Bitcoin Insight: Here is why that Digital Currency’s Value Really Jumped Sky High

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.

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Comments

  1. Thank you for the explainer Teri. I just donated BTC to your news site.
    Do you think traders will pile into bitcoins and mess with it’s pure market value so far?

  2. Teri, I’m not sure why you and max are pushing this… Bit coins are just as bad as dollars except you can’t pay bills or buy food with them. Not only that but the cia has a vested interest…

    • Spoken just like a FED employee.
      Magarah, please learn how Bitcoin works first before spreading such nonsense.

    • Just as bad as dollars? Not really. Bitcoin can’t be created out of thin air like dollars, and can not be regulated like dollars. Both dollars and bitcoins are digital currencies, but only one is worthy of use as money. It will take time for people to realize this, however.

  3. HairyHerry says:

    @Magrah,
    What separates Bitcoin apart from fiat money is that the digital currency is inflation-proof and chargebacks are not possible from the sender once transmitted. It has a solidity as the precious metals themselves. When completely “mined”, there will be a MAXIMUM, and never anymore than, 21,000,000 Bitcoin. Already, many have lost Bitcoin through various issues such as hard drive crashes (ALWAYS keep a backup!) but these problems are so unnecessary when several quality eWallet services such as WalletBit (which I use) exist today.

  4. Before I’d accept that Coinlab is the cause of the price rise, I’d have a look at Avalon, and at BFL’s production and sales figures. I have no facts on what percentage of BFL sales were via bitcoin, but Avalon is likely close to 100%.
    Equally, when the new equipment comes onstream over the next 4-5 weeks, the difficulty will increase very rapidly – my guess is x25 at year end.

  5. Thor's Hammer says:

    Pricing volatility is inevitable in a market as thin as Bitcoin. Doesn’t take a whale to manipulate the price upward, just any player willing to hit the button until scarcity is revealed and then selectively exit the bubble through the exchanges.

    That doesn’t mean that the Bitcoin market isn’t fundamentally different from central bank fiat currencies and stocks that can be shorted, optioned and hedged–at least until a derivatives market in Bitcoin is developed.

  6. angelinajhon says:

    The Rise Of Bitcoin What Is It And Is It Worth It? | Bitter Bananas

    Bitcoin is starting to get very popular these days, but still the majority of people know nothing about it. It is considered as one of the best investments you could have made, because of its’ massive price jump over the last year.

    So what is Bitcoin?

    This article best describes the overivew of Bitcoin, which is largest online used digital currency in online world.
    http://bitterbananas.com/the-rise-of-bitcoin-what-is-it-and-is-it-worth-it/

  7. I was wrong… Luckily bought some after further research and consideration… Glad I did!

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