Digital Black Friday: First Bitcoin "Depression" Hits

Bitcoin

Much like the New York Stock Exchange, Bitcoin exchanges have suffered from their first massive loss — a virtual “Black Friday”, so to speak. (Source: Google Images)

Some say Bitcoins could make buying illegal drugs easier. However, in reality Bitcoins are far from “untraceable”. (Source: YouTube/Beardo/Dirt Nasty)

Mt. Gox is the world’s largest bitcoin exchange, but it’s suffered from major liquidity issues in recent weeks. The recent massive inflationary drop is also a sign of poor controls at the exchange.

Currency experiences massive inflation in a single day, markets stay open

The day was October 28, 1929 and the sky was falling. That Monday the DOW Jones Industrial Average (DJIA) fell 12.82 percent. History books show that the next day the DJIA bled another 11.73 percent. Vast amounts of wealth were wiped out in an instant.

Today modern exchanges automatically close to prevent such catastrophic sell offs. Or, they do in the real world, at least. But on June 10, a new kind of market — Bitcoins suffered a massive decline, that may signal the start of the world’s first digital depression.

I. A 30 Percent Decline in One Day

This Friday the New York Stock Exchange (NYSE) was hammered, losing 172.45 points (approximately a 1.4 percent dip) to close below 12,000 for the first time since March 18, 2011 — nearly three months ago. Traders greeted signs of slowdowns in global markets with serious concern.

But as bad a day as Friday was for NYSE traders, it was far worse for those who invested in an increasingly popular digital currency — Bitcoins (BTC). At the opening bell at Mt. Gox, the world’s largest Bitcoin exchange, a single BTC cost $28.919 USD. By mid-day that total had plunged to $20.01 USD — a drop of 30.8 percent.

Granted, in recent weeks the market for Bitcoins has soared upwards, nearly tripling, due to increased demand and built in technical issues. So perhaps this inflation was merely reactionary. Nonetheless, it took many by surprise, as inflation on this scale had never before been seen in the fledgling Bitcoin market.

But, wait let’s not get ahead of ourselves. Why should anyone care if the Bitcoin market crashed?

Well, today on Mt. Gox alone, approximately $2M USD in Bitcoins were bought and sold in 5,871 trades. That’s unusual in and of itself — only a total of $19M USD in trading volume occurred over the past six months.

The bottom line is that several things are clear from today’s trading.

1. The Bitcoin market endured its first digital equivalent of a “bank rush” with people rushing to exchange their BTC for U.S. Dollars.

2. People have a large amount of money — millions of USD sunk into Bitcoins lost big in the flash crash.

3. Unlike modern markets, which automatically close to prevent massive inflation, the digital Bitcoin markets stayed open.

4. Something major is moving the Bitcoin market in a sharp inflationary direction, in contrast to the predict deflationary trend

So what are Bitcoins and why is this intriguing? Let’s take a look.

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