The Bitcoin Bubble Has Burst

Well it has finally happened. We looked at those charts of ever rising price of bitcoin and said this cannot last, and it hasn’t. The bitcoin bubble has finally peaked and now all that is left is to watch its steady and inexorable decline. But this post will not simply be full of smug gloating (though I see no reason why there shouldn’t be at least a little bit of smugness). You see, the crash of bitcoin mirrors other financial crashes and gives us an opportunity to draw some conclusions. It is best to view bitcoin as a giant experiment of how an economy would operate without a central bank.

I wrote my last post about bitcoin on Sunday when the price is exponentially rising. In the short time between the writing and the posting of my article, the price jumped from $140 to $160. Over the next two days the price broke the $200 barrier. On Wednesday it reached a peak of $266. Then the house of cards collapsed. The market fell into a freefall dive. In a matter of hours a massive plunge occurred. The price was cut in half and the market was overcome by chaos. No one knew how much bitcoins were worth anymore and people rushed to offload them. Finally MtGox, the main bitcoin trading site was shut down in an attempt to halt the collapse. When MtGox re-opened, prices again plunged from $123 to $78 almost instantly. They reached a low of $54 before recovering to $70 at the moment. In order words, 75% of the value of bitcoins has been wiped out in two days. This is a spectacular bursting of a bubble.

Why did the bubble burst? Some mutter darkly about sabotage while others say the website was overloaded by excessive demand. However, it doesn’t really matter. All bubbles are incredibly unstable. Most people know that it will burst; they are just waiting for the peak before cashing out. So even the smallest decline can spark a mass selloff. When this happens, it doesn’t matter what you think of the commodity, if everyone is selling, the only logical action is to sell as well. This is what happened on Wednesday. Panic took hold of bitcoin holders as everyone tried to dump bitcoins and save their investment.

A good chart of how bubbles work and one that can be easily applied to bitcoins

A good chart of how bubbles work and one that can be easily applied to bitcoins

The crash revealed a lot of flaws in bitcoin, particularly its deliberative choice to be unregulated. If you want to buy shares, you can go to the stock exchange, which is the one official place where shares are traded. However, for bitcoins, there is no such place. MtGox claims to be the largest trading place (though the fact its initials stand for “Magic The Gathering Online Exchange” as it was originally a card trading website makes it the object of much derision) and its price is usually quoted but there are several others. The problem is that there are major differences between the prices offered. While MtGox offers the price of $70, Bitstamp offers $64, BTC-e quotes $84 and CampBX lists $72. This shouldn’t happen as investors could buy cheaply and sell high and profit the difference. The fact that there are such gaps shows the volatility and uncertainty that dominates the market.

The collapse of bitcoin (its happening so fast its hard to find up to date charts)

The collapse of bitcoin (its happening so fast its hard to find up to date charts)

Collapses like this happen in real stock markets. However, they are usually saved by the central bank intervening to guarantee the price or by a government bail out. However, the whole point of bitcoin is that there is no government so there can never be a bail out. It was designed by people who worship the supremacy of the market and argue that the government is the cause of all crashes. In this ideology the government is a parasite on the rest of the economy, and if left alone the market will naturally soar. It will be interesting to see how libertarians try to blame the government for this bubble and bust. The lack of regulation is the reason for bitcoin’s existence but it is also the reason it will fail. Without a government to stabilise it, it will continue to fluctuate wildly into a death spiral. A unregulated market is open to manipulation and many claim this is behind “Black Wednesday”. Bitcoin was meant to show how the market can succeed with no government involvement, but instead it showed how crucial the government is.

The fundamental problem with bitcoin is that it is not a currency. Currencies exist to be used, traded as a medium of exchange and a store of value. Bitcoin on the other hand has been used for speculation, gambling and hoarded. It has stopped being a currency and become a commodity. This problem goes to the core of bitcoin and the fact that it has a fixed supply. When the value of bitcoin is rising, the price of everything else is dropping. Therefore it makes little sense to buy anything, because it will be cheaper later. So instead people hoard bitcoins, which drives the price higher.

There have been some slight recoveries which have given hope to bitcoinites (I argued with two here and here). They cling to the hope that this is only a correction and that bitcoin will bounce back stronger than ever. They fail to realise that all crashes include a slight recovery followed by another crash.  that the functionality of bitcoin will stand by it. If you examine the dot com burst (the bubble with the most similarities with bitcoin) you will see that there were several recoveries, followed by deeper plunges. The same goes for the 1929 stock market crash.

The stock market during the late 20s and early 30s. To those who say bitcoin will rise again, point out that even during the Great Depression there were temporary rallies.

