The ups and downs of Bitcoin

Now here’s a guide to what Bitcoin actually is —>.

The price of a bitcoin — the uber-buzzy digital currency — is surging.

A few weeks ago it was at $40.

This morning the price of a Bitcoin hit $100.

It’s now over $104, as this pretty chart from shows.

All of this is stoking an incredible amount of interest in the currency. The media is obsessed. Businessweek recently wondered whether Bitcoin was the last safehaven.

But there’s a downside to this.

The Bitcoin economy is now in a terrible state of hyperdeflation.

You know what Hyperinflation is, it’s when prices surge. Hyperdeflation is when prices violently collapse.

So a few weeks ago, a pizza might have cost you one Bitcoin. Today it might only cost you a fifth of a Bitcoin, which sounds great, but then if you’re looking at the above chart, why would you spend anything?

Why would you buy a pizza (or pot or anything else) when tomorrow your Bitcoin will be worth more? With this kind of chart, you’d be insane to do anything but horde your coins.

So yes, all the hype is great for some folks in the ecosystem, but ultimately there’s a reason that over time, government prefer to see their currency slowly depreciate. A surging currency leads to hoarding which kills real transactions.

And  value still keeps climbing, around $130 on April 9!

April 9, bad news!

Dramatic drop in value,

Bitcoin hits new high before losing $160 in value in one day

The digital currency spikes at $266 before plunging to $105 on Wednesday in wild ride possibly linked to Reddit user

A Bitcoin

One Bitcoin. One financial expert compared the interest in Bitcoin to the tulip mania that gripped the Dutch in the 17th century. Photograph: Luismmolina/Getty Images

Bitcoin, the digital currency, lost more than $160 (£104) in value on Wednesday, just hours after hitting a record high.

The currency hit a new high of $266 before falling to $105 and then bouncing back to $130. The fall is unlikely to put off speculators. Two months ago, a Bitcoin was worth $20.

With Europe racked by economic uncertainty following the banking crisis in Cyprus, there have been fears that a “bubble” is being created with speculators piling into the four-year-old digital currency. But Bitcoin has crashed before only to bounce back. It hit a low of $7 in August 2011 after hitting a high of $32 two months earlier.

Jon Matonis of the Bitcoin Foundation, the currency’s promoter, denied a euro-bubble was being created in an interview with Der Spiegel this week.

“Most transactions are still coming from affluent regions, like the United States and northern Europe. What we are seeing is not a Cyprus bubble,” he said.

Until recently Bitcoin had been a largely obscure currency used by the tech-savvy, libertarians wishing to thumb their noses at central bankers and people involved in more nefarious activities such as online gambling (often illegal in the US) or drug deals.

There are around 11m Bitcoins in circulation, 25 new bitcoins are produced every 10 minutes, and they are traded through online exchanges like Mt.Gox.

12 April 2013

Updated at 04:35 CEST

Quick heads up for all you watching the Bitcoin saga: the largest exchange of the currency, MtGox, has reopened following a self-instated halt in trading. The exchange cited an overactive market as the reason for its suspension.

The exchange is now open, and Bitcoin is down. Currently, trades are going through at roughly the $74 mark. The currency was traded as high as $266 this week. Here’s the most recent 24 hours trading of Bitcoin on MtGox, in which you can see the trading cessation:

And, for kicks, here a shot of one week’s trading on the btce exchange, highlighting the rise, and fall of Bitcoin’s valuation:

Interestingly, following a dead cat bounce, long trading halt, and steep initial decline, Bitcoin has rebounded; there are still buyers out in force.

Bitcoin is an interesting topic as the sums at play are massive, in some ways real, and the technology behind the currency is quite neat. This story is not over


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: