a few things about the bitcoin turbulence

DISCLAIMER: a lot of people are going to skim or not read this at all and just assume I’m another neckbeard technocrat bitcoin fanboy. That’s fine. I am fascinated by the bitcoin experiment, and the prospect of an alternative currency pegged to a steady rate of growth mathematically, whether it’s deflationary or inflationary. I have not invested any money in bitcoin, in any case, so this is not a personal or defensive screed.

  • Bitcoin is a currency designed to be a medium for exchange of value. It’s a commodity, but it has no intrinsic purpose or use (as opposed to, say, gold – making analogies with it close, but flawed). The fact that people are choosing to invest in it now is in no way related to its intended purpose.
  • The current hyperdeflation is not the sort of deflation people talk about when they refer to Bitcoin’s inherent deflation. There is inherent deflation in bitcoin caused by the fixed target supply of 21 million BTC (relative to the natural expansive tendency of an economy’s productive capacity), and natural attrition by loss/deletion, but this is stable and minor compared to the volatility currently being experienced.
  • The current hyperdeflation is being caused by rampant speculation and hedging that is multicausal, and many of the causes are unknown. Some of the best guesses are simple “get rich quick” investors pushing the inrease. Another is that people are hedging their bets because of the Cyprus bailout and the increasingly likely implosion of the eurozone.
  • Predicting that the current very high price of bitcoin will drop is not exactly a stunning observation. Intense speculative investment is destined to be volatile. Most everyone buying BTC surely knows this. Identifying this fact means you’re able to utilize common sense. Braying about it self-righteously with I-told-you-so’s (directed at whom, exactly?) makes you sound like kindof a jerk.
  • … it also makes you quite wrong, considering many people almost certainly did become very rich in the selloff today.
  • Others will probably lose money, and they’ll probably whine about it. This happens in any speculative market. Gambling real money on a speculation is a very stupid move unless you’re very rich.
  • Thinking that this means the end of the experiment is also a bit silly. Especially considering it’s far from over, and that the price of BTC is up over, what, 2800% from this time a year ago? A decrease from $260 to $165 means a lot of volatility and lost money, but it will not end here. It means that the experiment is going to be annoyed and hampered by speculation. If you think that BTC is the only currency ever to have been inconvenienced by speculation, well … that’s a thing you think that’s wrong. You wrong-thinker. The wild volatility we’re seeing right now has no bearing on the future success or failure of the real bitcoin experiment (see above), except insofar as the volatility and extreme volume may put the infrastructure and technology to the test – which is a good thing. It it fails, we can try something else.
  • If you think that Bitcoin is an imaginary fake currency, you’re wrong. Trust me on this, or verify it for yourself if you like. Millions of USD worth of BTC aren’t flying around because people are just really that keen on being in on the next grand economic experiment. People are using it. That doesn’t mean it’s a permanent success, but it’s not imaginary.
  • I forgot what the last bullet point was