I broke news about a change in how the digital currency, bitcoin, would operate on an exchange for U.S. and Canada last week and my peers in the finance and tech press woke up to this trend. Bitcoins are a peer-to-peer monetary transaction system that is trying to challenge government controlled currencies — like you know the almighty Dollar.
Unless you watch RT’s Keiser Report or read what American Banker has said about how this currency could disrupt fee revenue for banks, you’ve likely never heard of them. But since I reported at Bitcoin Magazine that Coinlab, a VC backed silicon valley firm, was using a silicon valley US bank to make transactions faster and cheaper; the value for one bitcoin went and jumped about 40 percent in the last two days. My peers who were rushing to figure out how to write about it at CNN or even Barrons thought it was all about the Coinlab deal. But they didn’t get the simple mechanics of why the currency really jumped.
This chart shows at about $43 there was a large (1,500 BTCs) ask and then there were no sellers. There is a limited supply of bitcoins, as unlike Heli Ben you don’t just print more money to manipulate their value. So since there were no sellers the price kept jumping up. And then you see another big ask (1,000 BTCs) and still no sellers so the price kept climbing all the way to $49 today. It’s leveled out to about $45 at press time but this shows what can happen if people are willing to risk buying large blocks of bitcoins and there are no sellers on the other end. It takes the value to new levels and this time scared the rest of the market into not knowing if they should hold or sell. As more people understand how bitcoins work this shouldn’t’ happen as much.
With Coinlab’s new announcement that they think they can keep like $1 million worth of bitcoins safe from being hacked or stolen…well a few institutional investors are likely jumping in BIG now. And a whole new wave of buy big and hold people will come into the equation. This could mean we see some more steep volatility jumps so it will be interesting to watch what the currency holds at next week – assuming there is not more earth shattering deal news in the space which could happen with all the VC/Angle money sniffing around Bitcoin Companies right now.
Bitcoins are a transaction based currency. They need buyers and sellers in an a somewhat equal way to keep the value from huge volatility swings. We didn’t have that this week because perception, or let’s say smart players are waking up to the reality of the currency being a viable alternate to paper money, took over.
The fact that when you buy bitcoins you can remain anonymous adds a layer of difficultly in figuring out if one or two guys who keep making up different identities are contributing to all the new buy volume or if a diverse number of people are really pilling into buy bitcoins. The latter being the ultimate dream for companies, like BitPay, who is working fast and hard to get more street level retail companies to accept bitcions.
So when more sellers enter the market – hopefully in the next few days – we could see the value go down a few bucks.
Bitcoins aren’t a fad. I wouldn’t be spending my time to learn about them and place my byline on a subject I thought wasn’t worth paying attention to. The idea of a digital currency that cuts through government currency wars and takes away fee revenue from too big to fail banks that gouge the consumer is a very real trend. Whether it’s bitcoins or ripple or another digital currency that has staying power only time will tell. But right now we are seeing venture capital money jump in to bitcoin related companies – you know like the ones that got in early to facebook or twitter – and they’ve spent a year doing research to make these investments. And it’s not stupid money being invested as I wrote about for the January issue of Bitcoin Magazine.
Sure there’s a lot of risk associated with bitcions. Value is going up and down-well more straight up right now. You can’t pay for all your food and gas with them yet. There needs to be more main street acceptance. There are lots of unknowns. Even today we don’t know WHO/How Many drove the value up in bitcoins but at least this reporter is trying to show you HOW it got done.
UPDATE 3-7-13: For those who need to hear the news on TV Max Kesier was on a RT nightly news show last night giving a quick explainer on Bitcoins. It’s worth checking out. Also as I wrote last night the value did go down a few bucks and it hovering around $42-$43 this Thursday morning. Now this is still up $10 since the Coinlab news and media blitz started last week.