So this is the chart of Bitcoin’s price, and its trading volumes, going back to the point where it first became a thing:
Let me zoom into the last two days:
So you see those rapid spikes in red volumes (the ‘red’ indicates that the trades were settling at lower prices than the trades that preceded them – green indicates the opposite), alongside the collapsing price? That’s the bitcoin market reacting to news that one of the Hong Kong based Bitcoin exchanges, Bitfinex, had been hacked – and that 119,756 bitcoins had been stolen. That’s a ±$65 million burglary (at mid-morning prices on 3 August).
- There are about 15.2 million bitcoins in existence right now.
- So the theft involved 0.8% of the total bitcoins in existence.
- The initial drop in value wiped out $2.5 billion or so from the world of Bitcoin.
This – this is real volatility. Can you imagine a bank heist causing the US Dollar to plunge by almost a fifth before recovering a bit in the space of a few hours?
I’m really not sure how so many people expect that Bitcoin can become a real currency when its value is so influenced by a sneak hack-attack of a paltry $65 million. I mean, that’s less than a rounding error on the deferred tax that Apple is housing in its offshore shell companies (if you’re interested, it’s about 0.1% of it).
But here is something even more concerning:
- 90% of Bitcoin trades now come out of China.
- 70% of Bitcoin’s mining power now sits China.
In a deeply ironic twist, the world’s first free market currency has found itself entrenched in the world’s largest state-controlled economy. Although I guess it’s not that ironic: wherever you have state control, you have attempts to circumvent it. So it’s not too surprising.
But still, taking a bet on Bitcoin now effectively means taking a bet on China.
Here’s a quote from Bloomberg:
Bitcoin’s volatility, meanwhile, has attracted China’s horde of speculative individual investors, who are keener than ever to diversify out of yuan-denominated assets after a shock devaluation in the nation’s currency last year.
And while we’re at it, let’s remember what happened to China’s stock market last year.
Just, you know, some thoughts and concerns.