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"lthough these events are unfortunate, none of them involve Bitcoin itself being hacked, nor imply inherent flaws in Bitcoin; just like a bank robbery doesn't mean that the dollar is compromised."

please explain to me why bitcoins value went from over 1000 dollars, to 500 and some over nigth because of theft?

mt gox got robbed 750,000 bitcoins, but as if this article was any kind of accurate, would bitcoins value still not be in the 1000's????? if in fact robing bitcoins didn't affect prices at all!

bitcoin is a dream currency for dreamers, and dreamers have to wake up some day

anonymous
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  • You need to follow the news more closely. Bitcoin's worth fell from USD$1200 to $500 due to China's gov declaring it forbidden to its banks, which caused a flurry of sells from Chinese bitcoiners until same gov. clarified prohibition applied just to banks, not people - then it rose back to 800 and had been on a slow downwards trend ever since. – Joe Pineda Mar 05 '14 at 12:18

2 Answers2

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Because Bitcoins don't really have a fundamental anchor value, their price is subject to momentum effects. When the Mt Gox problems were reported, many people expected the price of Bitcoin to drop. Even if you expect Bitcoin to hold its value in the long term, if you think it's going to drop in the short term, you may sell hoping to buy back at a lower price.

Once the price starts dropping, others decide to sell figuring they can buy back at a lower price, causing the drop to escalate. Eventually, the price gets low enough that people don't want to risk "missing the bottom", so they buy back in to hold for the longer term. This ends the drop and often causes a rebound.

Bitcoin is definitely in the process of growing up.

David Schwartz
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I think the drop isn't so much about the theft of bitcoins, which didn't happen until the 28th of Feb (according to http://en.wikipedia.org/wiki/Bitcoin#Thefts ). By that time, the price had already dropped to between US$550 and US$600 ( http://bitcoincharts.com/charts/bitstampUSD#rg30ztgSzm1g10zm2g25 ); since then, the price has risen

I think the main reason the price of bitcoin dropped is that, with people having difficulty getting their BC out of MtGox, the value of a bitcoin on MtGox fell (what is the value of a BC if you can't get it into your wallet) - this is similar to a bank run ( http://en.wikipedia.org/wiki/Bank_run ). With the value of BC dropping at MtGox, it dragged the rest of BC down too.

When the value of something drops, people panic and want to sell, to get their money out before it collapses completely. This panic selling may cause that very collapse, or, if there are enough people who think it has some value, it will stabilise when all the panic selling is done. Often, when it stops dropping, people will notice that it has stopped dropping, and buy it back up; you get a rebound (some of which we've seen on the 3rd).

As to your last paragraph, about it being a "currency for dreamers", "bitcoin" has two different meanings for two different groups of people.

The primary meaning of "currency", which is what most people think of when they think of "currency", is "something which you can trade for something else". By this definition, BC are 100% real - I've used it to buy stuff. If this is why you have a particular currency, you don't have much for very long (I usually have between $0 and $20 of currency in my pocket at any time; if I need more, I will get it for a specific purpose, and pass it on; my bank balance goes from slightly more than my monthly pay to depressingly close to $0).

The other meaning/use of currency is investment - or, as I like to call it, gambling. This often involves buying and selling quickly, as prices rise and fall. BC is very good for this, because it (currently) rises and falls quickly. In fact, in August you could have bought a whole bitcoin for about US$100. In November 2012, you could have bought 10 bitcoins for the same amount of money. Those 10 bitcoin are now worth over $6,000. However, as with any sort of investment, there are also risks.

Remember also, when talking about "dream currency", that fiat (government) currencies have also collapsed. In 1919, US$1 would buy about 7 German Marks; in 1923, you could get 4,210,500,000,000 of them for the same price. Bank notes were used as wallpaper, because they were cheaper. Did that make Marks "dream currency"? Before 1914, the German citizens had no idea that they were going to lose a war, and that their currency was going to collapse. Wikipedia lists 39 cases, from Angola, to Zimbabwe.

AMADANON Inc.
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