Bitcoin Bolt

We’ve hypothesized about bitcoin’s volatility for a while now as we saw Mt. Gox account verification queues climbing to more than 20K, luxury automobiles purchased with bitcoin, and a series of other link bait articles. It was time to empirically test what was really driving bitcoin’s erratic prices.

Hype-Driven Speculators

While we won’t jump to assume causality, we will point out the 0.85 correlation coefficient between bitcoin price volatility and expressions of global interest in bitcoin.

We constructed this chart by mapping the frequency of global searches for ‘bitcoin’ on google vs. the volatility of bitcoin prices. Since google trend data is represented out of a maximum popularity of 100, we mapped average volatility same way – relative to the day with the maximum volatility. In these graphs, volatility is measured by finding the difference between the maximum and minimum price per hour and then the average of those hourly differences over the course of each day.

It appears the articles lambasting bitcoin for it’s volatility may have actually been contributing to a vicious cycle of… more volatility. As news coverage drove unfamiliar speculators into the market, the price continued to rise and interest continued to grow. That is, of course, until fear of loss from a product most still don’t understand drove people out of the currency en masse when prices began to slide, exacerbating the pullbacks. As press coverage waned and the short term speculators left, volatility began to subside.

Do Not Confuse Volatility With Price

We charted price onto the same graph. As you can see below, once hype-driven interest in bitcoin subsided and volatility decreased, confidence returned and the price began to steadily increase before stabilizing around 60% of it’s peak value. Arguably the best thing that’s happened to bitcoin in the past month is that people stopped talking about bitcoin.

The post The Chart That Should Surprise No One: Bitcoin Volatility vs. Search Popularity appeared first on The Genesis Block.

To those of us who have been with Bitcoin long enough to have seen the great bubble of 2011, what is perhaps the most suprising about the aftermath of this crash is just how similar it is to the previous. In the run-up to June 9, it seemed as though everything was going well for Bitcoin. There was some negative media attention regarding Silk Road, but even there many of the articles were positive, detailing the potential of the website rather than fearing governmental attack. Around June 3, prices started rising super-exponentially increasing from $10 to $30 in less than a week. After the crash on June 9, however, everything seemed to go wrong at the same time. Half a dozen major Bitcoin services were hacked all at once, MtGox went down for nearly a week, and media attention quickly turned sour as a result.

This time, the situation is similar. During the three days during which the Bitcoin price fell from $266 to $60, nearly every Bitcoin exchange was subject to heavy stress, with MtGox being inaccessible for ten hours and BitStamp, BitFloor and BTC-E for one to three. Three Bitcoin exchanges saw their bank accounts closed for legal reasons, and Bitcoin Central lost several hundred BTC in a hack. Bitcoin’s critics, who had remained strangely silent while the currency was still going up to its new all-time high, came out of the woodworks to criticize the currency as soon as the price started falling on April 10. Google Trends volume, after seeing a new all-time high, is now once again back to the same levels that it saw in mid-March.

However, there are also signs of hope. Unlike after the previous crash, dozens of new businesses have started accepting Bitcoin, and many columnists even came out to defend Bitcoin, or at the very least the idea of cryptocurrency more generally. News reports of venture capital investors being interested in Bitcoin are only continuing to increase in number. It’s a claim repeated often both here and elsewhere that there is simply no way to tell where Bitcoin will go from here; for now, perhaps it’s best to simply enjoy the ride.

Bubble and Crash

• The Bitcoin price struck a new all-time high of $266.00 on April 10, 2011, before falling back to a low of $54.25 on April 12 and $50.01 on April 16 and recovering to $120-$140 by the end of the month.
• Trade volume hit an all-time high even if denominated in BTC, breaking the November 2011 record of 382,186 BTC with two spikes of 556,289 BTC and 572,185 BTC on April 12 and 16, respectively. The USD-denominated daily volume record was on April 12, at a total of $47.6 million.
• The Google Trends volume set a new high at nearly 4 times June 2011 levels, before quickly falling back down to slightly above the June 2011 peak by the end of the month.
• The number of transactions excluding popular addresses a metric used by blockchain.info to measure Bitcoin transaction activity not including very heavy blockchain-using applications like SatoshiDice, hit a new high of 50,338 on April 11. Other metrics stayed roughly stagnant from March.
• Alternative cryptocurrency Litecoin hit an all-time high of $5.89 USD before falling back to about $4, and Ripple’s internal currency XRP hit a high of 0.72 cents. Note that both of these currencies will have a larger number of currency units in circulation than Bitcoin; Litecoin’s final money supply will be 84 million, and the XRP 100 billion, compared to Bitcoin’s 21 million.

