Bitcoin Drops 22 Percent for No Good Reason

Bitcoin Drops 22 Percent for No Good ReasonThe value of bitcoins plunged more than 15 percent on Friday afternoon after the Securities and Exchange Commission rejected an application to create the first exchange-traded fund (ETF) for Bitcoin. The proposal would have made it easier for ordinary investors to buy bitcoins, but the SEC is worried that these investors could be cheated in the largely unregulated Bitcoin marketplace.

The ruling has been closely watched in the Bitcoin world. A favorable ruling would have given the cryptocurrency a stamp of approval from an influential regulator, and it also could have sparked a surge in Bitcoin’s price as it provided an easier way for people to invest in this exotic new asset class…

The proposed Bitcoin ETF was the brainchild of Cameron and Tyler Winklevoss, twin brothers who once sued Mark Zuckerberg for allegedly stealing the idea behind Facebook from them when they were all students at Harvard. After settling that lawsuit for millions of dollars worth of Facebook stock, the brothers began investing in Bitcoin startups. They announced plans to create a Bitcoin ETF in 2013, and their proposal has been working its way through the SEC ever since.

But the SEC wasn’t impressed with the proposal. The law requires the SEC to make sure that a newly traded asset existed in a well-regulated market that adequately protects people from manipulation and fraud. But the SEC saw little evidence that these conditions were met. Bitcoin is primarily traded in unregulated markets located overseas, especially in China, and as a result, the price of bitcoins is extremely volatile. In the SEC’s view, Bitcoin exchanges are not yet mature enough to justify opening them to the general public…

The ruling hammered bitcoin’s value. In the minutes after it was published, the value of one bitcoin fell from $1,290 to less than $1,000. As I write this, it’s back up to $1,100, about 15 percent below its value before the ruling was announced…

–Timothy B Lee
Why Bitcoin Lost 15 Percent of Its Value in a Few Minutes

7 thoughts on “Bitcoin Drops 22 Percent for No Good Reason

  1. I’ve never really “gotten” Bitcoin other than as a sort of libertarian masturbatory vanity project. What’s the point? OK, it’s…currency. Sort of. You (meaning “you if you have a gajillion bucks to put into some really high-end math processors to solve the equations that, through some bizarre logic of Bitcoin, “mine” Bitcoin) somehow “earn” these things by either “mining” them or buying them from someone who has. Supposedly the things are more libertarian-friendly than “fiat currency” because instead of being backed by the “full faith and credit” of a government they’re backed by…something. A “blockchain”. The Internet. Algorithms.

    So the notion of “Bitcoin futures” – which seems to be the way these critters are valued – seems premised on, well, belief. The belief that Bitcoins ARE valuable. Which is…kind of like printing money, when you think of it.


    • Well, the technology is really interesting: blockchain. But in general, at least in this country, it is the high tech equivalent of the gold standard. It’s supported by a bunch of people who think the government is stealing their money through inflation. Of course, over the last 40 years, we’ve seen, if anything, inflation too low. And as a guy I know put it: it isn’t based on anything other than people’s idea that it is worth something. In other words, it too is a “fiat currency.”

      But in countries that are having inflation problems, it isn’t a bad idea. Just the same, these countries can (and do) use the dollar, the euro, the pound instead. But there is a lot of silly libertarian nonsense involved with bitcoin. It’s a solution in search of a problem. It’s biggest success has been in making extortion easier.

      • I gave up a long time ago on trying to convince libertarians that Bitcoin is a fiat currency. I finally caved in and admitted: it’s more of a Yugo currency…

      • I read something to that effect; that there’s really two components to bitcoin. One – the “blockchain” – is described as both promising and (as you describe it) interesting. I won’t pretend to be tech-savvy enough to understand why, but I’ll buy that those who are seem to agree.

        Then there’s the “currency” component, which seems to be equal parts Ponzi scheme and article of faith. The part I fail to see is how bitcoin is any less of a “faith-based” lucre than any other printed sort of money (which is also why I don’t get it as the tech-gold standard). It has no more intrinsic worth than a paper buck – my understanding is that goldbugs are goldbugs because gold has intrinsic value – and depends on the value assigned it by an exchange.

        But I also don’t “get” true libertarians. So there’s that…

        • Currency is fascinating. Take gold; what intrinsic worth does it have? It’s shiny. Other things are shinier. It conducts electricity. Other things conduct electricity more efficiently. Bronze and iron are much better materials to make swords & shields from. Yet, at some point, we decided gold was a terribly important thing to own. Worth killing each other for, in fact.

          Humans is some strange-ass creatures. I love ’em, though …

    • Loved it! Reminded me of a few books.

      One, by Max Barry, is “Jennifer Government.” In the future, everyone adopts the surname of their employer, and the only thing government still does is arrest poor people for stealing, hence the title character. Basically a mall cop. Who ends up being so principled, she threatens the entire corrupt system.

      Another, by Paolo Bacigalupi (say that name three times fast!) is “The Water Knife.” Again, it’s the future, and in this case the US has broken up into sovereign states. Because of global warming, the western states are all at war with each other over water rights.

      Both are dystopian. JG is kinda hopeful, like “The Matrix.” TWK is really bleak, like “1984.” If you like sci-fi, though (and who knows if you do!) I think you’d enjoy one of those.

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