Topic: the REAL REASON for the collapse of the Bitcoin price (Read 2619 times)

Many interesting points brought up here, thanks for the insight.

One consideration I think is missing is the possibility of profiting by market manipulation. For big players, funds, bitcoin is probably too small potatoes to be worth manipulating, but for a mid-level player who is getting squeezed out of a bigger financial market, there is certainly money to be made by being the biggest fish in a small pond. I don't think anyone denies that the single biggest price mover in the bitcoin market is speculation. Miners, dumping of stolen coins, merchants adopting who instantly convert to fiat, all seem to be factors that would be secondary to the sheer herd instinct of people wanting to make money and not wanting to lose money.

    This is unfortunate, since if the masses realized the fundamental potential of bitcoin they would by in and do their best to build the bitcoin economy and prices would reach new highs, but alas, bitcoin is not that easy to understand, and its implications are even more difficult to understand.

    So I think it is important not to underestimate the relevance potential manipulative action on the part of a holder of a large sum of capital is. It may sound conspiratorial, but a conspiracy requires by definition two or more individuals, while there are ambitious individuals in the possession of enough money to drive the price up and down and to profit handsomely from it. I think this temptation is too great to resist, and when done successfully attracts competition, leading to the quantum leaps in price levels.

  Bitcoin is often likened to the wild west, and a fine metaphor would be the herds of rogue cattle that roamed the western United States in the days of the early European settlers. The rogue cattle are the simple opportunists looking to fill their pockets with easy profits, while the manipulating whales are the cowboys who round them up and drive them to the slaughter.

    Of course, maybe this is just baseless speculation, but I know if I had a hundred million $ or so to spare, I might be tempted to push the masses around and make a few million profit here and there.

you're right.  they didn't loose them.  THEY STOLE THEM.  they did this deliberately and long before anyone was even paying attention to the known gox wallets.

i don't think there's an argument saying that gox is not "missing" around 780k coins.  please correct me.

If the market is so terribly illiquid that even just trading the inflationary part is going to crash prices, then you have a serious problem !  That would mean that demand is essentially inexisting and that the price is actually determined by a very very shallow shell of coins, where essentially 99% is frozen and doesn't participate in the market.  That's an explosive, highly unstable situation !

That's like assuming, say, that 1 million tons of gold are held by people who never trade them, and that the price is determined by the small amount of people trading 3 tons or so.  Any gold mine can then "crash the price" if they do anything else than hold their own gold. 

That's then an asset with no fundamentals at all: the day that the price goes below any trigger level that makes an insignificant part of these holders panic-sell, the crash down is unavoidable.  An asset of which the price is only held up by the fact that nobody's selling 99% of it, is a gigantically over-priced asset !


I know, but that is the fundamental that determines its sustainable price.  That is why that price is, today, very low.  In fact you are kind of wrong, because the black market did appreciate bitcoin as a medium of exchange.   I have no idea if this is still the case with all those law enforcement crackdowns on silk road and so on.  But it was probably an initial fundamental that drove up the bitcoin price for real in early stages.
If, say, $100 million worth of goods were exchanged for bitcoin on the black market, there were 10 million coins, and coins were held on average 30 days, then that would have pushed the coins price to of the order of $1.-
I can easily be off a factor of 10 on these numbers, so that may even push the price to $10.-, if all coins participated.
That was enough to bootstrap bitcoin.


That's simple !  Greater fool hypothesis, which worked out, until end of 2013.   The history of bitcoin was fantastic up to that point: average 800% rise.  The moon was the limit.

This is what I'm saying: bitcoin's price has mainly been driven by greater fool hypothesis, and the fundamental of currency value has been lagging behind.  The large adoption of bitcoin in 2014 couldn't cover the huge gap that existed between its fundamental and the actual price, which was mainly driven by the "belief in to the moon soon".  I remember even in october, people waiting for a rally to a few thousand $.

The point is that the influx of money wasn't sufficient (there were not enough greater fools).


