In the stock market, this simply does not happen. When investors lose faith in a stock, a much larger percentage of shares end up being traded than what we've been seeing with Bitcoin. An example I will use is Research in Motion (RIMM), the maker of BlackBerry. Although the company hasn't gone under, it's had a very rough year. On the worst day, 113 million of its 520 million shares were traded, or 22% of total outstanding shares. On that day, the stock dropped from $35/share to $26/share, or a 26% drop:
On October 17th, Bitcoin dropped from $3.50 to $2.50, or 29%, but only 220,000 of the 7,500,000 Bitcoins were traded, or 2.9% of the total Bitcoins.
The drop in value, alone, should be driving a volume increase, since each Bitcoin is worth less and therefore easier to buy or sell.
What this tells me is that a) investors are holding on for the long-term, and b) this drop is only temporary and driven by a small percentage of Bitcoin holders. If investors were truly of the belief that Bitcoin had no future, you would see volume spikes into the millions of Bitcoins.
If you are an investor in Bitcoin, this should be looked at as an opportunity to add to your position.
I agree on point A. Though that in itself is concerning b/c what we want to see is BTC's use in commerce, not just holding/hoarding for speculation. I know that's kinda your thing, trading, but I won't hold that against you. ;)
ReplyDeleteI disagree with B. But what you argument really shows is the relative illiquidity of bitcoin at present, i.e. relatively few trades causing big moves in the price. The logical conclusion from this isn't that it's time to buy (maybe it is or maybe it's not), but rather that we're seeing high volatility in the exchange rate presently from this illiquidity. If there comes a time when we have a regularly high volume of transactions *and* maintain a more stable value, then we'll have relatively more liquid market. But that will only happen if/when the BTC economy is more built up.
Calling the bottom is always fun. I sure don't know if this is it. And I've been humbled by the stock market trying to guess just that before. But I have my bets that when even hardcore traders, say 'F this', then we'll have hit a bottom.
I'll add, I think BTC's value would go up if we see more sites like silk road where there is a very real advantage to using BTC, thus forcing more people to exchange national currency into it. That could help give BTC value and help it maintain a stable enough value to be used by others for more regular purchases. But that's all speculation. We'll see over time how silk road's protections hold up. Hopefully they do well to prove the security and advantages of BTC b/c that would give it more use and value. We'll just have to see how and if develops.