The stock market during the late 20s and early 30s. To those who say bitcoin will rise again, point out that even during the Great Depression there were temporary rallies.

Bitcoin is essentially based on Austrian economics and as a result, severely damaged it. The belief that we are better off without central banks is regularly asserted, but until now, untested. Well, we have created a market with no central bank or government intervention and the result is a speculative bubble and followed by a spectacular and volatile crash. It shows that it is possible for the unregulated free market to experience a boom and bust. It highlights that bubbles can occur without low interest rates (the Austrian explanation of the 2008 financial crash). It further debunks the efficient market hypothesis and the idea of rational expectations (as though those theories weren’t already dead). It almost feels like flogging a dead horse, but these theories are still taught in universities and held by influential economists. I don’t see how they can possible explain this bubble.

The Dot Com Bubble mirrors the Bitcoin Bubble in many ways

The Dot Com Bubble mirrors the Bitcoin Bubble in many ways

So what now for bitcoin? It will crash and disappear like, Leheman Brothers and Anglo Irish Bank, existing only in the memories of economists. I’m sure libertarians will still argue about it on Reddit, but for all practical purposes it will be dead. The price of bitcoin will drop just as it did after the last bitcoin bubble, its only a question of how long it takes. Considering the speed of bitcoins price movements, I estimate bitcoins will reach single digits by the end of the month. Six weeks at the most. As there is no stabilising force to save the currency it will crash and burn.

However, it will not be the end of virtual currency. There are few things as strong as ideology in the world and many libertarians will refuse to accept defeat. So expect a new and improved bitcoin to become the next fad, probably by the end of the year. It will have a different name and slightly different features, but the same basic premise, with the same end result. People will keep trying (and in the short term, failing) to create a government free currency. But the bitcoin bubble does not debunk the merits of online currencies anymore than the dotcom bubble killed the internet. It just meant people got ahead of themselves. Decades in the future, there probably will be an online currency acting like a financial Esperanto. Crucially it will have to be backed by some sort of Central Bank who will intervene in the market.

(Update: A response has been made point by point challenging this post. I have responded likewise in the comment section and expect the debate to continue there.)

(Further update: I lost the run of myself a bit in my prediction of six weeks before the disappearance of bitcoin. Ah well, you can’t win them all.)


Filed under Economics

66 responses to “The Bitcoin Bubble Has Burst

  1. Hearing the news last night did indeed make me think of you, and smile. “Well done, lad! Well done indeed!” I thought😉

    • I’ll admit I did take some smug I-told-you-so enjoyment from watching the price collapse.

      • GM

        Don’t get too caught up in the short-term. It’s a distraction from the bigger picture.

        • Are you saying bitcoin will recover?

          • GM

            I’m not. I’m saying don’t get too caught up in the short-term! Bitcoins are right now far, far higher than many people ever expected that they could reach, despite the recent crash. Anybody who has held them for longer than a month has seen an appreciation versus the dollar (and a month is a very short period of time in the financial markets).

            • Yeah the bitcoin market is like watching a video on fast forward. Its mimicking the dot com bubble except what took years has taken weeks. The crash will also be fast.

            • GM

              By the way, I see that you used this blog post to trash Austrian economics again, while showing very little understanding of the subject – again!! I even gave you a link recently to show you an in-depth Austrian analysis of bitcoins, which was clearly sceptical of it. Most Austrians are sceptical of it. I am sceptical of it. Go to the Austrian-friendly Zero Hedge, and you’ll see plenty of scepticism. I could point you to more examples of Austrian scepticism toward it, and explain my reasons, but I don’t think you’re interested. Looks like your agenda is simply to trash Austrianism by an means possible….

              • That’s strange because bitcoin does largely conform to the Austrian ideal of a currency without a central bank. You have to admit there is a huge overlap. I did read that article, though it dismissed bitcoin for rather minor technical side issues that seemed to me to miss the point.

                • GM

                  Having said all of that, I would concede that there are superb qualities to bitcoins which could enable them to be very popular for a considerable period of time. They have first-mover advantage over all other digital currencies. Haven’t bought any yet but I have considered buying just a few and treating them like lottery tickets – probably worthless in the final analysis, but with a small chance of an exceptional return.

              • GM

                Stating it as quickly as possibly: The Austrian theory of money is that the most marketable commodity will be chosen on the free market as a common medium of exchange.

                Bitcoins have many important properties of a commodity which could enable them to be used as money, but they are lacking in fundamental marketability due to the extreme scarcity of end users – since there are negligible uses for bitcoins beyond as a means of exchange.

