Who's to Blame for Bitcoin's Flash Crash and What's Its Real Value?

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Bitcoin’s stunning rise in value in the past month was largely viewed as an unnatural market bubble that would inevitably burst. This is why most observers of yesterday’s bitcoin flash crash were not surprised. If market manipulators were trying to discredit crypto currencies and cause panic among true bitcoin believers, they failed.

Yesterday, bitcoin went from a high of $266 down to a low of $105 before stabilizing at $172 in a single day. Certainly these wild fluctuations will result in some lost confidence in bitcoin which is probably the goal of the obvious market manipulation occurring. So, what happened and who’s responsible for it?

Bitcoins anonymity is a double-edged sword in attempting to determine exactly who is responsible for these shenanigans, but some interesting theories are developing.

The Guardian speculates that the flash crash was initiated by someone with significant bitcoin holdings flooding them out for free. According to Business Insider, a Reddit user named “bitcoinbillionaire” gave away nearly $14,000 worth of bitcoins forcing a test of its value.

Mike Adams of Natural News, who predicted a bitcoin crash hours before it occurred, referred to it as a “calculated stress test”:

The “bitcoin giveaway” that crashed the market today was a calculated stress test to determine the “buoyancy” of the bitcoin market. By injecting a predetermined amount of supply into the market and watching the price reaction, it can easily be calculated how many bitcoins will be required to crash the entire market down to a desired price level, causing a runaway panic.

Adams postulates that the price manipulation from its recent spectacular rise to yesterday’s cliff dive was an orchestrated plot by central bankers to discredit the entire concept of decentralized currencies and, eventually, central bankers will deliver a devastating blow.

It makes sense that bankers would feel threatened by decentralized digital currencies no matter how small of a market share it has in terms of being a competitive currency. And with their bottomless resources, there’s little to stop them from wreaking havoc on bitcoin exchanges.

Or it can simply be wealthy Wall Street gamblers looking to make a profit on an easy market to manipulate. Yet if it is just speculators who are responsible, what do they have to gain by destroying confidence in the exchange?

Again, because of the anonymity in the system, we may never really know who’s responsible for these games. We can only look at the winners and losers when they dust settles and point fingers at shadows.

But the more important question that we should be asking is what is the true value of bitcoins?

Real proponents of bitcoin don’t view it solely as an investment like many of the Johnny-come-latelies do. They value it for what it is, an anonymous currency that cannot be controlled by a central entity and can be used to avoid taxes, capital controls, and high transfer and bank fees. In that respect, it will always have value.

Yes, large holders of bitcoins have proven they can mess with its value relative to dollars or euros, but they will never be able to control the intended peer-to-peer use of bitcoins.

The true value of bitcoins will only surface when people stop comparing them to establishment currencies and start measuring them against real goods and services. In other words, when the bitcoin economy is big enough that vendors don’t need to cash them out for dollars to pay for other necessities, then we will begin to see the real value.

For instance, when I can sell my widgets for bitcoins and use those coins to pay for widget components and my supplier can then use bitcoins to pay his rent or employees, their value in dollars becomes irrelevant.

Although it may seem far fetched now, that day is rapidly approaching when this will be feasible. Remember, bitcoin is less than four years old and there is already an amazing variety of things you can purchase with bitcoins.

The question is whether those who oppose bitcoin will be able to damage its credibility enough that it never reaches this point? Or will the failure of establishment currencies and more draconian capital control laws offset any efforts to discredit bitcoin?

Tell me what you think.

J.P. Hicks is an entrepreneur, info-activist, pro blogger, editor of BlogTips.com and author of Secrets to Making Money with a Free Blog. Follow @ Twitter, or like on Facebook.