Crypto – Currencies
The Crypto-Bubble – A Speculator’s Dream in Cyberspace
When writing an article about the recent move in bitcoin, one should probably not begin by preparing the chart images. Chances are one will have to do it all over again. It is a bit like ordering a cup of coffee in Weimar Germany in early November 1923. One had to pay for it right away, as a cup costing one wheelbarrow of Reichsmark may well end up costing two wheelbarrows of Reichsmark half an hour later. These days the question is how many wheelbarrows of US dollars one may need to pay for a bitcoin.
Is it real? (As our readers know, the nature of reality poses certain problems). When we started writing this, bitcoin had just moved up by more than $600 in one week to its then level of $2,400 – within a little more than a day it reached an interim peak of $2,760, then plunged to an interim low of around $1850 in just two trading days, only to rally to a new high of $2,930 over the next two weeks. Currently it trades at $2,750 (don’t hold it against us if these figures are no longer true by the time this post is published).
Returns One Can Only Dream Of
When I heard about Bitcoin for the very first time in May of 2011, it traded at eight US dollars.
As I write this, almost exactly six years later on May 20 2017, it has broken through the USD 2,000 barrier for the first time [ed. note: since then it has streaked even higher].
Bitcoin, daily: just four trading days after breaking through the USD 2,000 level, Bitcoin reached a peak of USD 2,760 – click to enlarge.
RFID Technology fur Use in Currency Becomes More Sophisticated
The 500 euro banknote barely circulates in Europe – this is to say, it is rarely seen in everyday commerce. However, it does exist, and makes the handling of large amounts of cash easier. Not surprisingly, it is said to be highly popular with various criminal organizations, although as far as we are aware, there is no hard evidence of this. Rather, it seems to be an assumption, if a sensible one.
Hitherto, the ECB was mainly interested in the possibility of employing RFID tags in banknotes for security reasons (to make forging them more difficult), and as passive tracking devices, ostensibly in order to be able to track money used by organized crime so as to prevent money laundering.
10 euro bill after 10 secs of microwave treatment
Image via dvd-svcd-forum.de
A Major Mining Operation
Since recovering from a brief plunge to $150 intraday in January, Bitcoin has moved in a trading range roughly between $210 and $270. Most recently the currency traded around $235. As we will explain further below, at what price Bitcoin changes hands may actually be relevant for the sustainability of its crucial infrastructure backbone. Here is an hourly chart of the action on the Bitstamp exchange over the past 10 trading days:
Bitcoin hourly. Since the low at $150 in January, the crypto-currency has traded in a range between approx. $210 and $270, via bitcoincharts.com, click to enlarge.
A Relentless Downturn
When Chinese investors discovered that Bitcoin might offer an avenue for circumventing China’s exchange controls, the digital currency soared to an incredible $1,250 per unit (on some, but not all Bitcoin exchanges – prices tend to vary a bit between the different exchanges). This was of course not only due to the perception that exchange controls could be evaded with Bitcoin; the Chinese are well known for their love of gambling after all. As real interest rates were in negative territory for long stretches of time in recent years, China’s citizens have sought out all sorts of investments to preserve the purchasing power of their savings – Bitcoin was just one more option, but China’s authorities ultimately cut this option off.
Image credit: fmh
Vaporization in Bitcoin-Land
It is still not quite clear what exactly happened at Mt. Gox in Tokyo, the formerly biggest bitcoin exchange in the world. According to the exchange, the so-called 'transaction malleability' problem allowed hackers to initiate countless bogus transactions, stealing some 744,000 bitcoins. Even at the recently somewhat lower price of $600 per bitcoin (at non-Mt. Gox exchanges), this sounds like a lot of money. In fact, it sounds as if the exchange has essentially been bankrupted/vaporized, and no amount of 'trying to fix the problem' can actually, well, fix it. Mind, this is just a hunch on our part based on the fact that about $450 m. are said to have disappeared.
In spite of no longer allowing withdrawals (whether of bitcoin or any other forms of currency) since February 7, trading actually continued at Mt. Gox until February 25. During that time, bitcoin prices crashed on the exchange, and a two-tier price system developed. There have always been slight price differences between the various bitcoin exchanges, but our impression was that arbitrage transactions kept prices at most exchanges for the most part quite closely aligned. However, after it became clear that withdrawals from Mt. Gox were no longer possible, the price of bitcoin traded there decoupled rather noticeably. While the currency weakened at other exchanges as well, it did so to a far smaller extent.
This week, trading at Mt. Gox finally stopped and the site became inaccessible shortly thereafter. Access has been restored in the meantime, but all the site does at present is display the terse message that can be seen on the chart below: