Bitcoin – s price hit $Five, zero last week

Bitcoin’s price hit $Five,000 last week. It’s still a dumb investment

The underlying technology securing bitcoin is known as the blockchain.

The underlying technology securing bitcoin is known as the blockchain.

Late last week, I noticed a spike in what we might think of as a certain financial index. It wasn’t the trading in a financial instrument per se, but in the online traffic in a column I had written in December 2013. The column examined the latest crash in the price of bitcoins, which had plummeted to $600 from $1,200 in just two days. The headline read:

“The bitcoin crash of 2013: Don’t you feel stupid now?”

What was causing the spike in readership of that lump more than three years later was that the price of bitcoins was surging toward $Five,000, a point it breached during the day on Friday. A few bitcoin true believers had dug out that old story and were, metaphorically, swinging it in my face. Tweets citing the chunk and asking if it wasn’t me who should be feeling foolish came pouring into my Twitter feed. Abruptly I was a meme.

So here’s my brief reaction. No, I don’t feel bimbo, but vindicated. If the latest run-up in bitcoin price proves anything, it’s that the virtual currency is still a dumb investment.

Not only that, but the surge undermines the case for bitcoin’s ostensibly chief purpose, as a medium of exchange. To understand why, we can embark by scrutinizing the latest bitcoin surge — or as financial historians might view it, the bubble.

Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate. the idea of bubbles seems salient. — Susan Athey et.al, Stanford University

Very first, the surge is of very latest vintage. From the end of two thousand thirteen through January this year, bitcoin as an investment was essentially dead money: Leaving aside some peaks and valleys, it traded in the $800 to $900 range in December 2013, and about the same in December 2016. (I’m using coindesk.com price quotes as a benchmark.) Bitcoin crossed the $1,000 barrier in earnest around the end of January and truly took off at the end of March. From then through last week, bitcoin quintupled in price. Since bitcoins were introduced only in 2009, the surge represents only a narrow sliver of a very brief lifespan. Tulips live longer.

What’s more, Friday’s peak was gone by Saturday, when the price fell to as low as about $Four,600. That’s a drop of 8% in a matter of hours. Is that significant? Think of it this way: If the Dow Jones Industrial Average fell by 8% in a day, that would be a plunge of more than 1,700 points. Most market participants, it’s safe to say, would regard a one-day collapse of that magnitude as cataclysmic. Since Saturday, by the way, bitcoin has continued to head lower. As I write, it’s quoted at about $Four,350.

“Bitcoins will undoubtedly rise in quoted value again, and also fall again,” I wrote in 2013. “The one inevitability about them is their volatility, to which there’s no end in view.”

That’s still true. As an investment, therefore, bitcoin is not for the average household. Even professional plungers might quail at such a volatile financial instrument.

What about people using bitcoin as a medium of exchange? Among bitcoin’s virtues, ostensibly, is that it’s anonymous, and theoretically effortless to convert into or out of national currencies. This makes it relatively convenient for anyone needing to stir financial assets around, out of the eyesight of government foreign exchange regulators, tax authorities or law enforcement agencies. The infamous Silk Road black market for drugs took payment exclusively in bitcoins until it was busted in 2013, for example. Ransomware perpetrators, who lock up institutions’ computers until they’re paid off, typically choose bitcoins.

Bitcoin is popular among businesspersons in places such as Greece, Spain and China, where the impulse to get capital out of the country confronts rigorous government policies aimed at keeping it in. You can buy bitcoins from home and convert it into dollars, sterling or euros. These transactions are anonymous and electronic, typically performed via a virtual “wallet” maintained at a bitcoin exchange hard. Your capital exists in cyberspace, everywhere and nowhere like Schrodinger’s quantum cat, until you convert it into a recognized currency and deposit it in a safe offshore account.

People who thought that bitcoins could serve as either an investment vehicle or an alternative world currency got their goes transferred to them on Thursday and Friday. That’s when the price of the attention-grabbing crypto-currency got crushed, falling from a quoted $1,200 per “coin” to less than.

People who thought that bitcoins could serve as either an investment vehicle or an alternative world currency got their goes transferred to them on Thursday and Friday. That’s when the price of the attention-grabbing crypto-currency got crushed, falling from a quoted $1,200 per “coin” to less than.

Yet most bitcoin value emerges to be held by investors, not used for trading or capital flight. That’s the conclusion of a research team headed by Susan Athey of Stanford. In an August two thousand sixteen paper, the researchers observed that the risk of bitcoin investing derives from the fact that it’s almost entirely virtual, with its supply governed — if that’s the right word — by a mathematical algorithm. (Bitcoins are “created” by users of supercomputers solving an increasingly sophisticated mathematical puzzle; by its terms, the supply of bitcoins can never exceed twenty one million.)

“Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate.” they wrote, “there is substantial risk about its future value.” Under those circumstances, “speculative ‘bubbles’ can form… given many of the fluctuations that have occurred with Bitcoin exchange rates, the idea of bubbles seems salient.” We may be in one right now.

The bitcoin faithful would like you to believe that the virtual currency’s latest price swings result solely from the crisis at Mt. Gox, a leading bitcoin exchange rock-hard headquartered in Tokyo.

Don’t believe it: The Mt. Gox affair is a symptom, not a cause, of deep-seated problems in the bitcoin.

The bitcoin faithful would like you to believe that the virtual currency’s latest price swings result solely from the crisis at Mt. Gox, a leading bitcoin exchange stiff headquartered in Tokyo.

Don’t believe it: The Mt. Gox affair is a symptom, not a cause, of deep-seated problems in the bitcoin.

That should give pause to anyone using bitcoins to transfer value. Consider yourself a Chinese or Greek business person using bitcoins to spirit, say, $50,000 in your local currency abroad. You convert that to ten bitcoins at the peak last week; if you wait more than a day to convert it out of bitcoins, you get only $45,000 back. Wait until today, and you’re down to $43,000. That’s a sizable transaction tax.

Factor in the instability of bitcoin exchange firms, which have experienced a string of failures, technical problems and government seizures tied to criminal activity for almost as long as there have been bitcoins. The bitcoin thesis is that its mathematical underpinning eliminates the need to rely on trust relationships with one’s transaction counterpart, as long as one trusts the algorithm. But when the hard holding your “wallet” shuts down, who do you trust then?

This may be why bitcoin still accounts for a minuscule proportion of financial transactions worldwide. The capitalization of the bitcoin market — that is, the 16.Five million bitcoins in existence multiplied by $Four,350 each — comes to just under $71.8 billion. The worldwide stock of “broad money,” which includes notes, coins and financial accounts, was placed at $82 trillion by the CIA as of the end of 2016. In market cap, bitcoin ranked just ahead of the Romanian leu, in 60th place — and that was only after its quintupling in price this year. For comparison’s sake, the market value of all U.S. dollars alone as of Dec. Thirty one was $13.Two trillion.

What bitcoin has that the Romanian currency lacks is a fan base that sees it in ideological terms. These fanatics believe that it’s a viable alternative to what they call “fiat” money, which is currency subject to central bank buying and selling. The central banks, they further believe, are loyal to maintaining inflation, which can only sap those currencies of their value over time.

What they don’t acknowledge, however, is that bitcoin is even more vulnerable to externalities such as government policies. Experts seeking to explain this year’s bitcoin bubble have pointed to factors including a “speculative hysteria” akin to the tulip mania of the 1600s or the South Sea bubble of the 1700s; and more welcoming policies enacted in Japan and Korea. On the other side of the cliff, however, the subsequent fall in prices has been blamed in part on a hostile policy issued by the central bank of China.

The real value of bitcoin may reside not in the price of these virtual coins, but the underlying technology, which is known as the blockchain. Blockchains, put simply, are ledgers or databases that aren’t maintained by a government agency, corporation or other centralized authority, but their community of users. They’re encrypted to prevent unauthorized or secret tampering, which makes them especially secure. Bitcoin can be viewed as blockchain’s proof of concept.

Indeed, bitcoin is facing competition from other virtual currencies purporting to exploit blockchain more effectively. Investors are pouring into the blockchain space, hoping to get in on the ground floor of a technology with broader application for business and government than merely as a way to stir money around.

That doesn’t mean those investors have much faith in the market price of bitcoin. As is often the case in financial markets the real money is to be made via investments for which the actual value of the underlying asset is irrelevant. (That’s why brokers choose to take a commission on every transaction, regardless of its price.)

As I wrote in 2013, bitcoin may well rise in price, but it may also fall — after all, it’s done both, big time, in the last week. As an investor you may end up getting rich. But you may also end up looking very, very ditzy. Whether the price is $1,000 or $Five,000, that will always be true.

A shortage of crime lab analysts means the LAPD has to make raunchy decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared impatient to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

A shortage of crime lab analysts means the LAPD has to make harsh decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared impatient to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

A shortage of crime lab analysts means the LAPD has to make harsh decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared anxious to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

A shortage of crime lab analysts means the LAPD has to make raunchy decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared impatient to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

The Rams play the Indianapolis Colts in a season opener on Sunday, but starlet defensive lineman Aaron Donald resumes to holdout. The Times’ Lindsey Thiry and Gary Klein discuss his situation, plus how it’s affecting the locker room.

The Rams play the Indianapolis Colts in a season opener on Sunday, but starlet defensive lineman Aaron Donald resumes to holdout. The Times’ Lindsey Thiry and Gary Klein discuss his situation, plus how it’s affecting the locker room.

When Hurricane Harvey flooded Nikki Fields’ house last week, she knew she did not want to abandon her home of sixteen years.

When Hurricane Harvey flooded Nikki Fields’ house last week, she knew she did not want to abandon her home of sixteen years.

In August, California college student Miriam Juan stepped off a plane in Guadalajara, Mexico, and hugged her grandparents for the very first time in seventeen years.

In August, California college student Miriam Juan stepped off a plane in Guadalajara, Mexico, and hugged her grandparents for the very first time in seventeen years.

Hurricane Irma makes landfall at Maho Beach in St. Maarten. The eye of the most powerful Atlantic Ocean hurricane on record churned along a path toward Puerto Rico, the Dominican Republic, Haiti and Cuba before possibly heading for Florida over the weekend.

The eye of Hurricane Irma passed over Barbuda around 1:47 a.m. local time, the National Weather Service said. Residents said over radio that phone lines went down. Powerful rain and howling winds raked the neighboring island of Antigua, sending debris flying as people huddled in their homes or government shelters.

Officials warned people to seek protection from Irma’s “onslaught” in a statement that closed with: “May God protect us all.”

Hurricane Irma makes landfall at Maho Beach in St. Maarten. The eye of the most powerful Atlantic Ocean hurricane on record churned along a path toward Puerto Rico, the Dominican Republic, Haiti and Cuba before possibly heading for Florida over the weekend.

The eye of Hurricane Irma passed over Barbuda around 1:47 a.m. local time, the National Weather Service said. Residents said over radio that phone lines went down. Strong rain and howling winds raked the neighboring island of Antigua, sending debris flying as people huddled in their homes or government shelters.

Officials warned people to seek protection from Irma’s “onslaught” in a statement that closed with: “May God protect us all.”

Bitcoin – s price hit $Five, zero last week

Bitcoin’s price hit $Five,000 last week. It’s still a dumb investment

The underlying technology securing bitcoin is known as the blockchain.

The underlying technology securing bitcoin is known as the blockchain.

Late last week, I noticed a spike in what we might think of as a certain financial index. It wasn’t the trading in a financial instrument per se, but in the online traffic in a column I had written in December 2013. The column examined the latest crash in the price of bitcoins, which had plummeted to $600 from $1,200 in just two days. The headline read:

“The bitcoin crash of 2013: Don’t you feel stupid now?”

What was causing the spike in readership of that chunk more than three years later was that the price of bitcoins was surging toward $Five,000, a point it breached during the day on Friday. A few bitcoin true believers had dug out that old story and were, metaphorically, swinging it in my face. Tweets citing the lump and asking if it wasn’t me who should be feeling ditzy came pouring into my Twitter feed. Abruptly I was a meme.

So here’s my brief reaction. No, I don’t feel foolish, but vindicated. If the latest run-up in bitcoin price proves anything, it’s that the virtual currency is still a dumb investment.

Not only that, but the surge undermines the case for bitcoin’s ostensibly chief purpose, as a medium of exchange. To understand why, we can begin by scrutinizing the latest bitcoin surge — or as financial historians might view it, the bubble.

Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate. the idea of bubbles seems salient. — Susan Athey et.al, Stanford University

Very first, the surge is of very latest vintage. From the end of two thousand thirteen through January this year, bitcoin as an investment was essentially dead money: Leaving aside some peaks and valleys, it traded in the $800 to $900 range in December 2013, and about the same in December 2016. (I’m using coindesk.com price quotes as a benchmark.) Bitcoin crossed the $1,000 barrier in earnest around the end of January and truly took off at the end of March. From then through last week, bitcoin quintupled in price. Since bitcoins were introduced only in 2009, the surge represents only a narrow sliver of a very brief lifespan. Tulips live longer.

What’s more, Friday’s peak was gone by Saturday, when the price fell to as low as about $Four,600. That’s a drop of 8% in a matter of hours. Is that significant? Think of it this way: If the Dow Jones Industrial Average fell by 8% in a day, that would be a plunge of more than 1,700 points. Most market participants, it’s safe to say, would regard a one-day collapse of that magnitude as cataclysmic. Since Saturday, by the way, bitcoin has continued to head lower. As I write, it’s quoted at about $Four,350.