                I think that the article I linked to made some absolutely valid points, but I I don’t think it was critical enough with respect to Mises’ Regression Theorem and bitcoins: while it is true that there are probably some people who derive utility merely from the act of owning bitcoins, I strongly doubt that such demand would be persistent or strong enough, in the long-run, to maintain bitcoins as a viable medium of exchange outside of a niche community. I could be wrong, but that’s what I think.

                • But regardless of whether or not has a realistic of reaching critical mass and becoming a major currency, you would say that the ideal Austrian currency would have a fixed supply and no central bank, right?

                  • GM

                    Firstly, let me just point out that the ideal currency is precisely that – an ideal, something which does not actually exist. Secondly, yes, it is true that the theoretically perfect money would have a fixed supply. But that’s not to say that society would necessarily choose to use such a perfect money, even if it existed.

                    Would it have a central bank? Funnily enough, I don’t think you can go so far as to say that it would not have a central bank either. You may find this suprising, but I’m actually not as hardcore on the banking question as many Rothbardians are: I’m comfortable with the legalised existence of central banks in a free banking system. So that depends on who you ask. I’m comfortable with banks signing up with a lender of last resort, to protect them in case they get into difficulty – I just don’t think the costs of such insurance should be socialised.

                    • Ok then, let me rephrase it. Would you agree that the ideal (leaving practicalities aside for a moment) Austrian currency would have a fixed supply and no central bank?

                    • GM

                      The answer to your question is yes. Such an ideal currency is a useful theoretical concept, in the same way as perfect competition and the evenly rotating economy are useful theoretical concepts. They shouldn’t be considered any more or less important than that.

                    • GM

                      Let me also point out that those are necessary but not sufficient conditions.

                    • So you see my original point, that the defining features of bitcoin (no central bank, fixed money supply) mirror those of the Austrian ideal currency. Hence bitcoin is (to some extent) Austrian economics in practice. It is the closest thing to a natural experiment in economics. So if bitcoin fails, the this casts doubt on the viability of Austrian economics, at least in regard to currency (which is a large part of it).

                    • GM

                      I disagree, because the very nature of a theoretical construct is that it can’t be put into practice – it assumes certain things which don’t exist and can’t exist. In reality, any currency is going to have to deviate from the theoretical ideal. Most Austrians believe that gold is the closest thing we have to an ideal currency in the real world. Most Austrians are sceptical that bitcoins come close to being an ideal currency, for the reasons I have briefly explained and linked to. I think that bitcoins deviate in a fundamental way from being something that could be a viable currency in the long-term. So, if or when bitcoins collapse and disappear, that won’t cast doubt any aspect of Austrian economics whatsoever.

                      Not having any fundamental value, I would go so far as to say that bitcoins have more in common with euros and dollars than they do with gold. Like euros and dollars, their purchasing power will also eventually reflect their intrinsic value.

  2. My fiancée was trying to get me to buy some of these yesterday!

  3. Pingback: The Bitcoin Bubble – Why it Doesn’t Matter | The Bitcoin Conspiracy

  4. A typical “Pump and dump” phenomenon just like “penny stocks”….it’s limited and isolated. Capitalism without bankruptcy is like religion without help. There is no moral authority or justification for govt to rescue anyone whose investment goes bust.

    • You see that’s fine as a moral rule but if you apply that economy wide you get chaos. What would have happened had the government not intervened in 08? Take a look at bitcoin and find out. There is certainly room for debate over the form the bailout takes and I’d lean towards nationalisation personally, but there has to be some form of intervention to halt the decline.

      • A detail about the famous Dutch tulip boom that I always found interesting was that it didn’t have much of an effect on the economy except for the very, very short term. That was because the Dutch government intervened. If I recall correctly, all debts were forgiven. Funny, considering my stereotypes of the culture. I would have expected that they’d have been pulling their hair out over “moral hazard.” The economy was saved, widespread hardship was avoided and people of lax morals did not continue to overindulge in flowers.

      • GM

        The “Real Crash” hasn’t happened yet, and it’s going to be far worse than 2008 would have been, precisely because Western governments refused to allow their economies to restructure.

        • That’s a big claim that I see little evidence for

          • GM

            Almost every major Western economy is addicted to near-zero interest rates. If they try to go back to normal, our economies will immediately start crashing again. So we are putting off the day of reckoning until it is forced upon us by the collapse of our currencies.

            • A tad over pessimistic I feel. We’re in a hole alright but collapse is avoidable and I don’t think it will be interest rates that cause the most damage.

              • GM

                Let’s be honest – there is no precedent whatsoever for all of the major Western central banks suppressing interest rates and printing money at the rate they are doing it now, and mainstream economists have essentially no idea what the outcome is going to be. The same people who think that 0% interest rates and QE are a good idea are the ones who had no idea that a crisis was on the cards and who created the prior credit bubble in the first place. Those of us who understand some proper economics and have absorbed the major lessons of history, however, do know how this movie is going to end.

