Bitcoin exceeds $200 mark, investors worry about bubble

Bitcoin exceeds $200 mark, investors worry about bubble

Summary: Bitcoin has ramped up in value in the past week, bursting through the $200 ceiling, leading many to speculate that a bubble is forming.

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Bitcoin has tipped over $200 in value on a number of exchange markets this week in the face of the recent Silk Road closure, prompting the questions: Is this a bubble, and how long will it last?

Bitcoin Sydney organiser and BitPOS founder Jason Williams told ZDNet that in his opinion, there are two main factors for the recent rally.

The first can be seen in oversees markets after Chinese web services company Baidu began accepting Bitcoin as a form of payment. Williams said that many consider Baidu to be the Chinese equivalent of Google in Asia, giving a lot of people confidence in the currency since such a large company is now backing it.

"On the back of this, it seems as though the leading Chinese exchange has been going ballistic with trading," Williams said. He suggests that this may be due to new Chinese investors attempting to make early gains in a new area.

Williams also said that the closure of Silk Road has affected the value of Bitcoin. Silk Road was one of the most notorious users of Bitcoin, preferred because the currency has similar properties to cash, in that it cannot be traced under certain conditions, and does not have a chargeback scheme. The currency itself is not illegal, although it is recognised by few governments as yet.

Shortly after Silk Road was closed, Bitcoin's value on Mt Gox suffered a mini flash-crash, but in a matter of days, it bounced back to its original levels and continued to climb.

Williams said that after mainstream media caught hold of the story, it was possible that many people who had never heard of Bitcoin began to take an interest, strengthening its value.

As to whether a bubble is forming, Williams said that a similar situation occurred six months ago. Although the current ramp-up to a crash isn't as steep as previously seen and "comes from a much stronger base", Williams suggested that the community is looking at a bubble, although when it will burst is anyone's guess.

Meanwhile, other businesses that could have cashed in on Bitcoin remain hesitant over how mature the currency is.

Kogan Technologies executive director David Shafer said that while the company applauds and agrees with Bitcoin's purpose to eliminate artificial inflation of money supply by governments, it is not convinced on how the crypto-currency can replace fiat currencies as a medium of exchange.

"Since time immemorial, in all cultures and civilisations, two commodities have prevailed as preferred forms of currency when they were available: Gold and silver. These commodities have passed the test of time — remaining universally in demand across cultures for thousands of years. These are the tried and tested true forms of money, and will ultimately prevail over all present fiat currencies," Shafer told ZDNet.

"The essential properties of money are durability, divisibility, scarcity, and universal desirability. Bitcoin has not yet established that it is universally desired, or heavily in demand, over a long period of time. While it is clear that Bitcoins are currently in demand, history reminds us that there was once a mania for tulips, too.

"Bitcoin is not redeemable in gold or silver, so it has no base value in tried and tested commodities. For these reasons, while we laud Bitcoin's attempt to move away from fiat currencies and we certainly understand the desire of people using Bitcoins to avoid inflation of their stored labour by government, we are not yet convinced that Bitcoins satisfy the essential properties of money."

Although it's not an online retailer, one of Australia's oldest pubs, The Old Fitzgerald, recently began accepting payments in Bitcoin.

At the time of writing, Bitcoin is worth almost US$210 on the Mt Gox exchange.

Topics: E-Commerce, Australia

Michael Lee

About Michael Lee

A Sydney, Australia-based journalist, Michael Lee covers a gamut of news in the technology space including information security, state Government initiatives, and local startups.

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33 comments
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  • MSM and Russians?

    When Silk Road was busted, the lamestream media (MSM) was tripping all over itself to paint Bitcoin in a negative light and be among the first predict the final collapse. There were hundreds of articles written, including many publications that hadn't dissed Bitcoin hardly at all for months.

    Perhaps in part due to our army of anti-propaganda commenters, lots of readers were able to suss out the truth about Bitcoin through all the MSM lies, and we got another wave of investors. Some of them are new true believers and will stay for the long haul.

    Add to that a slurry of positive news, like BitPay and Baidu, less widely reported by the MSM, plus positive press on Chinese television, and the wave of new investors gets bigger.

