OTOH, there's 8,000 people still waiting to be verified at Mt Gox who want to buy Bitcoins, so perhaps there's too many people standing on the rug for it to be pulled out?
Yup, my brother is one of them. I have spoken to him about the potential of Bitcoin for the past couple of years. As I explained to him the huge potential of a totally anonymous means of electronic payment, currently being underpinned by mostly black market transactions, but with the potential to grow into countless areas of economic life, not least of all money laundering, tax evasion (something every self employed person is up to to some extent, unless they are fkn stupid). With a strong and steadily developing base in the more underground areas of economic life, this would render Bitcoins a reliably and highly liquid (easily exchangeable for local currencies), means of doing business, storing wealth, and hiding wealth. In short, this could be huge. Back then however, he never paid much attention, preferring to have his money stagnate in precious metals or actually lose his money in various mining stocks.
A few weeks ago, when Bitcoin was sitting at around $45, he was on the phone to me wanting to know everything about acquiring Bitcoins. I gave him the lowdown on what he needed to do and all the rest of it, but advised him that the recent explosion in Bitcoin price was not being caused by a rapid expansion of real world Bitcoin economies, but rather was a speculative bubble, possibly being driven by just a small handful of people. I reminded him of the Bitcoin crash of June 2011, whereby some hacker alledgedly broke into Mt Gox accounts and triggered a mass of sell orders, and also stated that the Bitcoin market place was in the grander scheme of things, was still a miniscule market place where a relatively small volume of trade could send the price hurtling in either direction. I did enough to make him consider the risk of £20K of his capital going up in flames and put him off investing. As we speak, the price of Bitcoin has more than doubled, so my advice actually cost him more than £20K! He is now in the process of setting up a Mt Gox account as well as various other Bitcoin trading accounts.
Obviously, my brother is not buying Bitcoins in order to use them to make real economic transactions with, but rather as a means of speculating with. In order for his plan to be successful, he is relying that people in the future, will be increasingly willing to pay for their Bitcoins than he has paid. These types of people will fall into two categories:
A) Consumers like myself who need Bitcoin for certain online transactions
B) Speculators who are willing to buy in at exorbitant prices in the belief that there will be people even more stupid than themselves willing to pay even more somewhere down the line.
Obviously category A, which is the most stable and price insensitive purchasers of Bitcoins (typical Bitcoin transactions on Silk Road is over and done within a few hours and there is no other choice but to use Bitcoin), represents a very insignificant fraction of the total Bitcoin market. I have no official data or figures on this, but I am on Silk Road a lot and on their forums a lot. The place is growing, but certainly not exploding exponentially upwards. Therefore, the market that is driving Bitcoin up, is mostly of a speculative nature. With the underlying market which forms the basis for real Bitcoin use as it was intended to be used still in a very undeveloped state, this more or less spells unavoidable doom at some point down the line, regardless of whether there is a single hand manipulating the price up, that is having the effect of initiating a herd stampede into the best performing asset of the 21st century, or whether this herd stampede has just kind of naturally transpired as most people here like to believe. If anyone disputes this, perhaps they would care to highlight an example of a price bubble based on speculative investment, that didnt one day just simply implode?
Whilst my brother may turn his 20K, into 100K or even more, even at todays prices, he will only reap the rewards if he exits in a timely fashion. If he holds onto his Bitcoins indefinitely, he will witness the value of them turn to dust, perhaps relying on a dead cat bounce to reclaw back some value, then watch them turn back to dust, before the price discovery finally relies on the category A Bitcoin buyers, providing the volatility in the Bitcoin price hasn't totally cannibalised the real goods and services marketplace that forms the foundations of it having any value at all.