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Why Bitcoin Prices Are Falling – And What That Means

A fresh crisis may be the beginning of the end for Bitcoin exchange Mt. Gox, but the harm to the digital currency itself will be temporary.

Fans of the digital currency woke up Friday trying to figure out why Bitcoin prices are falling after more than a month of relative price stability on the Japan-based exchange.

Long plagued by issues in getting fiat currencies from Mt. Gox accounts to user bank accounts, the exchange in recent days started having trouble transferring bitcoins as well.

To make it easier to pinpoint the problem, Mt. Gox announced it was suspending all bitcoin transfers indefinitely. Title: Why Bitcoin Prices Are Falling

"In order for our team to resolve the withdrawal issue it is necessary to temporarily pause all withdrawal traffic to obtain a clear technical view of the current processes," the Mt. Gox memo said. The site promised an update on the situation Feb. 10 (Monday).

Bitcoin traders reacted predictably be selling heavily not just on Mt. Gox, but on all the other major exchanges, including BitStamp and BTC-e.

On Mt. Gox, where Bitcoin prices had been about $100 higher than on other exchanges, the plunge was the steepest. Bitcoin prices fell from about $830 to $652 in a 10-hour span early Friday.

Bitcoin prices on other exchanges followed suit.

But it didn't take long for bargain hunters to jump in, and prices were back into the mid $700s by Friday afternoon.

While critics spent much of the day declaring (for the umpteenth time) the death of Bitcoin, they're wrong again.

Here's why.

Why Falling Bitcoin Prices Don't Mean Doom

Anyone who has followed the Bitcoin story over the past year knows it has had more than its share of existential crises.

There was the crash in April of last year, when prices rocketed to $266, then plunged to $55. There was the shuttering in October of Silk Road, a website where visitors could buy illicit drugs using Bitcoin. And there was the decision by the Chinese government in December to block transfers of yuan into the busy BTC China exchange.

Each time self-assured critics explained why Bitcoin prices are falling – the whole thing is a bubble and now it's popped. It's over and good riddance.

But each time Bitcoin prices have recovered. More than that, however, is that acceptance of and investment in the digital currency has continued to accelerate. You can spend Bitcoin in more places every day, Bitcoin-based business keep sprouting up.

Bitcoin refuses to die because it's not a bubble or a fad. Bitcoin is something new – both a currency and a form of payment – the potential of which is only starting to be tapped.

Join the conversation. Click here to jump to comments…

  1. James | February 8, 2014

    If people knew how bitcoin was created, they would be horrified. First, there is a central bitcoin body called the "bitcoin reserve board". To mint new bitcoin money out of fresh air, the board issues debt, trading the bitcoin, created literally from nothing, for the debt. Thus, the obligation of the debtor is the only thing backing the new bitcoin. If the debtor defaults, however, the bitcoin still exists! It's horrifying!

    On the other hand, google has begun goo-pay, which is an innovative way to create money from the efforts of contractors. For this process, google has established a network of over 30,000 contractors whose sole purpose it is to ensure the integrity of the transaction system. Each transaction is broadcast over the goo-pay network and all of the contractors update their ledgers so that no one faulty ledger can compromise the integrity of the system. To compensate the contractors, google has created a new corporation for goo-pay and the contractors are paid in goo-pay shares, with which they may do what they like. For example, they can sell these shares on the exchanges or hold them and see if they go up in value. Indeed, with goo-pay, the private sector has outdone the horrible bitcoin concept.

    Oh wait. I described the Federal Reserve Board in the first paragraph and bitcoin in the second. Gotcha!

    • Sam | February 9, 2014

      Hehe, good one :)

      You got me there for a moment. Already thought, what the hell is this guy talking about – Until the last paragraph ;)

  2. Nathan | February 9, 2014

    Dear James, I would really appreciate that you stop airing false information about the bitcoin phenomena. First paragraph where you say bitcoin is traded for debt is totally false. I don't know where did you read that but I can assure that's not the way BTC is created. Anyone can get to realize that by spending 15-20 minutes reading on the topic.

    And how about "horrible bitcoin concept"? It is horrible for you to think that a brand new concept may destabilize the whole bank and transfers spectrum? You also seem to reject BTC but you give publicity to that goo-pay thingy which in concept is kind of the same. Are you a Google or bank employee? Or just a neuroprogrammer trying to manipulate people minds to look away from bitcoins?

    • Iain | February 10, 2014


      If you get a grown-up to read it for you, you will discover that James' article say the opposite of what you assert

    • Jerry | February 21, 2014


      Are you seriously that much of a tool? James was showing the irony of
      Bitcoin vs. the Fed. He was being facetious, not ragging on Bitcoin.

  3. Fred | February 9, 2014


    You sir are a moron just spreading fud. You either sold all your BTC too early or you are just old and anti-crypto currency.

    • WillemZ | February 9, 2014

      Fred, before ranting on somebody's post, please make sure you understand the post or at least read the whole post..

  4. John H | February 10, 2014

    Fred and Nathan, Come on guys try reading the ENTIRE posts before you idiots start running your mouths. Check out the "LAST SENTENCE"

  5. Nathan B | February 14, 2014

    (Note: I'm not the Nathan above)

    You had me too there for a minute James!

    Seriously though, at some point there's bound to be some sort of organised move by the established fiat currency systems (and their advocates) against BTC. I'd be surprised if we weren't seeing these initial moves from China and Canada. Preventing BTC from being used as legal tender will surely stymie it's growth long term, especially if these countries are the first of many. It's about control and BTC devolves that control, I can't see them not trying to squash it at some point.

    How does everyone else think the China and Canada news will shift the scales again BTC long term and do you think it's a thing that will spread, with more countries preventing its use as legal tender?

    • Marc | February 23, 2014

      Do you also think there will be some sort of organized move by the established fiat currency systems against silver gold and platinum?

  6. Anonymoose | March 30, 2014

    James… great post lol. I'm glad I read the responses first so I could actually understand what you were saying. Love the sarcasm

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