    Add to that the fact that Second Market is making it easier for the "big boys" to invest some big money, and a big price jump makes sense.

    Perhaps this recent strong upward move has also attracted the attention of the Russian market manipulators who created the April bubble and crash. Maybe they figure that enough time has passed, and they could pull it off again. All they need to do is keep the upward momentum going long enough to convince a new set of rubes that it's headed for the moon. I figure it needs to get to $500 in the next few months before the whole world becomes willing to pay anything to climb aboard the runaway rocket. I'm calling the top at $800, followed by a major DDoS and crash to $200, then a rebound and stabilization at the $400 level. I'll start trimming my position and placing low buy orders if we hit $500 by Valentine's Day 2014.

    However, there is another factor at play this time. Today there are some Bitcoin millionaires working together to stabilize the price, which has greatly reduced volatility in recent months. Their strategy seems to be simple. If the price gets too far above the trend line, they sell enough to bring it down. If it gets too low, they buy some back. If they keep this up, they might be able to stop the Russians from creating a significant bubble. It depends on who has the deepest pockets and the strongest will to win.

    It's fun to watch, but I'm basically holding my position unless a truly major bubble seems to be forming. What we're seeing right now is not big enough, as we're barely above the long-term trend line today.
    JC Cunningham
    • Your consensus view about the future value of Bitcoin.

      JC, you seem to be in complete agreement with the near unanimous expert consensus camp at Canonizer.com predicting the future value of Bitcoin (http://canonizer.com/topic.asp/154/2) When do you think we will first see $1000/BTC? You should canonize your view and help the world see concisely and quantitatively what all the experts can see.
      Brent.Allsop
    • mining since the beginning and have enough btc to laugh

      the charts seem to overflow into one another. since there is a deadline to the last btc being mined and the "wash" effect to inflate the value to being as valuable as gold is in the near future. taking the peaks and valleys from 2008-now taking weekly applying to monthly monthly to yearly and so-on so-on you can easily predict the "bubble" inflation using Fibonacci sequencing and comparing to the circulation of BTC atm.... Since the resource is finite and there is restrictions on how long it will take to mine all BTC. this makes BTC reliable for small fries like me to make money and "wash" our local community with it, it will prosper anyone who has faith, and will break 1000K by spring.... summer it will drop again to a low of 125-150ish and follow the similar trait of 30-266 in april and this ones half cut to 60 to a platu figure of 125 for a few weeks then upward to the 250% line before it will "bust" but the valley will not be 30 dollars or 60 or 120 but rather 150-200 and the process will restart it self... until it reaches gold standard (which is going up a lot lately) also electricity affects the mining in the summer time cause of different charge features from local electric company. If you follow my random blerps of FB about the rise and fall, i feel like the oracle of Omaha Nebraska, minus the teledyne scams and other unethical bias through puts from that slimy lizard ((coke cola in the mid east now no more ABL :( ))... these charts from mt gox and other btc exchangers are easy and simple to follow -_- .... 2013 = 2 bubbles 2014=3 bubbles you'll see watch :D but the peak and valleys will tighten up as the bubbles get closer and closer look at simple number from the first bubble in 2012 :D https://bitcointalk.org/index.php?topic=93507.0 yeaa i dont use proper english or grammar to explain nothing but this is numbers ne grade school-er can add and subtract on a integer bar and realize it's an EZ game of hot potato
      Preston Collins
    • Get out of Bitcoins

      Now we are even higher then the 200 mark way higher! Some day bitcoins will crater this the perfect asset bubble. There was a good article on WallStVoice today. Take a look: http://wallstvoice.com/2013/11/23/the-berfect-bubble-bitcoins/
      WallStVoicecom
  • Dinosaur thinking?

    Schafer's said:

    "Since time immemorial, in all cultures and civilizations, two commodities have prevailed as preferred forms of currency when they were available: Gold and silver. These commodities have passed the test of time — remaining universally in demand across cultures for thousands of years. These are the tried and tested true forms of money, and will ultimately prevail over all present fiat currencies,"

    This type of dinosaur thinking is completely missing what is most important to any competing currenty: the ability to make money by holding the currency. The only reason gold out competes silver, is because it is more scarce. But over the long term both Gold and Silver production has grown exponentially, keeping up with exponentially growing economies.