                • Well when you say “suppressing” interest rates you presume that there is a natural equilibrium rate, a position not held by economists except those in the Austrian school. So to presume it will automatically end badly is not something I’d agree with. As I wrote in the last post, printing money does not automatically lead to hyperinflation.

  5. I should have said “capitalism without bankruptcy is like religion without hell”…not help

  6. It’s okay. You can be polite. I’ll gloat plenty on your behalf. My only hope is that the true believing libertarians lose the most. The meglomania is astounding. “I’m going to write a computer program and change civilization.” Though I have just thought of a use for libertarians. How about you and I create “Fojap Bucks” and cash in on this phony currency trend while it’s still hot.

    You’ve probably read it, but I found the book Manias, Panics and Crashes to be very interesting.

    The upside of the Bitcoin bubble is that the market was probably to small to have any real affect on the economy.

    But really, what do they think? I’m just flabbergasted by the stupidity involved. Austrian economics is to real economics as Lysenkoism is to Darwinism.

  7. Pingback: The Great Bitcoin Bubble | Robert Nielsen

  8. It’s hilarious when people with no economics reading start talking about Bitcoins as if they are in they have suddenly created their own rules of economics! Great posts.

  9. Pingback: Bitcoin Trend After “Crash” | Modern Family Man

  10. People are too slow.

    You have to always be thinking 200 steps ahead. Not buying into bitcoins when it is on the front page of the financial times.

  11. And as cyber-gold is crashing, real gold ain’t doing so well either. I’m not sure if that counts as life imitating art… but it’s fun to watch those who were queuing up to slag off paper money put in their place by all this.

  12. Bosko

    If Bitcoin doesn’t crash and disappear as you predict, will you acknowledge your error? How long should it take the ideal currency to take hold? At what level of value or usage would you declare your assertions to be incorrect? If Bitcoin increases in both value and acceptance (by merchants) by 20% every year for the next 20 years, would you still consider it a failure? Or, if your prediction of single digit value in the next six weeks doesn’t come true, would you then reconsider? Is there anything that would make you reconsider? If my Bitcoins increase in value by 2000+% while your dollars go down in value, is there a good reason for you to be gloating? Would you care to publicly wager on your predictions comparing Bitcoin value to USD value at any point in the future (you pick the timing)?

    • If I’m wrong I’ll admit it just as presumably you would do the same. What price would bitcoin have to be for me to be proven wrong? That’s a tough question. I suppose if it could reach its peak again and hold it as part of a sustainable manner and not as a speculative bubble. If it stayed abouve $200 for several weeks in a stable manner Without swinging wildly) I suppose I would have to reconsider my views.

      My prediction that it will drop to single digits in six weeks, is like all amateur predictions, a rough guess. I am still convinced it will happen, its only a matter of time (by which I mean months not years). The only question I see is whether it is a slow gradual decline or a rapid collapse. If it instead begins to steadily gain (again in a non-speculative manner) I would have to reconsider my view.

      Basically I’m three quarters sure that bitcoin will collapse, 20% possibility of another bubble followed by collapse and 5% chance of a sustainable growth.

      For a currency to succeed, it must have widespread use, that is to say critical mass. I am absolutely sure that bitcoin will never achieve this. In a sense it is like a political party, it can have a small number of loyal supporters, but unless it gains widespread support, it will fail.

      If bitcoin increased in value by 2000% and held it, then no I would not consider it a failure. If it reached this level and came crashing down, then yes I would. If it steadily rose by 20% every year (meaning it took 4 years to get to $200) then no I would not consider it a failure. I would have to rethink my views as well.

      I would be willingly to put my money where my mouth was were it not for the fact that as a student without a job, I don’t have much money. (And problem with paying over the internet etc).

      • Bosko

        I must say, that was a very nice reply. I will also agree that if Bitcoin collapses I will have to rethink my views on good/bad currencies. I highly doubt, however, that anything related to Bitcoin will alter my views on fiat currencies which are generally evil in nature because they allow a central authority to systematically steal purchasing power from end users, typically at an unpredictable rate. Even if you think inflating the money supply is necessary, why not distribute the new money randomly? Contrast random distribution with systematically helping the first people who get their hands on the new money (the banks) while systematically screwing the people who are the last to adjust to the new money (low level workers who get raises due to inflation years after the new money has been circulated). Once you realize that randomly distributing new money would be more fair, you can’t help but realize that by not adding any new money, everybody who currently has money has a little more buying power and you have achieved the effect of randomly distributing new money without having to distribute any new money. At worst, the people who don’t realize that their money is going up in value might get the short end of the stick because they aren’t thinking about value, but they’d still be better off then they were when using a centrally controlled, fiat currency that is systematically being degraded.

        On a loosely related note, I’m not sure if you’re last statement of “problem paying over the internet” was a joke relating to how easy it is to pay people over the internet with bitcoins (I’m thinking not). If you’ve never had the pleasure of paying a small debt to a distant friend through an e-mail, you should really try it. No hassles, no measurable cost, no record (beyond the e-mail). I did exactly this yesterday with a bitcoin enabled friend who had bought a concert ticket for me and it was highly enlightening as to how things should work–real money, no Govt., no middleman required when both parties are trusted.

        Finally, remember that “bubbles” are not evidence that the underlying idea or technology has no value. Railroads and the internet both had bubble phases and both have been tremendously valuable over the long haul. Bad/good days or week mean little. Progress for big ideas is measured in years and decades. YTD growth of Bitcoin is pretty phenomenal so far even with the bursting of the bubble.

        • I think there is a good argument over who should receive the newly printed money. Banks are probably chosen for convenience and I have hears a good case for making the government the main beneficiary. I don’t think “random” is necessarily good. Nor is it the low paid who suffer the most. Unlike unemployment, inflation harms the rich as well as they have the most savings. A deflationary currency leads to economic contraction and recession and I would say that its fair. After all, if those who have the most, gain the most, how is that fair? Finally, inflation has been very low in the 70s so “degrading” is not a serious problem.

          Ha, how ironic a use for bitcoin. Just as the dot com bubble didn’t destroy the internet, online currencies will survive. Technologies can survive bubbles, the companies usually do not. So we will probably use some form of electronic currency in the future, it just won’t be bitcoin.

          • Bosko

            Not to sound conspiratorial, but I don’t think that banks were chosen to receive new money for convenience, they were chosen because the system was designed by bankers. Inflation hurts poor savers with little debt, and little understanding of the system much worse then a wealthy people, with significant debt, and a better understanding of the system. Retirees with little debt and a distrust for the market (i.e., cash savings) get eaten alive by inflation and they often don’t understand the system well enough to fight back. I don’t think the system should be rigged to help anybody over anybody else, but it surely shouldn’t be designed to feed off of people least able to defend themselves. Inflation is theft of buying power. It may provide some positive elements, but it’s still theft.

            I should note that by inflation I mean, “an increase in the money supply” not “increasing prices.” The definition matters a lot for both inflation and deflation.

            I suppose you could argue that people using money have a responsibility to understand how it works and understand that it is going to be systematically de-valued by unprincipled central planners. I’m okay with that as long as you allow people to have true choice when deciding which currency they prefer. In the U.S. the Govt. makes it difficult to use commodities as a currency because of how capital gains are taxed (along with an assortment of other roadblocks). Currency like items such as the Liberty Dollar have been sporadically crushed and political pressure is exercised to get other nations to follow suit. So far Bitcoin has been pretty much left alone, in part because there is no company to go after (like e-gold). At some point, however, the threat will become great enough that lawmakers will enact a range of hurdles making it more difficult to use bitcoins. This will begin with disinformation, move on to regulation, and may at some point lead to making bitcoins illegal (under the guise of consumer protection).

            My question to you . . . when Governments start to really fight Bitcoin (because it’s winning), will you support the use of force to suppress it? Keep in mind that what I’m call “use of force” (because it is), the politicians will call “common sense regulation.”

      • Josh

        So how does it feel to see that BTC is still going strong 4 months on, and relatively stable around US$120 after bottoming out?

        Your prediction of 6 weeks was a little off – I think perhaps you need to re-assess your position on bitcoin.

        • Well I’ll put my hands up and say I was wrong. I got caught up in the heat of the moment and made an overly optimistic prediction. I still think that bitcoin has no long term future, though the time frame is longer than I initially thought.

          Mind you, stagnating around $100 is not much of a victory. If bitcoin is to be taken seriously, it has to be growing. None of the problems I discussed have gone away and so my conclusion remains the same.

  13. sldfkjlskfjlsdjfs

    Hahaha You’re a fucking retard. Look at BitCoin now. You estimated the value in single digits within 6 weeks at most. HA! That’s a fucking laugh… You have not the slightest idea what you’re talking about… You don’t even understand the fundamentals of BitCoin.

    My suggestion to you… Learn programming & study mathematics all over again. Ask your college math teacher to hit yourself in the head several times with a large, heavy book. Then you might understand why BitCoin cannot fail in the long run.

