its "kim jong un" now. and he can play with nuclear toys.

Everyone is mightily impressed!

http://25.media.tumblr.com/43fd4de8753b6f67f9c258653faaf85e/tumblr_mkfreha74x1r8asibo1_500.jpg

If those who sold coins during the bubble popping episode were stimulated into buying their coins back we'd get quite a distance towards a 500 usd evaluation without any other particular event happening.

They will possibly be stimulated by a lack of additional crashes

Which other potential disruptive and already established technologies can you invest in as an ordinary internet user these days?

If you compare bitcoins with a fledgeling tech startup its an incredible success. The evaluation is artificially depressed through some external forces. (Possibly early adopters with a few too many coins still?)

Bitcoins do is in some sense provide a chance at buying facebook shares in 2005, or Google shares in 1999, before anyone really knew what was going to happen. But bitcoins are also a rarely potent technology. The real question is why you would be selling, desperate for fast cash or highly risk averse perhaps?

The only way to achieve stability is through a higher exchange rate. At low rates it is far too cheap to push the price around.

Its worth to keep in mind that anyone who invests in better infrastructure tech for bitcoins will do so with the ambition to get a solid ROI. This return will come from trading volume measured in fiat.

This type of project is a big investment, so before we can expect better infrastructure we need to see a much higher BTC price, or people will need to increase the frequency of trading by magnitudes. While the price is low the best we can hope for is small incremental improvements and that will take its time to make a noticeable change.

Low BTC price leads to bad infrastructure

High BTC price leads to good infrastructure

These relationships have a direction. Anyone building a good infrastructure now will possibly influence the BTC price a bit but not as reliably as a high BTC price will lead to a better IF.

The solution to this pattern is to always both buy and sell. Doing so will maintain the schroedinger pseudostate and also thwart murphys law. The only problem is that you will also cut your risk level.

The most likely execution order is the one which leaves you with the greatest possible loss. Unless you are the one orchestrating events.  ^^

This also means that the most profitable action is to either use another exchange or wait until the spasms end and regroup at whatever level that is. The panic-sells always bounce at a much lower level than they stabilize at. (This deep bounce is induced by people who sell blindly during the fall, which is practically everyone except the orchestrator.)

The only way to achieve this goal is to forever suppress the market value of the coins. Greedy people with no better purpose than looking for easy money will always try to get in if there is a profitable trend going. This popped bubble provided a painful experience for a microscopic portion of all the greedy people on the internet. Next time the value starts climbing a new crowd will take their place.

We can also look at this argument as one which concludes that the greedy people are needed, otherwise the bitcoin system will stay just where it is and fail to be adopted wider. It looks quite much like someone is trying to suppress the value of the coins right now... Eventually this will run out of steam and the greedy crowd will come running in.

With over 60 votes we got some numbers to plug in.

The poll seems to guesstimate that we have about 20k people who would consider themselves damaged from the bubble bursting. This is a higly unreliable number but its safe to say its likely correct within an order of magnitude. The truth lies between 2000 and 200000. We should probably nudge it up to 50k for good measure.

We can figure out the total volume of trade by integrating the volume bars for the last 4 days. Counting only mtgox and usd we get about $200M in volume. The total volume is probably about twice that.

It's unlikely that all of this volume would be considered losses either, we can estimate half to be.

This has us with about 50k people sharing the cost which in total appears to be about $100M. Then there is some sort of standard distribution across these 50k people which should leave the majority of them taking insignificant losses and a few carrying the weight.

All in all, this is TINY gimpass bubble compared to anything previously called a bubble. Its more akin to a poorly managed construction project.

Let's pray the shaking has managed to spread the coins out so the biggest wallets are smaller than before the crash. Sadly enough I doubt this is the case. :|

I see a rather surprizing number of votes for the 100k - 0.5M range.

What kind of a calculation would reasonably lead to this huge number?

I don't see any of the competitors having much of a chance at disrupting the natural monopoly that mtgox is sitting with. Competitors would need to significantly step up their marketing costs to begin eating market share.

As someone noted all the other exchanges failed when they tried handling the trades which fled gox when it shut down.

To compete with gox you are attacking a defensive market incumbent. You need a factor 7 of funding of the incumbent to have a decent shot at winning. None of the other exchanges is currently close at having such resources. The best they can do is to attack as an underdog and try pick off accounts from gox at a slow pace. Will take years for such a transition at best.

I would guess that the majority of people who wanted to hop on to ride the bubble never managed to get their fiat online at gox in time. The bubble burst while their accounts were being reviewed and then while their cash was in transit.

Now what we need is for institutional investors to gtfo and instead have ordinary people pick up handfulls of coins instead. One of the greatest risks for the whole bitcoin system is to have some small number of people sitting on large positions. Bitcoin needs to get rid of the big players, they will treat the system as a toy.