It is a lot to sustain a "greater fool" price.  It would have been no problem if we were at the fundamental price of a few $, and adoption (merchant adoption) rose at the same or higher velocity as the inflation.  If during the year, there was 10% more merchant adoption, then 10% inflation would have been exactly OK to keep the price constant.

Of course, the price wouldn't be the fundamental, because there is of course speculation of the future fundamental, which can really be high.  At full adoption (all fiat replaced by bitcoin), a coin should go for about $ 3 million (value of today).  Full merchant adoption, meaning we use bitcoin everywhere in the world as the normal currency.



Well, that depends on where bitcoin levels off in adoption.  If 0.1% of world fiat is replaced by bitcoin (when will that happen ?  15 years from now ?  30 years from now ?), the market cap should be of the order of 10 times higher than now if bitcoin velocity is the same as fiat velocity.  However, at 0.1%, most of the economy is still fiat, so fast conversion to fiat is then still probable.  If the bitcoin holding times are 10 times shorter (because quick reconversion to fiat) than fiat holding times (which are of the order of 6 months or so), then the current market cap will be sufficient to provide with that currency usage.
In other words, with a full liquidity of bitcoin in a 0.1% of all fiat market share, and 10 times higher velocity (because of fast conversion to fiat), the total market cap doesn't even need to increase.
People buying now will then have about the same bitcoin price as 15 or 30 years from now.
The difference being that now, most of the price is "greater fool" driven, and then, it is equal to the fundamental as demand for currency.  And of course, there will not be any "greater fool" incentive by then !

However, if bitcoin succeeds in replacing 2% of world fiat, and in concentrated economies so that the direct conversion to fiat is not so much the case anymore (retailers can pay their employees in bitcoin, and their suppliers in bitcoin...), then the market cap will be 20 times the current market cap.  The price will be around $ 5000 or so.  When will 2% of all world fiat be running on bitcoin ?  I don't think this can happen before 20-30 years in any case.

It can be that by that time, people start building confidence in bitcoin to store value in it for the long term (like in gold or so).  That may add a second fundamental to the price.  If 5% of the gold market is taken over by bitcoin, that would be about $35 billion or so, which is 8 times the current market cap.  So instead of 20 times the current market cap, we can make it 30 times the current market cap, bringing a coin's price to about $8000 or so.

If you're serious, 2% of all of world fiat, and 5% of all of the gold market is a huge success for bitcoin.   I don't think that it is possible before several decades, so 20 years from now is terribly optimistic.

In these cases, indeed, one can make a reasonable benefit by buying now.  The market price, not based upon "greater fool" but on those two far future estimated fundamentals, can already incorporate them with their estimated chance of success.

As the estimation of that success is widely unknown, rational speculation on that price can be very wide: from already a few $1000 now (to remain there for several years) to much lower than today.


I'm NOT saying that bitcoin is dead, at all.  I'm simply trying to analyse the price components today, and my conclusion is that the price today and in the last 2 years is mainly driven by the "greater fool" drive, and not by any current fundamental.  It could be driven by a speculation on a future fundamental in part, but then there's no reason why it goes down: everything seems to indicate a brighter future today than a year ago. 

Prices of several thousand $ are not sustainable with the current fundamentals however, so it is very strange that people were expecting that.  It is normal to run out of "greater fools" at these prices.

Is hard to say about this. Speculate is easy. Let's see, is not the first time that the price falls, will no doubt return to the house of $ 300.

I cant keep track of all the falling accounts.  Hard to count l's and honestly it didn't matter which one was posting because they were all trolling.  Whoever wrote that list is fully proficient in english; the original falling account we all know and love had very limited command of the language but made up for it in frequency of posts.

That is what I am saying... the insta-dumping is providing more liquidity in the market and hence the fall. If u notice carefully, u'll see that when bitstamp went down for a brief period, market was rising. This is because the liquidity went sudden low for a short span of time.