“Bitcoins will undoubtedly rise in quoted value again, and also fall again,” I wrote in 2013. “The one inevitability about them is their volatility, to which there’s no end in view.”

That’s still true. As an investment, therefore, bitcoin is not for the average household. Even professional plungers might quail at such a volatile financial instrument.

What about people using bitcoin as a medium of exchange? Among bitcoin’s virtues, ostensibly, is that it’s anonymous, and theoretically effortless to convert into or out of national currencies. This makes it relatively convenient for anyone needing to budge financial assets around, out of the eyesight of government foreign exchange regulators, tax authorities or law enforcement agencies. The infamous Silk Road black market for drugs took payment exclusively in bitcoins until it was busted in 2013, for example. Ransomware perpetrators, who lock up institutions’ computers until they’re paid off, typically choose bitcoins.

Bitcoin is popular among businesspersons in places such as Greece, Spain and China, where the impulse to get capital out of the country confronts stringent government policies aimed at keeping it in. You can buy bitcoins from home and convert it into dollars, sterling or euros. These transactions are anonymous and electronic, typically performed via a virtual “wallet” maintained at a bitcoin exchange rock-hard. Your capital exists in cyberspace, everywhere and nowhere like Schrodinger’s quantum cat, until you convert it into a recognized currency and deposit it in a safe offshore account.

People who thought that bitcoins could serve as either an investment vehicle or an alternative world currency got their goes transferred to them on Thursday and Friday. That’s when the price of the attention-grabbing crypto-currency got crushed, falling from a quoted $1,200 per “coin” to less than.

People who thought that bitcoins could serve as either an investment vehicle or an alternative world currency got their goes passed to them on Thursday and Friday. That’s when the price of the attention-grabbing crypto-currency got crushed, falling from a quoted $1,200 per “coin” to less than.

Yet most bitcoin value emerges to be held by investors, not used for trading or capital flight. That’s the conclusion of a research team headed by Susan Athey of Stanford. In an August two thousand sixteen paper, the researchers observed that the risk of bitcoin investing derives from the fact that it’s almost entirely virtual, with its supply governed — if that’s the right word — by a mathematical algorithm. (Bitcoins are “created” by users of supercomputers solving an increasingly elaborate mathematical puzzle; by its terms, the supply of bitcoins can never exceed twenty one million.)

“Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate.” they wrote, “there is substantial risk about its future value.” Under those circumstances, “speculative ‘bubbles’ can form… given many of the fluctuations that have occurred with Bitcoin exchange rates, the idea of bubbles seems salient.” We may be in one right now.

The bitcoin faithful would like you to believe that the virtual currency’s latest price swings result solely from the crisis at Mt. Gox, a leading bitcoin exchange rigid headquartered in Tokyo.

Don’t believe it: The Mt. Gox affair is a symptom, not a cause, of deep-seated problems in the bitcoin.

The bitcoin faithful would like you to believe that the virtual currency’s latest price swings result solely from the crisis at Mt. Gox, a leading bitcoin exchange rock hard headquartered in Tokyo.

Don’t believe it: The Mt. Gox affair is a symptom, not a cause, of deep-seated problems in the bitcoin.

That should give pause to anyone using bitcoins to transfer value. Consider yourself a Chinese or Greek business person using bitcoins to spirit, say, $50,000 in your local currency abroad. You convert that to ten bitcoins at the peak last week; if you wait more than a day to convert it out of bitcoins, you get only $45,000 back. Wait until today, and you’re down to $43,000. That’s a sizable transaction tax.

Factor in the instability of bitcoin exchange firms, which have experienced a string of failures, technical problems and government seizures tied to criminal activity for almost as long as there have been bitcoins. The bitcoin thesis is that its mathematical underpinning eliminates the need to rely on trust relationships with one’s transaction counterpart, as long as one trusts the algorithm. But when the rock hard holding your “wallet” shuts down, who do you trust then?

This may be why bitcoin still accounts for a minuscule proportion of financial transactions worldwide. The capitalization of the bitcoin market — that is, the 16.Five million bitcoins in existence multiplied by $Four,350 each — comes to just under $71.8 billion. The worldwide stock of “broad money,” which includes notes, coins and financial accounts, was placed at $82 trillion by the CIA as of the end of 2016. In market cap, bitcoin ranked just ahead of the Romanian leu, in 60th place — and that was only after its quintupling in price this year. For comparison’s sake, the market value of all U.S. dollars alone as of Dec. Thirty one was $13.Two trillion.