I have seen a couple of fun graphs which try to plot wallet sizes against the number of wallets. I doubt their reliability though as they showed a cutoff with the top 1% of all wallets containing more than about 120 coins. And a totally huge number of wallets at less than 1 coin (more than half of all addresses from what I recall).

Perhaps someone knows more about digging these statistics up from the blockchain, i'll give it a try but I doubt i'll succeed.

This is where the evaluation of each bitcoin has a very big impact on what to expect.

Before our little bubble popped we were heading into this territory with speed. If the coin would stabilize at 1k usd we got plenty of motive for huge infrastructure projects. But now as the price is down a chunk it does not really make sense unless you primarily make the investment as a charitable deed or with great faith that you will change the market fundamentals with your project (typically something big VC's never want to try).

A wonky side effect from this is that it becomes good business strategy for mtgox to destabilize the whole bitcoin system. Statistically it should be impossible for them to make the transition from small scale to big scale. They can maybe get to a point which is a factor 10 better than the current one but small chance they can do the factor 1000 needed for bitcoin to take market share from VISA, PayPal and the rest. As long as bitcoin is small potatoes mtgox is safe with a natural monopoly. They should be interested in protecting their market share, even at the cost of reducing the future potential of bitcoin on the whole. If they allow the price to climb above 1k usd they invite their own doom, why take that risk when you can keep on picking up safe profits from a small niche bussiness?

The technology outside the exchanges is also important, but in practice I can not imagine a path where the adoption of bitcoin increases without its price also increasing. From my noobish point of view on bitcoin I can only really detect the exchanges as the expensive development project. Eventually once adoption grows there will be further incentives for auxilary services but these should be much cheaper projects...

Market cap at peak should be between 2 and 3 billion usd (260usd * 11M bitcoins).

Current market cap will be around 0.8 billion usd (77usd * 11M bitcoins)

This does not however reflect the actual value of the system, but I don't know if it can be calculated any other way...

Is it really irrelevant?

I'll have to defend its relevancy somehow as we are currently looking at speculating about the consequences of a burst bubble.

Consider the case that there was only one single individual who bought all of the "profitless" bitcoins and then this person failed to sell any of them at a profit. This hypothesis has a single loser and everyone else is a "winner". If this hypothesis was to be true (in our fantasy world) then the emotional consequences of a burst bubble should be close enough to zero to matter at all. In this case the system has in practice been sponsored towards greater success in the future.

In the opposit case we have a quite more significant emotional impact. Imagine the case that only one rich person had possession of all bitcoins except for those that were bought at more than 70 usd. Then this rich person is the only individual who manages to sell any coin at a profit during the bubble burst. In this case we have quite a significant emotional impact from the bubble and it will be quite a challenge to recover some semblance of faith in the bitcoin system as a whole. It would be really hard to consider bitcoin a viable technological innovation in the future.


Reality will be found somewhere between these extremes. It should however be leaning towards one or the other extremes and the impact should adjust with the position along this imaginary axis.

We can surely expect several months of creaking infrastructure. The type of project that can provide a substantially better IS would typically be a multi-year development project. Given the hotness of bitcoin I would guess there is going to be fierce competition for being the first noticeably better exchange and with competition comes efficiency enough to possibly cut out the common delays.

The greatest barrier for success here is credibility and trust. Whoever aims to beat mtgox at their own game will need lots of transparency. Who is the owner? Who are on the board? How much funding do they have? How do you use their API's? How is your money insured once at their exchange? etc...

All these requirements pile up, you'll need a seriously big budget. Hundreds of millions of usd. If you try it with less you can at best take a small market share and then you will need to spend several years with small scale operations to slowly climb up towards meeting your goals of actually improving the bitcoin ecosystem.

The graph at: http://blockchain.info/charts/n-unique-addresses
Shows us that the total number of wallets which have had transactions during a single day peaks at about 100k. Now I have no idea if the transactions which result from a trade at mtgox is witten to the blockchain but i would guess that it is. (occams razor argument)

If we take this chart to its biggest extreme we can integrate the number of wallets and consider each of them to represent a single individual. If this was the case we would find roughly 1M people involved with trades over the last 15 days.

If every wallet which has been involved in any trade within the blockchain the last 15 days represent a person who has payed more than 70 usd on average for bitcoins and also failed to sell them at a profit then we would be looking at a total of 1M punished individuals.

Now if we filter this hypothesis through some sort of reality we might get closer to a decent estimate. ^^

Actually this current price (about 75 usd) was an all time high about 15 days ago. That's even half a month...

Compare this with the housing bubble that popped in my home town around 1994, that bubble popped down to what was an all time high perhaps a decade back in time. If you got 10 years of bubble growth to sucker in the market for experiencing the losses you got quite a different case than when you got a couple of weeks. But we live in different times...