Wednesday, February 5, 2014

Hot Money That Flowed Into Bitcoin is Getting Very Bored

Bitcoin is trading at $841.80.

Hot money is very bored and slowly leaving Bitcoin---so much for the "stability" stories that were written when Bitcoin traded at $930.

Business Insider wrote on January 29:

Bitcoin is experiencing its longest period of price stability in months, a trend that could help allay concerns that the digital currency is just too volatile to be of much mainstream use[...]

But Bitcoin price charts show volatility has seriously deflated in January. And that's despite numerous negative opinions on the digital currency from Malaysia, Russia, and the world's largest Nordic foreign currency trader — and despite the arrest this week of a major Bitcoin player.

Here's what prices have looked like on Mt. Gox this month. The price this morning was about $930.

 On February 1, TechCrunch wrote:
The gist is simple: For nearly the entire month of January Bitcoin has traded in the 900s, with minor exceptions in 1,000s. For a currency that until very recently could see 50% of its value drop in a day and not have that day stand out all too much, it has been something of a calming of the seas.
Why does it matter if Bitcoin is seeing increasing price stability? Essentially the more wild the swings in its value, the less useful Bitcoin is as a tool of commerce. This goes both ways: The more real uses there are for Bitcoin, the smaller the percentage of speculative trades in the currency; and, the smaller the changes in its price, the more people may start to accept Bitcoin as a payment option. It’s a self-reinforcing cycle.

Here is what I wrote on February 3, when Bitcoin was still well over $900:
Bictoin fanboys fail to understand two important things, a month of price stability does not imply a future of price stability. There are plenty of stocks that have been stable for months, but then start to fluctuate significantly. Projecting price stability for Bitcoin based on one month of price activity is absurd. It flies in the face of Austrian economic thinking, which says that price history does not forecast future prices. It's amateur night to think 30 days of history has major long term significance.

Indeed, when it is considered that a large chunk of Bitcoin holders bought for upside potential, they are going to get real bored if price stability does set in. They may not all sell at the same time, but to the degree there is "price stability," it will eventually develop into slow steady selling pressure of bitcoins. Thus, inherent in current price stability is the seed of future downward price action as Bitcoin fanboy boredom sets in. Hot money gets bored very quickly.


  1. Typical bull market behavior. From overbought to oversold and then back again at higher highs and higher lows. I've seen this bitcoin movie about a half-dozen times already. Accumulating...

  2. Pro Tip: No serious bitcoiner uses the Gox price. In the U.S., the real market price is closer to the BitStamp rate.

  3. Also in the prior years, other larger countries did not participate. With the Chinese population coming on board, they will certainly purchase Bitcoin at cheaper prices if it dips (my opinion). is a good site to see the amount of Bitcoins purchased by location.

    I feel it's still uncharted territory and anything can happen... as for the Hot Money there are other alternatives that transact faster such as Zetacoin in which they will move to.

    2014 will definitely be interesting.

  4. Who wants volatile shitcoins? crazy! so if you bought some shitcoins two days ago (God knows why you would) you just lost $100. Unstable crapto-currency. Suckers are going to lose their shirts!

  5. Contrary to what many macroeconomists belive, people do not choose a medium of exchange based on macroeconomic criteria (such as price stability).

    1. You wouldn't know it from the way everyone writes on here. Shitcoins will replace the U.S. dollar as the world's currency according to Honey Badger. bwahahahahahahaha

  6. Let me know when it dips below 100.

  7. I don't see a very big difference in the price today vs the price yesterday...or the price a month ago. This is ridiculous. No one that is actually involved in the bitcoin market actually pays attention to the Mt. Gox price. Mt. Gox price is always different than the rest of the market, because you cannot get fiat out of it, so the only way to move any money in or out is with bitcoin.

    If the Mt. Gox price has dropped significantly, then that has no impact on the rest of the market. Maybe someone with a large store of bitcoin on Mt. Gox has some inside info about the exchange finally resuming wire transfers? Or, someone with a connection to the owners has worked out a personal deal to get this money out in fiat? Or, someone who doesn't understand why the Mt. Gox price was higher tried arbitrage from another market to Gox? It could be any of those, or one of countless other scenarios that still would have no effect on the rest of the market.

  8. Doesn't Wenzel advocate for a gold standard? Gold is known to have fluctuated greatly in value.

    Carney writes:

    "As recently as this past May, prominent gold standard advocate and Grove City College economist Jeffrey Herbener testified to the House Subcommittee on Domestic Monetary Policy and Technology that “There is no social benefit from keeping the price level stable.”"

    "I’m not convinced that a return to sound money is possible. Our government is too big, our banking system too entrenched, to ever permit a reversion to gold.

    But if you are going to attempt an intellectual assault on the gold standard, you can’t just point to price instability in the 1920s. The Austrians have been here before you—and they understand the period much better. And, more importantly, the value of a gold standard does not hinge on price stability in the first place."