    I would be embarrassed to have an article like this published… I am genuinely embarrassed for you. You have such strong opinions, but nothing to back them up.

  14. Andrew Vecsey

    Currencies have to have the element of trust. If people lose their trust in governments and banks, then that could explain the success of bitcoin.

  15. Rick

    What does it taste like? Eating your hat I mean? Did you have it with a side order of fries? Bitcoin now at $1200 ten months after you wrote this post, but you probably already know that!

  16. Stable @ $700 – u mad?

    • Well in the last month the price has ranged between $400 and $800 and is currently at $630 which is not what I would call stable or @ $700. Then there is also the small matter of the largest bitcoin exchange Mt Gox collapsing and taking $500 million dollars worth of bitcoins with it. So all in all, I don’t think you have much to gloat about.

  17. Bosko

    You have to remember that the primary alternative to Bitcoin, the dollar, is being horribly exploited by politicians and bankers. I’ll take instability in a 90% upward direction any day over a consistent 2% a year loser. More importantly, I’ll take honest supply and demand pricing over the corruption and “wisdom” of the political types. I promise not to interfere with your path, please don’t interfere with mine.

    • Since when has bitcoin has been in a 90% upward direction? It isn’t a magic money tree that always goes up and grants free wealth to whoever buys it. Nor is the dollar supposed to be a gamble. Unlike bitcoin it is a currency to be used in transactions not as part of a get rich quick scheme. Mt Gox collapses in a blaze of corruption and theft, yet you claim you prefer this honesty to the dollar where banks don’t disappear in the night like many bitcoin exchanges. Finally whose talking about interfering with paths?

      • Bosko

        On the 90% Q . . . pretty much since the beginning. In other words, if you had to purchase bitcoin at some random point during it’s lifecycle and sell exactly 30 days later, 90% of the time you would have made money. Change the time periods, etc. and the bottom line point remains the same, the volatility that people complain about is primarily (and extremely) in the upward direction. That won’t go on forever, but it will go on for a long time as Bitcoin displaces less honest and less efficient currencies.

        Regarding the notion that the dollar is not supposed to be a gamble, that may be true, but whether it’s supposed to be or not, it is a huge gamble. Every fiat currency eventually goes to zero because politicians (people) cannot resist free money. Imagine that you had a printing press that printed actual (i.e., not counterfeit) money. The only cost to using your press is that you would dilute the value of money currently in the system. Could you stop yourself from printing “just a little more.” Even if you could, could your neighbor? If you knew that 1000 other people also had these printing presses wouldn’t you want to “get yours” before others diluted the money supply to the point where your money wasn’t worth a fraction of its original value?

        Regarding MtGox, that’s the beauty of market regulation, bad players eventually die off. Compare MtGox to massive bailouts of players that should be dead or injured (Freddie/Fannie, bad banks, AIG, etc.) and tell me that the MtGox death wasn’t a more honest outcome.

        Bitcoin solves a massive technical problem, the double-spending problem, and is a significant improvement to the notion of “honest” money. Imagine the ability to send your net worth to the other side of the world in an e-mail with near zero transaction fees. Freakin’ amazing!

        Regarding interfering with paths, I’m happy to hear that you wouldn’t do anything to hold Bitcoin back. Many statists are starting to work their propaganda about people needing “protection” from the evils of Bitcoin. Russia and China have imposed serious restrictions on Bitcoin and congressmen in the U.S. have already proposed making it illegal. If it’s bad for me, that’s my business. Please don’t jump on the bandwagon and tell me I need protection from myself. You may not be tempted now but when Bitcoin starts biting into the value of the dollar, it won’t be easy to watch your bank account go to zero (value) while all those Bitcoin assholes are getting rich. Other than swallowing your pride, the only perceived option will be legal and regulatory. It won’t work, but protectionist schemes are commonly what bad people turn to when they are losing in voluntary markets.

        BTW–Why not buy a little Bitcoin just in case? I have a little of a lot of things just in case. Seems smart to hedge against many possibilities.

        • The claim of bitcoiners that the price will always go up reminds me of those who said that the price of houses will always go up.

          “Every fiat currency eventually goes to zero because politicians (people) cannot resist free money.”

          That is untrue. The main reason fiat currencies collapse is because the state backing them has collapsed. The vast majority of fiat currencies have continued operating for almost a century without being destroyed by hyperinflation which is not caused by greedy central bankers but usually by political unrest and the collapse of the economic base of the country.

          You do know that the government has a monopoly on printing money? In that regard your story about your neighbours printing money doesn’t make any sense.

          If you consider the collapse of Mt Gox as a good thing, how do you view the collapse of Leheman Brothers? Was that a good thing that cleared the financial system? Or did it cause enormous damage to the financial system and wider economy?

