Bitcoin is on Sale

Bitcoin dropped below $500 for the first time since November, when its price had jumped above $1200. I’ve repeatedly kicked myself for saying “I’m going to wait for the price of Bitcoin to come down before buying” only to see it skyrocket shortly after. If you’ve been thinking the same thing, well, here’s your shot.

For the record, I’m not holding much in the way of Bitcoin, I have less than $100 in my Bitcoin wallet. This is not an attempt to drive up the value of my asset.

I know what you’re thinking… “But Chris! The price has dropped because Mt. Gox got hacked! Bitcoin is insecure and will never recover! This pump and dump scheme is coming to an end!”

bitcoindownIt’s important to understand that Bitcoin was not hacked, Mt. Gox was. I cannot stress this enough. There have been numerous hacks surrounding Bitcoin that were widely reported, and the two most well known hacks were at Mt. Gox. To date, there has not been a single reported hack of the Bitcoin protocol, and if there was, it wouldn’t be trading for $512.33 at this very second.

The difference between Mt. Gox getting hacked and Bitcoin being hacked is as significant as the difference between your house getting robbed, and the dollar being hyperinflated out of existence.

Let us pretend that you kept a large some of gold and silver in a safe inside your closet. It’s a top of the line safe, you paid a lot of money for it, you had it professionally bolted to the floor. Your house has steel doors, high security locks, bars on the windows, and a rottweiler inside that’s been fed a steady diet of gunpowder.

safecrackerStill though, thieves knew where the gold was, and they used a powerful saw to cut a hole in one of your walls. They gave your dog a biscuit and he became their best friend. They used a sledgehammer to break up the concrete under your safe, which allowed them to remove it from the premises, and now they have plenty of time to work on the safe itself from the privacy of their safe house.

If you had enough gold and silver, this may or may not effect the market price of precious metals, but the precious metals themselves have not changed. They are not any more or less secure than they were the day before. The problem is not the precious metals, the problem is sophisticated criminals, and physics.

The same thing goes for the Mt. Gox hack. In this analogy, Mt. Gox was the house your safe was in, and your Bitcoin wallet on Mt. Gox was the safe. Once the house had been breached, it was only a matter of time before the safe was opened. Had your Bitcoins been stored at, Bitstamp, or any number of other “houses”, you would not have lost any Bitcoins.

money_to_burnIf Bitcoin itself had been hacked, we would be talking about a situation more like hyperinflation in the¬†Weimar Republic. Though for different reasons, Bitcoin would become worthless overnight if the protocol itself had been hacked. At least in Weimar, you could burn your paper money for warmth, but Bitcoin can’t even do that, so you would basically be shit out of luck in that case. Of course, nobody can make more Bitcoins, so it wouldn’t be hyperinflation per se, a situation where the currency loses value because there is too much of it, but the effect would essentially be the same in that your currency would lose all of its value, because any inherent security flaw in the currency would make it useless as a barter tool.

I’m not trying to tell you that the Mt. Gox hack doesn’t matter of course. No matter where your Bitcoins were held, the market panic that ensued after the hack caused the exchange rate to plummet, and so your Bitcoin assets, if sold today would sell for considerably less. On the other hand, Bitcoin was a volatile market from day 1, and you should have been expecting things like this to happen. After all, the price of Bitcoin has increased $26.05 since I began writing this article.

When Bitcoin went up over $1200, it was an obvious speculative bubble reminiscent of Tulip Mania, and so smart people began to sell their Bitcoins. Right now, it is at $539, a price drop due to a market panic, and the exact opposite is true.


Christopher Cantwell comedian, writer, voice artist, and Patriot.

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