Growth from the Inside

• The popular Bitcoin electronics retailer BitcoinStore sold 2184 BTC (~$300,000) worth of products in the month of April, putting them roughly on target to hit their goal of $850,000 by June 30.
• The popular Bitcoin payment processor BitPay announced that they have passed 5,000 merchants.
• Amagi Metals, a precious metals seller that started accepting Bitcoin at the end of last year, announced that they have sold over $750,000 worth of products between April 1 and April 26, including a record of over $220,000 in a single day.
• For the first time, another country briefly overtook the United States with the largest number of downloads for the Bitcoin-Qt client. The country in question: China. China has also seen trade volume on its exchanges increase by a factor of thirty these past four months, compared to a 10x increase for MtGox.
• Butterfly Labs finally began shipping their long-awaited ASIC mining hardware. Although power consumption turned out to be roughly six times higher than originally planned, and physical weight and volume two times greater, the devices are still somewhat more efficient, and much cheaper, than those offered by Avalon.
• “The Daily Bitcoin“, a new daily podcast discussing issues from all sides of the Bitcoin ecosystem, started releasing episodes.

…And From the Outside

• The popular online dating site OkCupid has started accepting Bitcoin as payment for its premium “A-List” service, offering special features somewhat similar to Reddit Gold. A major Danish dating site, singles.dk, quickly followed suit.
• The popular softcore-porn site MetArt started accepting Bitcoin (link safe) along with its siter sites.
• PayPal’s chief director David Marcus stated on TV that PayPal was considering integrating Bitcoin as a funding option. Western Union and MoneyGram also expressed interest in the currency.
• The Libertarian Party of Canada started accepting Bitcoin donations, and a potential Libertarian Party candidate for the 2016 election in the United States announced that he would only be accepting precious metals, Bitcoin and Litecoin donations.
• Salon Supply Store and IWannaBuy became the first retailers in South Africa and China, respectively, to accept Bitcoin.
• The One Foundation became the first Chinese charity to accept Bitcoin donations, receiving $30,000 within two days. Two local US charities, the homeless outreach group Sean’s Outpost and Bitcoins for Boston, started taking bitcoins as well.
• The Pirate Bay started accepting Bitcoin donations, placing a Bitcoin address on their front page and raising over 14 BTC ($1,800) in the week following the initial announcement. Other torrent sites have quickly followed suit, although with less success due to their comparatively lower popularity.

Scandals And Hacks

• Bitcoin mining malware was detected spreading through Skype, and plain old Bitcoin stealing malware also became increasingly prevalent.
• In the aftermath of the April 10 crash, nearly all major exchanges were overwhelmed by massive spikes in usage combined with multiple denial-of-service attacks. Bitcoin exchanges are still in the process of upgrading their systems to be able to handle the new volume.
• The Bitcoin exchange BitFloor saw its bank account closed down, leading founder Roman Shtylman to close the exchange for good and start returning deposits. Cavirtex and CADBitcoin in Canada also saw their accounts closed down, although the other major Canadian exchange, LibertyBit, remains confident that they are “in full compliance with Canadian laws” and a bank account closure is unlikely to happen to them.
• The European Bitcoin exchange Bitcoin24 saw its Polish bank account closed, and its owner under suspicion by German financial authorities for embezzling clients’ funds for personal use.
• The Bitcoin wallet provider Instawallet, which offered the easy to use but very insecure scheme of using a URL as a sort of “password” to its wallets, saw these URLs leaked in a database breach, and the attackers immediately proceeded to clean out Instawallet users’ funds.
• Bitcoin Central was hacked through its VPS provider OVH, leading to “a few hundred BTC” of losses. The site is shutting down until what its owners expect to be some time this summer to upgrade their security systems.
• The Bitcoin and Tor-based “anonymous market” Silk Road fell under two consecutive DDoS attacks, and was taken offline for a total of roughly four days. However, in both cases administrator Dread Pirate Roberts was able to bring the site back online, declaring a sale to celebrate the first of the two victories.

The post Bitcoin: April in Review appeared first on Bitcoin Magazine.