Bitcoin Blog a1

Saturday, May 27, 2017

Is Poloniex is the next Mt. Gox?

Some people on the internet are saying Poloniex is the next Mt. Gox.  (As you probably know, Mt. Gox was the first big failed bitcoin exchange.) Well I don’t know if this is true, but if people think it is true, it may become true.

Cryptsy was an interesting example of unjustified fears becoming reality. Cryptsy had cryptocurrency stolen from them. This meant that if everyone withdrew their digital currency from Cryptsy, they wouldn’t have enough to cover all the deposits with them. (This meant they were operating similar to a traditional bank with fraction reserve banking.) Or in other words, they didn’t have the cash on hand to pay everyone that has deposited money (Cryptsy, however, was insolvent as well). They continued business as usual and did not announce the theft for fear of causing a scare. As Cryptsy made money, their capital was essentially restored. (In banking terms, Assets - Liabilities = Bank’s capital).  Once Cryptsy made enough money, they would no longer have to worry about a run on the “bank.”  An unrelated, unjustified rumor caused people to question Cryptsy. People simply questioning Cryptsy caused a mass panic which caused Cryptsy to fail and the stealing to come to light.

Now people are questioning Poloniex, just like they questioned Cryptsy in the past. Just the questioning of Poloniex could cause a scare, which could cause people to withdraw their Cryptocurrency. If enough people withdraw, it could bring to light other problems with Poloniex which could bring the exchange down. However, if there is no real issue, this might not affect them.

An additional reason Poloniex could be in trouble is that upward prices also increase credit risk. If a lender has traded cryptocurrency for fiat, the increase in price may make it difficult to repay a loan denominated in crypto. So if Poloniex has borrowed from his users, this may be an issue.

Lastly, it looks like many people are very delayed in when they can withdraw their money from Poloniex. This is a bad sign, and could be a sign of eventual shut down. Ultimately, I don’t think Poloniex will shut down right now, but only time will tell.

Thursday, May 25, 2017

Next Stop, Moon.

As you may be aware, the price of Bitcoin is going through the roof right now, its an exciting time. Another blog I follow has some interesting insights on volatility in Bitcoin's price. You can check it out here. Lots of other good posts should be coming in the next few days, my editor is very behind. Check in soon.

Tuesday, May 9, 2017

Still time to jump on the rocketship

I've made posts like this before, but Bitcoin's price is a bit crazy right now.
If you bought may book a few weeks ago, you would have had gotten a 43% return on your bitcoin holdings! Wow! (This is using CoinDesk BPI as of the official launch date compared to today).There is still time to jump into the arena, check it out on Amazon or Payhip.

Litecoin has made some big upward price movements too. This is probably due to segwit being activated. Thus resolving any uncertainty and improving the usefulness of the coin. Perhaps we might see similar results if BTC did that as well. But it's not just BTC and LTC that are big winners, lots of coins are going up. Nyan is the only coin in my holdings that hasn't gone way up.

Who knows what the future will bring. Either way, it might be a good idea to acquire some of your own Bitcoin. Not buying it necessarily, read my book to learn more.

Monday, May 1, 2017

The Price of Bitcoin

As promised in my last post, here is another guest post. This was written by Elliott Killian; to see more of his writing, check out his blog here:

The price of bitcoin for the past eight years has been very volatile ranging between less than one US dollar to over one thousand US dollars. Because of this drastic change, many ask: “What is Bitcoin?”. Is it a currency? A Technology? An investment tool? Or a scam? To answer these questions we have to examine how people use and value Bitcoin. A paper by Pavel Ciaian, Miroslava Rajcaniova & d’Artis Kancs did just that. They looked into the factors behind how bitcoin is priced. They wanted to know what the largest factor was. They examined the effects of the: global economy, number of learning about bitcoin (by views to the bitcoin Wikipedia page), attractiveness as an investment opportunity, and as a currency.

If you take any one theory each can not explain the pricing of bitcoin by itself. No factor by itself fully explains the price of bitcoin. If you split the price of bitcoin into different time periods at before or after October 2013 then these influences make more sense. This split represents early bitcoin when people were still learning about it from established bitcoin where people know what it was and were using it. For example, the number of people viewing the bitcoin site on Wikipedia searches did have an influence on the price of bitcoin when it was new, however, once it was established the number of people searching for bitcoin on Wikipedia had little effect on the price.

For the global economy, they found that it had no influence on the long-term price of bitcoin. This was similar to speculation. Speculation had little effect on the long-term price of bitcoin.

Here are my own thoughts after reading the paper and looking at bitcoin prices. I found that speculation had little impact surprising. Many people talk about using bitcoin as a get rich quick scheme by speculation. But speculation cannot deviate too far away from the true value of bitcoin measured by its use as a currency. Overall the use of bitcoin as a currency is what drives long term value and price of bitcoin. Simply put if more people use bitcoin the price goes up the fewer people use it the price goes down. What may be driving the price of bitcoin now is the black market online stores and legitimate businesses accepting bitcoin. In the future bitcoin may be used to as an alternative to currencies with high inflation or uncertain futures.

There is no one factor that determines the price of bitcoin. Multiple factors have affected bitcoin throughout its use. The long term price of bitcoin will ultimately be determined by how people use it. If more people use it as a currency the value and the price will increase. With this other factors such as speculation will have less of an impact on the price of bitcoin. Where ever the price of bitcoin goes you can know it is acting more and more like a currency than a speculative investment or scam.

Work cited
Pavel Ciaian, Miroslava Rajcaniova & d’Artis Kancs (2016) The economics of BitCoin price formation, Applied Economics, 48:19, 1799-1815,