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Bitcoins Go Splat.

Written by Gary North on December 18, 2013

Bitcoins have just suffered another huge hit. The other shoe has just fallen.

Bitcoins were selling at $1,242 on November 29. The headlines were all over the Web: “Bitcoins surpass the price of gold.” That was the peak. They are around $500 today. That is a decline of 60%.

When an investment fad ends, it usually ends spectacularly. A 60% decline in less than three weeks indicates that the Bitcoins fad is over.

What is significant is why the collapse occurred. We know exactly why. China’s government took two steps.

First, on December 5, the People’s Bank of China announced that Bitcoins posed an unacceptable risk. It banned financial institutions from using Bitcoins. The price of Bitcoins fell by 30%.

Second, on December 18, the Bank forbade any third-party exchange of yuan (renminbi) for Bitcoins.  Immediately, BTC, China’s largest Bitcoins exchange, ceased taking any new yuan deposits.  That announcement has collapsed the market in China. It has collapsed the market worldwide.

When you get into a market, you need an exit plan. All of a sudden, there is no exit plan in China.

Around the world, the currency-denominated price of Bitcoins is down. That is how much clout the Chinese government has in this market.

(For the rest of my article, click the link.)

Continue Reading on www.garynorth.com

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32 thoughts on “Bitcoins Go Splat.

  1. sean murry says:

    This is a scam i did not invest any money in it idid invest in American companies.

  2. First identified in 1996, the DUMBTH bug that infected over 70% of U.S. investors (left untreated) has by now spread worldwide..

  3. Texas Chris says:

    I "invested" $800 in Bitcoin, and set my home computers to mining as well. I've been operating for about 4 months. Yesterday, I sold all 27.5 of my Bitcoins at $748-$750. Today it is at $500.

    I have a wire transfer pending to Blanchard of about $20,000, with which I will buy more gold and silver. This is the second time Gary North has made me a pile of money. God willing, it will not be the last.

  4. Awesome Chris! Congrats.

  5. Bill Smith says:

    I’m just an old fart, I still don’t know what bitcoins are (were?) so I didn’t get involved. I stick with the old fashioned gold and silver that I hold.

  6. This is no surprise. Anyone with a basic knowledge of history and economics would have seen this coming. A good investment is when everybody prospers, not just the few that got in early, on the backs of those that came in late. See my blog at http://cranky-conservative.blogspot.com

  7. I don't know why that doubled up. If it was something I did, I am sorry.

  8. New School Posse says:

    Foretaste of what will happen with the dollar.

  9. As I said here a couple weeks back, the only real money is what I can hold in my hand: gold and Pieces of Eight. Dr. North should be commended for warning people about this.

  10. FreeMarketAnarchist says:

    Bookmark this and come back in one year. As more and more people worldwide recognize that bitcoins grant them the ability to circumvent government currency controls, bitcoins will rise again, and break their all time high before 12 months are up.

  11. And if it doesn't…will you post here again in one year admitting you were wrong?

  12. Cliffystones says:

    My motto is if I can't eat 'em, cant smoke 'em and can't bed 'em" what good are they?

  13. Cliffystones says:

    Best of luck to them!

  14. Dunno who FreeMarketAnarchist is, so I don't care if he admits he was wrong. I do know who North is, though, and I'll be VERY interested to see if HE will admit he was wrong if Bitcoin goes up again after this fall…as it did just 8 months ago, as it did after another spike and fall several years ago.

    What I suspect will happen, though…judging from the last time North was spectacularly wrong (Y2K)…is that he'll simply stop writing about it and will decline to apologize.

    Did North deign to mention that this is the third run-up and sell-off Bitcoin has seen in the last few years, but that each time it reaches a stable point higher than the last spike?

  15. 23Yrs living North says:

    I have loads of respect for Dr. North but I've gotta agree with FMA & James. It's typical market volatility in a new 'commodity'. The intrinsic value of skirting currency controls is the battle ground between totalitarian nation states and the people. It's too bad that such volatility hinges on the decrees of the elite political class. Has not history shown that even shells have acted like money? I'm certainly happy to have jumped in early. It's obviously speculative but the FRN$ is obviously doomed and gold, silver & they're associated stocks are clearly manipulated too. BTC is a vote for liberty even if the only profit from it is a clear message to statists to keep their hands off!