What bitcoin has that the Romanian currency lacks is a fan base that sees it in ideological terms. These fanatics believe that it’s a viable alternative to what they call “fiat” money, which is currency subject to central bank buying and selling. The central banks, they further believe, are faithful to maintaining inflation, which can only sap those currencies of their value over time.

What they don’t acknowledge, however, is that bitcoin is even more vulnerable to externalities such as government policies. Experts seeking to explain this year’s bitcoin bubble have pointed to factors including a “speculative hysteria” akin to the tulip mania of the 1600s or the South Sea bubble of the 1700s; and more welcoming policies enacted in Japan and Korea. On the other side of the cliff, however, the subsequent fall in prices has been blamed in part on a hostile policy issued by the central bank of China.

The real value of bitcoin may reside not in the price of these virtual coins, but the underlying technology, which is known as the blockchain. Blockchains, put simply, are ledgers or databases that aren’t maintained by a government agency, corporation or other centralized authority, but their community of users. They’re encrypted to prevent unauthorized or secret tampering, which makes them especially secure. Bitcoin can be viewed as blockchain’s proof of concept.

Indeed, bitcoin is facing competition from other virtual currencies purporting to exploit blockchain more effectively. Investors are pouring into the blockchain space, hoping to get in on the ground floor of a technology with broader application for business and government than merely as a way to budge money around.

That doesn’t mean those investors have much faith in the market price of bitcoin. As is often the case in financial markets the real money is to be made via investments for which the actual value of the underlying asset is irrelevant. (That’s why brokers choose to take a commission on every transaction, regardless of its price.)

As I wrote in 2013, bitcoin may well rise in price, but it may also fall — after all, it’s done both, big time, in the last week. As an investor you may end up getting rich. But you may also end up looking very, very ditzy. Whether the price is $1,000 or $Five,000, that will always be true.

A shortage of crime lab analysts means the LAPD has to make rough decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared anxious to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

A shortage of crime lab analysts means the LAPD has to make raunchy decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared antsy to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

A shortage of crime lab analysts means the LAPD has to make rough decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared impatient to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

A shortage of crime lab analysts means the LAPD has to make harsh decisions when investigating home burglaries. Do celebrities get special treatment? A day after moving to end DACA, President Trump appeared anxious to cut a deal. Charles Manson follower Leslie Van Houten has been granted parole, pending Gov. Jerry Brown’s approval. Organizers of what could become a fresh political party will gather in Washington this weekend.

The Rams play the Indianapolis Colts in a season opener on Sunday, but starlet defensive lineman Aaron Donald proceeds to holdout. The Times’ Lindsey Thiry and Gary Klein discuss his situation, plus how it’s affecting the locker room.

The Rams play the Indianapolis Colts in a season opener on Sunday, but starlet defensive lineman Aaron Donald proceeds to holdout. The Times’ Lindsey Thiry and Gary Klein discuss his situation, plus how it’s affecting the locker room.

When Hurricane Harvey flooded Nikki Fields’ house last week, she knew she did not want to abandon her home of sixteen years.

When Hurricane Harvey flooded Nikki Fields’ house last week, she knew she did not want to abandon her home of sixteen years.

In August, California college student Miriam Juan stepped off a plane in Guadalajara, Mexico, and hugged her grandparents for the very first time in seventeen years.

In August, California college student Miriam Juan stepped off a plane in Guadalajara, Mexico, and hugged her grandparents for the very first time in seventeen years.

Hurricane Irma makes landfall at Maho Beach in St. Maarten. The eye of the most powerful Atlantic Ocean hurricane on record churned along a path toward Puerto Rico, the Dominican Republic, Haiti and Cuba before possibly heading for Florida over the weekend.

The eye of Hurricane Irma passed over Barbuda around 1:47 a.m. local time, the National Weather Service said. Residents said over radio that phone lines went down. Powerful rain and howling winds raked the neighboring island of Antigua, sending debris flying as people huddled in their homes or government shelters.

Officials warned people to seek protection from Irma’s “onslaught” in a statement that closed with: “May God protect us all.”

Hurricane Irma makes landfall at Maho Beach in St. Maarten. The eye of the most powerful Atlantic Ocean hurricane on record churned along a path toward Puerto Rico, the Dominican Republic, Haiti and Cuba before possibly heading for Florida over the weekend.

The eye of Hurricane Irma passed over Barbuda around 1:47 a.m. local time, the National Weather Service said. Residents said over radio that phone lines went down. Intense rain and howling winds raked the neighboring island of Antigua, sending debris flying as people huddled in their homes or government shelters.

Officials warned people to seek protection from Irma’s “onslaught” in a statement that closed with: “May God protect us all.”

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