So I spent about twenty minutes last night trying to explain to my mother-in-law why the "internet money" she'd heard about on the news had lost half its value in two weeks, and I did a pretty bad job of it, because honestly I'm not sure I understand it either.
Here's what happened, roughly. Bitcoin had this ridiculous run in November, climbing over $1,200 on some exchanges right around Thanksgiving, and every tech blog (mine included, sort of, in a comments-section way) was full of people doing the math on what their old mining rigs would be worth if they'd just held on. Then China's central bank stepped in on December 5th and told financial institutions and payment companies they weren't allowed to touch bitcoin transactions anymore. Not an outright ban on individuals owning it, just banks and payment processors cut off from it, but that was enough. The price fell off a cliff. Baidu, which had briefly started accepting bitcoin for one of its security services, backed off a couple days later and the price dropped again, down under $600 on the Chinese exchanges at one point. By this week BTC China, which had been the biggest exchange by volume, was telling users their third-party payment processors had stopped working, so deposits in yuan basically stopped. More drops. Meanwhile Mt. Gox, the exchange most Americans actually use, has had its own long-running withdrawal mess going back to earlier this year, so the price there doesn't even match up cleanly with the Chinese numbers. It's genuinely two different markets pretending to be one currency right now.
I have a personal stake in this that I'm slightly embarrassed about. Back in 2011, when this blog was maybe two weeks old, a friend of mine talked me into mining bitcoin on my GPU for about a month, mostly because it made his apartment warm in the winter and he thought it was funny. I got some absurdly small number of coins out of it, forgot about the wallet file entirely, and I'm fairly sure it's still sitting on an external hard drive in a box in my closet next to a dead iPod and some VGA cables. I have no idea if I could even find it now, and if my wife asks, this paragraph does not exist.
What bugs me about the coverage this month isn't the price swings themselves, it's the tone. Every article either treats a 10% single-day move like proof the whole thing is a scam, or treats a 10% single-day move like proof it's about to replace the dollar. Both of those reactions are lazy. A currency, or an asset, or a commodity, or whatever you want to call bitcoin this week, that can lose 40% of its value because one country's regulator issued a statement is not stable enough to be anyone's actual savings account, and I don't care how libertarian your priors are. At the same time, dismissing the whole idea because of a rough December is its own kind of lazy, because the underlying tech (the ledger, the distributed verification, all of it) doesn't stop being interesting just because the price chart looks like a cliff face. I think the two things, the price and the tech, got tangled together in the public conversation this year in a way that makes it almost impossible to talk about either one on its own.
Anyway. I'm not buying the dip, and I'm not selling whatever's on that hard drive either, mostly because I can't find it. If you're the type who's been eyeing this as a Christmas-week gamble, I'd at least wait until the Chinese exchanges sort out whether they can even take deposits, because trading against a market that's half-frozen seems like a good way to learn an expensive lesson.
Unrelated tangent, because it's been that kind of week: I also tried to buy a PS4 for my nephew on Tuesday and three different stores near me were sold out, with one employee at a Best Buy telling me they'd had a shipment that morning that lasted "maybe forty minutes." Sony apparently still can't make these fast enough almost five weeks after launch. Different story, same underlying feeling of everyone scrambling for something that technically exists but is annoyingly hard to actually get your hands on.