Bitcoin took a pounding in the last 24 hours, dropping below the $500 mark on the popular Mt.Gox exchange before rebounding. As TechCrunch’s John Biggs wrote this morning, “China’s biggest Bitcoin exchange, BTCChina, has stopped accepting deposits in Chinese yuan,” which added to the currency’s decline.
However, the fall of Bitcoin’s value has been underway for some time, making the Chinese news merely component to the larger story: Bitcoin is losing momentum.
What pushed Bitcoin to $1,200 is the precise quantity that is taking it down. Hype, media interest, and speculative hope drove it up, and a lack of hype, media disinterest, and falling speculative buys are driving it down.
Bitcoin is trading at $606 at the time of writing. I made fun of Bitcoin when it initially hit $645: “Currently trading around $645 per coin, it has never been worth more, or generated more headlines that I can recall. The two are likely connected.” Yes.
Falling prices sound like a good thing, but they’re not.
When prices fall, people put off buying things. And when people put off buying things, companies put off investing. And then the economy slumps—and keeps slumping. Even worse, people are stuck trying to pay back debts that don’t fall with wages that do. So bankruptcies pile up, and so do bank losses. That makes people too scared to borrow, and banks too scared to lend, which only makes prices fall even more.
This self-perpetuating cycle of doom is what sunk the global economy in the 1930s, and what, to a lesser extent, has sunk Japan since the 1990s. And it’s what has been sinking us since 2008, though this time central banks have at least kept prices from falling, just barely.
Now, it doesn’t make much sense, but there’s actually a currency designed to create these kind of economic calamities. A currency designed for deflation. That’s Bitcoin, the virtual currency you can theoretically use to buy things online. See, there’s a predetermined number of bitcoins that will only grow at a low rate until 2040—and then stop. This artificial scarcity means that the dollar value of a bitcoin should go up considerably. And it has. In just the last year, it’s gone up something like 64 times. That’s enough that “Bitcoin millionaires” are now a thing.
via The Atlantic.
Ross Ulbricht, the man accused of running the underground drug marketplace Silk Road, has been charged with drug trafficking and hiring a hitman to knock off one of his employees. Of course, the hitman was actually an undercover federal agent in Maryland, and no one was actually killed.
Silk Road had a handful of employees, according to court documents, and apparently one of them went astray. This employee, who is not named in the indictment, stole money from users and also managed to get picked up by the police. “I’d like him beat up, then forced to send the bitcoins he stole back,” Ulbricht allegedly said, speaking over the internet as Silk Road’s pseudonymous captain Dread Pirate Roberts. Later, he changed his mind: “Can you change the order to execute rather than torture?”
via The Verge.