Nonono.  Got that backwards.  Bitcoiners, like any pyramid scheme believers, thought more and more new money would keep flowing into their scheme, floating BTC price & making it possible for them to just sit and grin as the money rolls right in.
This belief [predictably] turned out to be mistaken, Bitcoin could not support 12% yearly inflation, BTC price [also quite predictably] tanked.
So now you know.

The "REAL REASON" is a combination of the various things people have pointed out.

Gox Coins
Large Merchant Usage
Hostile Government Actions
Still coming off a huge bubble.  Value of daily new coins exceeds value of daily new money entering the market
Pump and Dump speculators, hedge funds, and any other trick that has been used to manipulate markets.

I would add diminishing confidence that bitcoin will evolve/innovate quick enough.

maybe... and i am sure that the influx of newly mined coins on a constant basis every month is playing a role too.
what i think is that unless something happens to fuel mass adoption then we might not see substantial rise until at least reward halving.
now is time to mine while price is low pay less income taxes on mined coins.

Jesus the IQ's on here..

That completely makes sense. Obviously there is not enough capital flow coming in, thus driving the price down. All the new coins being generated daily are being dumped on the open market and if there is not enough buyer, miner are pretty much willing to let go as low as possible in order to convert all that to usd. Furthermore, very few ever put into consideration how cheap electricity are in certain countries which we all thought was 280,the level for miners to break even, but that was obviously not the case.

Your reply is too long to break down as my time is short.

Your first reply regarding miners entirely missed my point. Miners have no financial interest in smashing the price in a manipulative manner by selling huge tranches of coins in a single sell. They have costs (although we know that many are either VC backed or have significant fiat reserves and sell OTC instead) but a business which relies upon selling a commodity generally wishes for the best price when they sell it. Unless of course they are trying to drive other miners out of business - this is a possibility but if the price falls much lower then the bitcoin ecosystem will be harmed for some time, which in turn will damage mining companies prospects over the longer term.

For the second point. You do not seem to understand that bitcoin has very little current or past usage as a medium of exchange for goods and services. It has algorithmically exponentially falling inflation with each block reward halving. Yet the price has rocketed up from 0 to where we are today in only a few short years. This despite an inflation rate much higher than now. How is this? The calculation amongst holders that buying now and previously will result in future gains. Why, when inflation will still be ~10% until mid 2016 and the block halvings are four years apart? Clearly because of two things IMO. Firstly there will only ever be 21,000,000 coins. And secondly 10% inflation sounds a lot but is it really? Obviously we are in the depths of a bear market but the reality is that even then adoption of bitcoin is rising significantly more than 10% a year. It will continue to rise more than 10% a year and therefore anyone buying now (barring unexpected disaster) is highly likely to have an advantage over those buying later.

You are focussing on the price and saying that because the price is falling adoption is failing and bitcoin is dead (points at last year on chart). You miss that this has happened several times before and yet we are still here several orders of magnitude higher in price

Real reason is the herd mentality. People consider other people stupid, and that's why they believe the selloff by stupid people will continue, and so they just follow the trend to buy back later, by doing so enforcing their own belief that people are stupid - an endless feedback loop.

Pretty simple, and observed in every other commodity market as well, does not correlate to any fundamentals whatsoever. Exactly the same thing happens in reverse bull runs, only the amount of people who want to profit off the run is much higher because it is much simpler to go long than to short. That is why bull runs are more vicious and come to a logical conclusion faster.

So, the bear market stops when majority of traders stops thinking that other traders are stupid enough to keep selling that low. Waiting.

The problem is that miners have real expenses in $$ (or other fiat).  They have to cover that.  Well, they can work at loss for a while, but sooner or later they have to pay the bills.

Of course, mining can be a way of acquiring coins ; it is a different way of *buying* coins.  But when it starts to be cheaper to buy coins than to mine them, it would be totally ridiculous to spend your $$ on mining, while you can get more coins buying them.