  16. I invested a small amount of risk capital in Bitcoins some time back. I wish I had done so earlier, but I had not heard of Bitcoins before that. I watched my very small investment climb rapidly. When it doubled in value, I doubled down. At that point, the worst that I could do was break even. Several months later, Bitcoins dropped in value 10% and I sold everything. I had made almost as much off of that tiny amount of risk capital as I made in the same time off of the rest of my "conventional" investments. If it ever turns around (sustained 10% climb), which I don't really expect, I'll invest some risk capital in Bitcoins again. Then if it tanks again, at that point, I've still made a lot more than if I had not invested in Bitcoins at all. On the other hand, although I don't believe it likely, this could just be the birth spasms that accompany many changes in the economy. But either way, I'll be ready.

    All that the gloom and doom sayers like North are good for is keeping the novices from throwing their life savings at potentially lucrative, though somewhat risky investments. Risk is where you find it. But when investing in high risk ventures, you can't invest more than you can afford to lose and you have to have an exit strategy and stick by that exit strategy. Many is the time that I got out of a risky investment way too early and watched that investment continue to climb. But better too early than too late. Never look back on wouldda, couldda, shouldda. Just take your profits and move on. Bitcoin has been a good ride and since it's based on energy usage, it may be again. Will it ultimately become a new standard for currency or will it ultimately collapse and fade into oblivion? Only time will tell. There is still a possibility that there may be some significant profit potential left in Bitcoin, but only for the disciplined investor.

  17. "What I suspect will happen, though…judging from the last time North was spectacularly wrong (Y2K)"

    It is kind of amusing that your criticism is North was wrong 15 years ago, which leaves you implying he has been consistently right since then.

    I do remember the Y2K problem, and North warning about it. But the reason the Y2K issue turned out not to be a problem is because everyone took the problem very seriously and dealt with it before the year rolled to 00. At my company there was a Y2K committee that reviewed every last bit of software in use by the company anywhere. They even double checked the elevators in the buildings to make sure they wouldn't be fouled up by Y2K. Bugs were fixed, and the roll to 00 went smoothly.

    So your complaint is essentially that because the warning was HEEDED and the problem ADDRESSED, the dire warning OF WHAT WOULD HAPPEN IF THE PROBLEM WAS NOT HEEDED AND ADDRESSED did not come true.

    To which I can only reply…so?

  18. North was one of several people who were absolutely hysterical about it, saying it was going to be the destruction of civilization, pushing people to stockpile food, etc. And then it comes along and there is not even a blip from it…and he never apologized for the hysteria and fear he drummed up. That's not really the same thing as saying that yes, there was some issue but we fixed it.

    I read North a lot, but I don't trust him on everything, especially technical issues. He still hasn't told us where to find a NON-fiat currency that can be spent over the internet (as opposed to gold and silver coins, which are only useful person-to-person.)

  19. Frederick Thomas says:

    Gary says Bitcoin has gone “splat” but what does he really mean? Is he trying to say that it no longer has a use to transfer value? Is he saying that it is broken as a system?

    Sadly, this is all Gary can come up with as an argument against Bitcoin. He can offer no insight into how it works, has never used it himself, and is profoundly ignorant in respect of anything to do with computers.

    Bitcoin will have a value and a use as long as its price is not zero. The first ever Bitcoin purchase was for a pizza; ten thousand Bitcoins were paid for it. There will be many more purchases of goods with Bitcoin, and they all have the same utility, no matter what a chart of its value says.

    This is the breakthrough and sea change that Gary North and his cohort in the imperial army of ignorance cannot see.

  20. You call Gary ignorant, yet ignorantly declare that he has not put forth a complete argument detailing its workings. You also are ignorant of the dozen + articles Gary has written about bitcoin. Gary has provided very deep economic analysis about bitcoins.

    You are the ignorant fool here.

