For anyone who bought Bitcoins at the top at $1200 in December, he has suffered a 73% loss if he bought from Mt. Gox, the largest American exchange.
If he bought Bitcoins from one of the competitors, he is down by about 48%.
Bitcoins are wildly volatile, as I have warned repeatedly. This is why they are not money. They are crap-shoot investments for people who do not understand either monetary theory or the huge risks of a new, untried technology.
The Bitcoins market is a shambles. The hype is now gone. Economic reality has intruded. Once this happens to an investment that was pumped up by hype, it is hard for it to recover. “Once bitten, twice shy.” The response of potential new investors — the much needed greater fools — is this: “I remember what happened last time. I think I’ll pass.”
Bitcoins are not gold, with 4,000 years of monetary history behind it. Bitcoins are the recent invention of a Japanese programmer who may not even exist.
Bitcoins are for people who are speculators. They are not for people who are looking for a way to get access to an alternative currency. Bitcoins are surely not for older people with substantial capital to preserve who are looking for an alternative to gold or silver. Bitcoins are not for anyone who wants to be able to get his money back from an exchange that goes belly-up for a technical reason. If Bitcoins are for anyone, they are for kids who can recover from investment mistakes because they are young.
There is money to be made in Bitcoins. There is also money to be lost. But what you are losing or gaining is money — dollars. Dollars are money. Bitcoins are not money.
Anyone who bought bitcoins on the basis that bitcoins are money, or will soon become money, bought a dream. The dream has now turned into a nightmare.
Some poor guy blogging at the Washington Post wrote this on February 4: These four charts suggest that Bitcoin will stabilize in the future. He assured us: “In recent weeks, something interesting has happened to the price of Bitcoins: It hasn’t changed very much. In December, Bitcoin prices gyrated wildly, but since the start of the year it’s gradually gotten less volatile.” The price of Bitcoins collapsed within a week. He assured us: “That volatility mostly reflects the currency’s rapid growth, not something inherent in the technology.” On the contrary, a technical flaw is why the price collapsed at Mt. Gox. He assured us: “If Bitcoin keeps growing, it won’t be long before the currency is so widely known and used that there’s little room for further growth.” In short, Real Soon Now. The blogger is a self-identified expert in technology. He is young. He did not have much to lose. Maybe you do.
For my articles warning against Bitcoins, click the link. (The response may be slow. Be patient.)