Bitcoin Trend After “Crash”

Media and bloggers just made huge news of a Bitcoin crash. However, if you look at this chart of the past 180 days, the recent severe spike (and return) in value looks like an aberration, and that Bitcoin is still solidly headed upward.

Why am I talking about Bitcoin?

A little over a year ago, I heard a podcast with computer security expert Steve Gibson discussing a relatively new experimental digital currency called Bitcoin. It seemed interesting, and after examining the open code to the digital currency, Mr. Gibson seemed to think the cryptographic Bitcoin system seemed very sound.

I had been hearing more and more news about Bitcoin, and decided a couple of weeks ago that it wouldn’t hurt to buy a small amount, in hopes that the long trend of appreciation would continue. There are plenty of good arguments for and against investing (gambling) in this currency, and plenty of talk about bubbles. I certainly wouldn’t recommend that anyone bought more Bitcoin than they could afford to lose. And a bit of research is required, just to understand how to safely buy and hold the digital currency.

The way I see it, there’s a 25% chance that bitcoins purchased today will be worth at least 1000% (10 times) their current value in less than five years. Statistically speaking, if you take those types of asymmetric bets regularly, you’ll come out ahead. Of course, these numbers are just my assessment (others think Bitcoin will be worthless within weeks).

I found out first-hand how difficult it is to sign up and fund an account with a Bitcoin exchange. It’s not rocket-science, but it requires careful reading and a bit of a leap of faith. But I think it’s clear that it will become easier to buy Bitcoin as new companies get involved, bringing Bitcoin to the masses. There’s even a Bitcoin ATM that is apparently coming, with the first two locations planned for Los Angeles and Cyprus (when you live in some countries, an appreciating currency looks particularly attractive). I think when the barrier to entry is lowered, and more and more people can easily try buying this geeky currency, that will drive the price higher. The biggest Bitcoin exchange, Mt. Gox, said recently that they are adding 20,000 accounts every day, and I imagine that number is growing. I don’t see how so many additional people interested in buying Bitcoin won’t add upward pressure to the price of Bitcoin.

Note that this chart is from Blockchain.info, but I added the gold line to show what I thought was a true trend line. As I write this, the price of Bitcoin on Mt. Gox is hovering around $115. If you bought just one month ago, your Bitcoin value has more than doubled! And that’s after the very-hyped “crash” of Bitcoin.

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5 thoughts on “Bitcoin Trend After “Crash”

  1. Your comment about the long run trend reminded me of the claims made that the long run trend of property was rising despite the massive crash it underwent. The problem is that bitcoin hasn’t reached bottom. This can be seen from the fact that it is currently at $90, a large drop in a short time since your post was written.

    “If you bought just one month ago, your Bitcoin value has more than doubled!”
    Ah yes, everyone bubble always contains the example of someone who bought at the trough and sold at the peak, the problem being that no one did that. Sure had I bought bitcoin a month ago, I’d have made money. The problem is that very few people did, that’s why the price was so low. Far more people bought when the price was around $200 and have seen their investment cut in half. That’s what you call a crash.

    There was a large amount of people joining bitcoin and adding to the frenzy around it, until the crash. Now people are leaving. You can be sure that 20,000 new members a day has dropped significantly. The positive feedback (of higher prices causing more demand, causing higher prices) has been broken and reversed.

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