In any case, whether you spend your $$ on mining, or you spend them on buying coins, that is fiat that is flowing into bitcoin.  So it doesn't matter.  You can abstractly consider that a miner "sells his coins to himself" if he's holding them.

Normally, the mining cost is close to the market price in any case.


You give the exact reason in your second paragraph why your first is wrong.
If it would be right now a fundamental of bitcoin for people to "store value in for the long term" (so, WITHOUT the idea of getting more out of it than the economic growth, which is what stabilized sound money brings you ; so WITHOUT the speculation on seigniorage), then those people would not "wait for a bull market".   A more or less flat price would be good enough for them.  It would be a STORE of value, and not a means to GAIN.
Point is:
1) last year bitcoin has been going down for the whole year: you must be a nutcracker to "store value" in something that is loosing value on the short term so much
2) bitcoin only exists for 6 years ; you must be a nutcracker to store value for a much longer time in something that even didn't exist for that time.
3) bitcoin is NOT YET "sound money" with an inflation rate of about 10%

So all these reasons indicate that it is totally absurd to consider - at this moment - bitcoin by any measure a "store of value" for the long term.  

I agree with you that "store of value in the long term" is ALSO a fundamental. It is most of the price of gold, and part of the price of real estate. But right now, for bitcoin, that doesn't make any sense.  There's no long term proof of faith (like gold and real estate).  In order to want to put value in a "store of value" you want to have long term faith in its ability to KEEP its value.  First of all, bitcoin is too young, and second, bitcoin has shown for more than a year that it can go down severely.

However, and that is what your second paragraph indicates: people buying into bitcoin do this for *speculative* purposes: to get much much more out than they want to put in.  To "go to the moon".  That is nothing else but the "greater fool" principle.

"greater fool" is NOT a fundamental.  It is a strong price component... until the bubble bursts.  Once the belief in "greater fool" is gone, it's gone.

This is similar to my What Might of happened at MtGox post:

Two points. It isn't in miners interest to sell coins at ever lower prices, certainly not in multi thousand coin tranches very suddenly. Simply looking at the price and corresponding volume on the charts tells the simple story that the price is being driven down by heavy selling that is not interested in obtaining best price.

You are entirely wrong saying bitcoin has one fundamental price support, it's use as a nascent currency for medium of exchange. In fact speculation (hoarding) as a store of value with sound money properties are the main source or value and probably will be for decades.

People will flock to bitcoin once the price rises and re enters a bull market again. The trigger could be a price point which cannot be breached by colluding whale traders or some exogenous event.

Actually, there was, as long as many of those buyers thought ("greater fool") that it was going "to the moon soon".
Now that it is clear that the moon is at about 400 000 km still, that flow is drying out.

You're willing to pour in a few $ 1 million a day if you think you'll get out 5 or 10 times more in 6 months from now (not realising that this means that people will have then to pour in a few $ 10 million a day, thinking that they will get out 5 or 10 times more 6 months from there, which means that they think tht people will have then to pour in a few $ 100 million a day .....).

The absence of rally in november and december made these people realize that the flow of greater fools was drying out.

The only fundamental price support is by necessary demand, for buying stuff (as a currency) for instance.  Until last year, bitcoin's price was essentially determined by speculative "greater fool soon" hopes.  These are gone now.

If Bitcoin were to go to sub-$1, there are several of us here that could buy up every single one of them. It's not going to $0, let alone $2, but keep posting that it's going to $0, it helps out those of us in need, I promise.

gox-illicit market-stamp coins are part of it. traders also have the trend and they are giving bitcoin the treatment. bitcoin was a largely untapped market for traders and they are schooling it. they want dumps, they want bumps, they want volatility. they want to see presumptins of support broken. my two pence says we r looking at 200 before this bear gets put back in its cage.

SR coins can't be dumped. They are auctioned. Stamp is only 5-6 day worth of mining. It's a bear cub, not a bear whale.