    Bitcoin, on the other hand is very different. It is approaching an asymptotic limit at 21 million coins. Sometime during the next few years there will likely be fewer Bitcoins mined than are lost due to people forgetting their password, and such. Matching that hard, soon to be decreasing quantity up with double exponential (both percentage of economy and the worldwide economy as a whole) growth will be explosive.

    Also, to fearfully talk about any 'bubbles' is also very short sighted. As you can see in the history documented in the expert consensus camp at Canonizer.com, predicting the future value of Bitcoin:

    http://canonizer.com/topic.asp/154/2

    Bitcoins 'bubbles' are reached and then pop more often than every 2 years. And notice that each peack and valley is 10 time the previous. So even if you do by at one of these tops, just wait a year or two and you'll still be making 10 times your money every few years for the foreseeable future.

    Oh, and if you do by into this kind of skeptical primitive thinking, you should try to 'canonize' any such views at canonizer.com, to see how many experts agree with this kind of mistaken thinking, compared with how many agree with the emerging expert consensus camps. Good luck getting any experts to agree with this kind of thinking that is clearly missing so much of what is important.

    brent.allsop at canonizer.com
    Brent.Allsop
    • cool thinking

      i like this perception :D
      Preston Collins
  • Pump and Dump

    It's hard to watch anything gain 50% or more and believe it isn't a classic pump and dump. We see it all the time. Champions have lots of good explanations - yes bitcoin is viable and will continue to grow. But this law still applies: easy come easy go. Be on the lookout for a 30%-60% correction. I'm sitting this out until there is some stabilization for at least a few days.
    SkizDriz
    • Sitting out won't help

      SkizDriz said: "I'm sitting this out until there is some stabilization for at least a few days."

      This kind of thinking led people to "sit out" great waves of Bitcoin monetization in the past. From fractional pennies to dollars per coin. Then from low single digits to teens. Then from ~$10 to above $100. Every single time, there were noisy commenters, self-confident "experts" and ignorant journalists calling it "scam", calling it "new tulips", calling it "unsustainable", calling it all kind of names.

      Sure enough, most people listened to these "experts" and either "sat it out" or dismissed this greatest investment opportunity of the millenium altogether. Only those who did not listen to self-proclaimed "experts" and did their own analysis instead, were able to ride the great waves of value transfer, turning their humble dollars into thousands, then thousands into millions.

      Perplexing all the "experts" and smug "bubble-watchers", relentless step of Bitcoin monetization will continue, wave after wave of value transfer. Those who recognize the opportunity of our lifetime and ride these waves will be the envy for the generations to come. Those that "sit it out" will be left nowhere, with their assets tied in a broken and dwindling fiat world, working their day jobs for a milli-fraction of milli-bitcoin and kicking themselves for missing their chance.
      arvicco
      • Bitcoin riches

        Exactly arivicco, I laugh at all the naysayers and everyone who told me to sell and get out of the game years ago while the getting was good. People need to realize that bitcoin is like the automobile vs horse and buggy. Its demand arises from its necessity of function. People everywhere are looking for an investment that is outside of government/bankster control. We all know what is eventually coming for the USA and Europe and it is not pretty. Already Chase bank has barred international wires from business accounts.
        Joey Schmoey
        • If we really do see economic collapse...

          ...the Internet will be one of the first things affected. And how is bitcoin traded?

          I think bitcoin has shown itself to be a viable medium of exchange, but in the end, it's all numbers backed by nothing but scarcity and an expectation that it will retain its value in the future. At least previous metals have value separate from their use as money and investment instruments.

          I think a lot of people see bitcoin as the replacement for state issued currency and that it will help to usher in the anarcho-capitalist paradise (which has, as far as I can tell, never existed), but I think that's wishful thinking.
          John L. Ries
          • ...