  21. desi erasmus says:

    FOR THOSE WHO THINK "BITCOIN" IS ONLY "ABOUT MONEY":
    "One of the interesting things about Bitcoin is the contrast between how it is portrayed in the press and how it is understood by technologists. The press tends to portray Bitcoin as either a speculative bubble or a scheme for supporting criminal activity. In Silicon Valley, by contrast, Bitcoin is generally viewed as a profound technological breakthrough." – Chris Dixon
    Hopefully the discussion about BTC will turn increasingly to the other functions the BTC record-keeping system can serve beyond simple payments, e.g., the ones my eldest son recently brought to my attention: http://www.youtube.com/watch?v=mD4L7xDNCmA
    There are already some working prototypes for recording "proof of existence" for documents at a point in time: http://www.proofofexistence.com/
    Challenging the state-enabling fiat money magicians is only one of many ways to exploit this "no-trust" public record archiving concept, and in the end, perhaps not the most interesting.
    For a deeper dive into the reasons for interest in this invention beyond its potential for challenging the state-enabling fiat money magicians, see: http://cdixon.org/

    I appreciate much of what North has done, but he is out of his depth in discussing BTC. His comments are reminiscent of a fifteenth century member of the scribal guild dismissing the introduction of Gutenberg's printing technology as a "passing fad".

  22. At the end of the day…gold is still most stable

  23. Frederick Thomas says:

    I have read every article written by North on Bitcoin, and they all demonstrate that he does not have a clue about it or how it works. His articles also demonstrate that he leaves out readily available information that is not supportive of his false claims.

    I do not use the word “ignorant” as a pejorative; I simply state facts. Gary North is ignorant about what Bitcoin is and how it works. He cannot assess it because he does not have the required knowledge I also suspect that he is something of a coward, because he refuses to try Bitcoin himself. There are many people like this, who are nervous of computers and who do not like them. They deserve our sympathy.

  24. Potawatomi13 says:

    I have to wonder if chinas not cutting itself out of a market it's going to regret or have to buck against before long. This does NOT seem to be in accord with their "progressive/aggressive/capitalist" way of attacking the worlds monetary supply in every possible way.

  25. Potawatomi13 says:

    I suspect that he as would I be much more likely to admit our error than an arrogant North has been.

  26. Yep, it certainly is, and NOBODY has been suggesting anyone put their life savings in BtC. It's still an experiment, and it's still VERY volatile. But you can't spend gold across the internet, and the government won't let you set up a system to do that, so you're stuck using SOME fiat system. I'd rather use a fiat system that can't be artificially inflated by the money masters.

    BTW, Bitcoin is back up to $650 this morning after not quite dropping to $500 yesterday. Which, I will point out, is 2.5 times the previous PEAK back in April.

  27. $700

  28. "Overstock.com To Accept Bitcoins; CEO Says ‘Money Is Too Important To Leave In The Hands Of Government Officials’" http://blogs.marketwatch.com/thetell/2013/12/19/o

    What was that again about not being able to buy anything with BitCoin?

    (That was just the latest company to accept BtC that crossed my computer. You can buy virtually anything with BtC.)

  29. I have just made an initial investment in a Bitcoin package…Hopefully it will tell me all the things that I need to know about it before I invest in it..I like the idea of countries not being able to corral the entire market such as in silver and gold…However, I see a different kind of fallacy with Bitcoin..is an EMP attack..but EVERY type of transaction will be on it's knees after this one..In that scenario, not only will regular currency or silver or gold, would be at risk, but the entire nation would be too. Other problems with it have been already addressed above…It will go up and down like any other kind of stock…just sell and buy at the right times, and you should do well…:>))

  30. The author clearly doesn't like BTC and continues to recommend avoiding them and predicting their doom. But like most economists, he is dead wrong. Milton Friedman noted that most economists can explain the past, but only a few great economist can explain what will happen in the future. The author is clearly not a great economist. BTC is clearly being used as a money source today and its acceptance is growing at an extremely rapid rate. You can buy nearly anything with BTC today, and will be able to buy more things with BTC tomorrow. People in many places in the world are getting paid for their labor in BTC.

    Part of the lure of BTC is the fact that it is NOT controlled by a centralized bank, so a centralized government cannot arbitrarily change monetary policy for its political purposes and thus create mal-investment in the market. BTC is NOT at the mercy of a centralized bank as the "Tea Party Economist" wrongly concludes. BTC is free marked, it cannot be inflated (i.e., back-hand taxed) by a centralized government. Ironically the "Tea Party Economist" seems to favor a centralized banking system over a free market. I believe the "Tea Party Economist" is giving the Tea Party a bad name.

  31. If you bought in the first place, Gary North did NOT make you anything. If you DIDN'T sell until it Bitcoins DROPPED under $800, ignoring him COST you more than your payout.

  32. $750