Bitcoin fans put brave face on price fall from $266 to $54, taking it back to its level before a surge in internet and media interest that began in late March

April 12, 2013 7:41 pm

Bitcoin fans put brave face on price fall

By Stephen Foley in New York

Adherents of the virtual currency Bitcoin are picking up the pieces after their holdings collapsed in price, and vowing to continue growing the Bitcoin economy despite the volatility and illiquidity bedevilling activity.

The price of a single Bitcoin peaked at $266 on Wednesday, double its price a week earlier, and then slumped to a low of $54 on Friday. That takes it back to its level before a surge in internet and media interest that began in late March.

The price collapse hit not just speculators but also merchants who sold goods or services for Bitcoin at the peak.

Tony Gallippi, founder of Bitpay, which processes transactions for merchants, said about half his customers keep their income in Bitcoins, rather than immediately cashing out, and so would have lost money on transactions. Bitpay’s 5,000 merchants include gold and silver exhanges, electronics businesses and even a car dealer.“The problem is that people are trying transactions that are bigger than Bitcoin can handle,” Mr Gallippi said of the price volatility. “Long term, the price will rise to reflect the size of trades that people want to do with it.”

Bitcoin was created four years ago by an unknown computer scientist and the limited stock of “coins” grows according to a predetermined algorithm. The value of the total stock of coins peaked at $2.6bn and has fallen to below $1bn.

Untethered to any real asset, the price is determined only by trading on exchanges around the world, the largest of which, Mt Gox, was out of action because of technical problems for most of Thursday, a development that further exacerbated the sell-off.

Bitcoin halved in value on other exchanges after Mt Gox posted a message on its website saying: “Orders will not be accepted for the moment as we need to upgrade our database to accommodate the trading volume.”

The question now is whether merchants and Bitcoin users abandon the nascent economy because of the volatility.

Jon Matonis, secretary of the Bitcoin Foundation, which guards the open-source software behind the currency, said derivative products and hedging tools will be needed to stabilise the Bitcoin economy and to improve price discovery and the liquidity of exchanges where Bitcoin can be swapped for real-world currency.

“The amount that is traded on the various exchanges doesn’t represent a lot of the Bitcoins outstanding,” Mr Matonis said. “Even a 1 Bitcoin trade can move the price.”

Jennifer Longson, whose Cups and Cakes Bakery in San Francisco boasted of being the first cupcake shop to accept Bitcoins last October, is sticking by the currency. It represents a tiny proportion of her business – she makes Bitcoin sales at a rate of four a week, usually to “tech-oriented guys in their 20s and 30s” – and she has never cashed in the Bitcoins.

“I am definitely still up on the deal,” she said, “but I don’t consider that as part of my income because it is so volatile.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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