            Bitcoin is a protocol, and as such can be overlayed over any communication media, be it radio communication, telegraph, smoke signs or camel caravans traveling between remnants of ruined civilization. Trading the bitcoin is no different than any other commodity, and we already have multiple issuers of private "physical bitcoin" mint.

            Societal consequences of wide Bitcoin adoption is open to discussion but one thing is clear: Separation of Money and State is the next logical step in evolution of our civilization, following the Separation of Church and State.
            arvicco
          • So looks like we have an exercise in wishful thinking

            State-issued currency has been the primary medium of exchange throughout the civilized world for over 2500 years. Back when we did have separation of money and state, people were weighing precious metals (or trading wampum). We might go back to the old ways, but if we do, I'm pretty sure we won't be trading bitcoin.
            John L. Ries
          • Money and State

            Initial role of State in money creation was that of a trusted authority minting coins of a regular weight. Indeed, this is how (real) king Midas acquired his legendary wealth - by inventing coins.

            People were relieved that they do not need to carry around weights any longer for daily transaction, and enthusiastically accepted this innovation and State's role in money creation with it. Little did they know the scope of abuse of its monetary authority the State will demonstrate in the times to come.

            Now, we have a much better medium of exchange and store of value that does not require any reliance on State for its functioning: scarce and with predictable release schedule, durable, unfakeable, perfectly divisible, easy to transport or transfer to any distance, peer-to-peer decentralized, private and censorship-resistant. That is, orders of magnitude better than any form of money used up to this point, including gold/commodity money and state fiat.

            Why on Earth would this new type of money outcompeted by the older systems that are inferior to it in so many ways?
            arvicco
          • Because it happens all the time

            And there are lots of people with a vested interested in cheap money (hard money is mostly of value to those who have it).
            John L. Ries
          • Economic collapse doesn't mean full collapse

            Although the economy and government systems will break, it will just be at the large centralized points. I wouldn't doubt that if such a collapse happens the states will go on independently of the federal government and most people will see an immediate improvement instead of disaster. And you will see more and more free market anarcho-capitialism creeping in. The internet will never die.
            Joey Schmoey
          • The Internet depends on electricity

            And I don't see a lot of backyard generators keeping it going.
            John L. Ries
          • The collapse of the United States..

            ...would lead to immediate improvement? What makes you think so? And why do you think it would lead to the emergence of bitcoin as the primary currency instead of precious metals or state-issued currency (issued by the several states instead of the U.S government)?
            John L. Ries
      • But that's always what the bulls say...

        ...in the midst of a bubble. Why is this case different?
        John L. Ries
        • ...

          "Normal bubbles", fueled by irrational exuberance of overeager investors, always deflate back to a "rational" value of the asset in question, in most case 0. There is no way in hell such asset will "reinflate", as chastised investors swear to never touch such shite ever again. And happily move on to find another shite to hype up.

          "Bitcoin bubbles", of which we have seen at least 3 major ones and countless minor ones, after they deflate, always leave BTC values much higher than at the start of latest "bubble". In most cases, 10 times higher. And, lo and behold, a bit of time passes and the "Bitcoin bubble" inflates all over again.

          Which essentially means that instead of irrational exuberance, the long-time driver of Bitcoin price appreciation is in fact (a) monetization of this new type of asset and (b) value transfer. Yes, that's right - transfer of PURCHASING POWER to Bitcoin holders... from everyone else.

          I suspect this is exactly the same mechanism that played out thousands of years ago for gold, turning it from a pretty useless and obscure soft yellow metal to a universally recognized store of value it is right now. I bet the ancient holders of highly valuable cowry shells and obsidian beads were also perplexed by these inexplicable "gold bubbles", pushing the value of formerly useless metal to the heights never ever seen before by respectable shamans and other "experts"...
          arvicco
          • Much the same could be said of real estate...

            ... yet we've had real estate bubbles repeatedly through the last couple of centuries. The same can be said of precious metals, even when they were the basis of money (that was the rationale for bimetallism).

            And we're still talking about strings of bits with no intrinsic value (meaning value in and of itself, not as a medium of exchange).
            John L. Ries