March 2, the Mt. Gox chart shows a price fall from about $34.80 to $33.15. During this selloff, 22,000 BTC or 6.1 of the BTC supply were sold in one hour. That’s about $748,000 sold off in one hour moved the price 4.75%. Are these the signs of weakness in the underlying Bitcoin price. While any investor will tell you that what comes up must come down, most mainstream investors, when discussing Bitcoin, cite this as a reason to stay away from BTC. But, BTC is much more than a mere speculative instrument. Rather, it is also a transactional unit. So, weakness in the price should not scary anyone off, unless you are overbought and speculating your life away. This is something that was experienced with silver purchasers in April 2011. Those unfortunate souls were dubbed the “49ers.” Here is what silver blogger Silver Vigilante wrote of the waterfall in silver and the ultimate devastation:
The silver market has been battered by the psychological warfare of command-and-control economics. This economic warfare has been psychologically exhausting for the silver investor as silver remains a no-news market with short-term bearish price movements. Over the last year, however, the silver investor has become hardened or acclimated to a market without new buyers or new sellers and little legitimate price action. Instead, they’ve watched as banks colloquially known as “commercial hedgers” bluff a long, long position in physical silver with shorts exceeding three-times the yearly supply at any given time. What’s likely is these banks do not own any a position of physical silver anywhere near this amount.
For the 49er (those who bought silver in the 40s), who entered into the market in March-April of 2011, the price of silver has been a source of discomfort if not inner-turmoil. Retail bullion shops across the country started to provide services outside their previous jurisdiction of bullion slinging, working for several weeks after the May Drive-By Shooting as therapists and counselors. That price action in the Spring of 2011 was such to entice a whole new breed of silver investors – the 49er – into the market, only to subsequently discourage them and break their confidence that, perhaps this once, they made the correct investment decision.
While Bitcoiners have experienced similar destruction in their market, with the market metastasizing, there is one phenom that has not fully realized itself in the Bitcoin price – price management. Currently, the mechanisms are not in place for major bankers or individuals or organizations to manipulate the price of Bitcoin, but one can imagine that there is some interest in doing so. Silver Vigilante touched on this this weekend in regards to CoinLabs’ creative innovations:
You think Bitcoin price above silver price has not been acknowledged by High Finance? It’s likely, contrarily, they know what’s going on, and they are not pleased with this new p2p currency stealing headlines, allowing the entire world to ignore fiat in real time, now, today. Nothing short of a 51% attack on the network can allow them to control the price. The dominant financial system must protect itself from $100 Bitcoin prices as large-scale investors move into the market. Marketing this new advent as a bank, the place to store your Bitcoin, the Bitcoin community has to acknowledge that the Powers That Be will need a mechanism (bank/exchange) to control our beloved BTC price.
But, Bitcoiners scantily need a reminder of The Powers That Be, as based on a demographics survey recently conducted by Spacedruid, the demographics of Bitcoin look like this:
- 31.7 year old libertarians/anarcho-capitalist (although 30%
- top motivations are curiosity, profit and politics
As a savvy bunch, Bitcoiners realize the strengths, and perhaps, the weaknesses of their p2p file. The interesting part is that, while living outside of the dominant financial system, Bitcoin exchanges, where Bitcoiners store their value online in hot wallets, have been victimized by fraud. Those storing their wallets in cold storage mediums have not had so much to worry about. As with any form of freedom, a great deal of responsibility is quite important to the equation. However, one possibility that many have not swallowed, is the eventually entrance of control mechanisms into the price of Bitcoin. As Murray Rothbard said: “government is powerless to create money for the economy; it can only be developed by the processes of the free market.” But, at the same time:
“Money…is the nerve center of the economic system. If, therefore, the state is able to gain unquestioned control over the unit of all accounts, the state will then be in a position to dominate the entire economic system, and the whole society.”
The Powers That Be cannot come up with cashless payment solutions and brandish them as a safer, mainstream Bitcoin. The Bitcoin community does not like strings attached. So, whatever you Silicon Valley brains are up to, it will likely be rejected by the future as humanity moves towards a more elastic, freer payment model.
The problem with Bitcoin, for power, is that it is a private solution to public transactions – generally, two parties, not kin, enter into an arrangement. Always, unless you use BTC or cash, there is a third party watching over you. Even if its cash, that cash theoretically has a trail. The current dominant financial system is a public solution to public transactions, and everything is out in the open. States since the turn of the nineteenth century have been doing what they can to break down the barrier between public and private society, to make them one. That is what the credit and debit cards have done. No matter how small or personal your transaction, its noted. Bitcoin is such a strong solution because of its personal nature.
So, it is a threat. And legitimizing this threat would be the emergence of a mechanism to control the price. If the price begins to appear to be managed, like silver, Bitcoiners can take this as a backhanded compliment.