          “You may not be tempted now but when Bitcoin starts biting into the value of the dollar, it won’t be easy to watch your bank account go to zero (value) while all those Bitcoin assholes are getting rich.”

          Do you genuinely believe bitcoin will destroy the dollar? There is a snowball’s chance in Hell of that happening. Also do you view bitcoin as a currency or as a get-rich-quick scheme? Surely you should be celebrating how much you use bitcoin rather than how much you think you will make off speculating on it?

          I personally don’t have the money to go speculating on currencies or to gamble away, especially not on libertarian schemes like this.

          • Bosko

            You are either implying that I have said that Bitcoin will always go up. I haven’t said that and don’t think that. I just think that Bitcoin is technically superior to any fiat currency in the world therefore it’s value potential is at least 1000x it’s current market price. Any day, the U.S. could decide to maintain an honest, market-based currency, and they could introduce a way to trade the currency electronically with no transaction fees and they could crush Bitcoin by replicating it’s strengths while maintain the value of being the status quo/default currency. I just don’t think that’s a likely scenario.

            Regarding fiat currencies, I’ll borrow a bit of text from Chris Mack . . .

            “According to a study of 775 fiat currencies by, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.

            The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. Founded in 1694, the British pound Sterling is the oldest fiat currency in existence. At a ripe old age of 317 years it must be considered a highly successful fiat currency. However, success is relative. The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.

            Given the undeniable track record of currencies, it is clear that on a long enough timeline the survival rate of all fiat currencies drops to zero.”

            Regarding neighbors having printing presses, that metaphor relates to people with direct access to our Fed Reserve/central banking system. Even if a politician or banker understands how immoral it is to keep printing money, they will also understand that they can’t stop their peers from doing it so they might as well taken advantage of their position while it lasts. It’s a system that is bound to corrupt otherwise moral people because the futility of not going along with it hurts the people who resist. It’s very similar to not taking pork when the opportunity arises . . . even if you don’t take it, somebody else will. The only answer is to eliminate the ability of anybody to get pork. Likewise, the only answer to the inflation problem is to make it impossible to print money at will.

            Regarding Leheman Brothers, I’ll reserve judgment on the relative merits of not bailing them out vs. bailing other companies out and keep it simple. No company should ever be bailed out with money obtained by force. If people want to pass the hat to save a company that they think is “too big to fail,” I have no issues with that, but it should never be done with taxpayer funds. Even simpler, if you reward bad behavior, you’re going to get more bad behavior. Don’t let the econometrics get in the way of very simple morality and psychology 101–bailouts are immoral AND irrational. No more cash for clunkers, no more subsidies, no more protecting people from their own behavior, and no more trying to be compassionate with other people’s money.

            I don’t view Bitcoin as just a currency or a get rich quick scheme. I use Bitcoin in much the same way you would use a currency (e.g., buying computer cables online) and I did get rich off of Bitcoin relatively quickly and I’m continuing to hope that Bitcoin is going to make me richer. Nonetheless, I see Bitcoin as a protocol (like TCP/IP) and a language (like HTML) and an amazing technological breakthrough (because it solves the double spending problem). It’s also clear that Bitcoin is in it’s infancy and to compare it to the dollar in scope is premature. Bitcoin doesn’t need to destroy the dollar because the central bankers and politicians are taking care of that already with blessing from all the Keynsians and other statist types. All Bitcoin has to do is exist and maintain it’s technical superiority. People won’t be running to Bitcoin, they’ll be running away from the downward spiral that is the U.S. dollar.

            Regarding holding some Bitcoin. I don’t consider diversification to be “speculating.” It’s just a smart way to cover your ass. I bought a small amount of Bitcoin long before I understood it’s real value because the upside was so tremendous that it would be foolish not to have some. I bought nine other things that did nothing and ended up being very well off. You say you don’t have enough money to make this speculative investment, but I’m assuming that you have enough to hold a currency that, by design, will lose at least 1-2% of it’s value every year. Hopefully you have a hedge against that guaranteed loss, but I bet most of your investments would plummet if the dollar goes down fast. Why not hold a little bit of something that’s (probably) going to go up when everything else goes down?

            Finally, keep in mind that Bitcoin is a technological marvel (fact) and I think that it’s a good investment (highly speculative). Whatever happens on the investment side, I appreciate the innovation as an end in itself.

            • is hardly a reputable source as even a cursory glance at the blog shows that it is run by an unqualified person who doesn’t understand how purchasing power works. Second of all, being destroyed by war or secession is hardly to be blamed on the currency, rather it is due to the political situation. Finally, saying that the pound was worth more hundreds of years ago is an empty statement. Sure things were cheaper, but wages were also lower, so purchasing power has in fact improved.

