market based upon honesty. I submit that Bitcoin trading is as real as it gets. Organic buyers and organic sellers getting together in an honest exchange to freely determine the price at which a transaction will take place. Bitcoin prices reflect reality.
The commodity markets, the precious metals markets, the bond markets, those all are detached from reality. The prices in those markets are controlled by Wall Street firms and the central banks themselves.
The reality is that the very, very alluring reasons for getting into Bitcoin remain, even after today’s price smash and even after your hit piece which seems designed to invoke fear and steer people away from an honest currency.
Yes, Bitcoin will come under attack. it has before, and it will again.
The reality is that people prefer a currency that is honest to a dishonest one.
The reality is that people seek a place to store their money where it will not be subject to a Cyprus-style seizure of their savings by the bankers.
Yes, the central banks can have their pet governments deem that holding and using Bitcoins is a crime. But if they are going to do so, I suggest that they do it pretty darn quick, before too many people understand and adopt Bitcoin for themselves. Once Bitcoin reaches a certain level of acceptance, the corrupt central planners will have a mutiny to deal with if they attempt to outlaw and steal the people’s currency.
Yes, the central planners can steal from thousands of people like they did with MF Global and like they did in Cyprus and get away with it. But if they try to steal from millions and millions of people all at once, well, that’s not likely to receive a warm welcome.
Bitcoin is going viral. If your central planner masters want to kill it, they better outlaw it quick. Today’s price smash isn’t enough to counter the valid reasons for getting into Bitcoin.