              Currency is a means of exchange, not something that needs to have value in and of itself.

              “It’s a system that is bound to corrupt otherwise moral people because the futility of not going along with it hurts the people who resist.”

              You seem to be confusing economics with theology. Economics is not a morality play where the honest and virtuous prosper, while the sinful and wicked suffer.

              “Regarding Leheman Brothers, I’ll reserve judgment on the relative merits of not bailing them out vs. bailing other companies out and keep it simple. No company should ever be bailed out with money obtained by force.”

              see that you completely ignore my point and instead change the subject to taxes. Yes taxes exist and you have to pay them. I’m sorry you don’t like them, but an anarchist society isn’t going to happen anytime soon, so you’ll just have to deal with it in the meantime. The bailouts (which were a loan that got repaid) were paid by taxes, which can be said about all spending, so they’re not worse than health or education spending.

              “Bitcoin doesn’t need to destroy the dollar because the central bankers and politicians are taking care of that already with blessing from all the Keynsians and other statist types.”

              Libertarians have been predicting the collapse of the dollar into hyperinflation for the last 5 years and it still hasn’t happened. But any day now right?

              • Bosko

                That’s funny for you to dismiss DollarDaze. They clearly show that every fiat currency that has ever existed loses purchasing power over time (usually quickly). How much evidence do you need to see that fiat currencies are for suckers.

                I’ll let reality take you on from here and on the credibility front, I’ll quote you.

                “I estimate bitcoins will reach single digits by the end of the month. Six weeks at the most. As there is no stabilising force to save the currency it will crash and burn.”

                If you can’t adjust your perceptions to reality then you will never be a credible source. The last thing I’ll ask is that you stop promoting the use of force against me or my family. If you want to debate what color the gazebo should be painted, that’s fine. If you want to take money from me without my consent to build a football stadium, or attack a country, or put people in cages because the smoke pot, or any other statist agenda, that’s what bad people do. It’s okay to be wrong but it’s not okay to be bad.

                Best of luck to you.

                • “They clearly show that every fiat currency that has ever existed loses purchasing power over time (usually quickly).”

                  No they don’t, they really don’t. Please reread my comment.

                  “I’ll let reality take you on from here and on the credibility front, I’ll quote you.”

                  Yes I made one bad prediction. It happens. So I misjudged bitcoin, therefore everything else I say is invalid? Or am I too delusion to waste your time with?

                  “The last thing I’ll ask is that you stop promoting the use of force against me or my family.”

                  Em, ok. I wasn’t going to attack your family so, not really sure what you’re getting at here.

                  “any other statist agenda,”

                  Yeah that evil statist agenda of spending money on schools, hospitals and the elderly. Makes you sick doesn’t it? That’s what bad people do. Everyone knows that bank robbers and drug dealers spend their stolen money on hospitals, so the government is literally criminal, amirite?

                  • Bosko

                    Yes, people that use force to get what they want (typically through the government) are literally criminals. Far more so then the prostitute or the drug user who is involved in a “victimless crime” (as if such a thing could exist).

                    You can’t be compassionate with somebody else’s money. I’d happily help with schools, hospitals, and the elderly, but you need to ask. The help must be voluntary or it isn’t help, it’s theft. Take the guns out of the equation or you are threatening me and my family. Don’t act like you don’t know exactly what I’m talking about, you’re way too smart to not get it. You’re just outsourcing the use of force to Govt thugs because doing it yourself would make you feel uncomfortable and might get you hurt. Would you go steal some “excess” cash from your neighbor and give it to a homeless person or a school? If no, then why would you have Govt thugs do it for you?

                    I’m sure you feel quite compassionate while supporting the creepy people who take half of what I earn and use it for many (not all) purposes that I am morally opposed to. Tell yourself that people who want to be free are evil. Call them anarchists or libertarians or extremists to make yourself feel better. In the end you know that they ask nothing of you while you would happily feed off of them. Who is in the wrong, the host who wants to be free of the parasite, or the parasite who wants the host to accept their role as a societal obligation? You know, you’re just in too deep to back out.

                  • libertyblogger101

                    Yes, those things are evil. And why are they evil? Because the money used was taken from someone else by force. Why is this complicated?

  18. Pingback: Why Taxation Is Not Theft | Robert Nielsen

  19. People say this every year. If it was to break into the mainstream it wont be next year. Maybe in 3-5 years but not any time soon. Bitcoin has been moving very slow for over a year now and unless some massive corporation or industry gets on board it’ll probably be another slow year.

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