Bitcoin Shows its True Color -- And it Isn't Exactly Green

Image source: Bitcoin.org.

For a while there, it looked like Bitcoin had settled down, grown up, stabilized. The cryptocurrency hovered between $900 and $1,000 per virtual coin for months, which is a radical change from the hyper-volatility of the previous three months.

But in February, Bitcoin took a turn for the worse. In a firestorm of controversy, Bitcoin's trading volumes have skyrocketed -- and valuation plummeted.

Bitcoin trading dipped as low as $302 per coin this morning. That's a 33% value plunge in one morning, starting from a closing price of $451 on Feb. 13. And it came on a truly epic wave of high trading volumes. Bitcoin has also gotten a 54% haircut in five days and a 67% decimation over the last two weeks.

Here's what it looks like:

Source: Bitcoin Charts.

To put this extreme volatility into perspective, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has lost 2.5% of its value over the same period you see in the chart above. At worst, it was a 6% drop. And that's enough to make my fellow Fools wonder if high volatility isn't back in vogue.

^DJI Chart

^DJI data by YCharts.

So it's all relative. The one obvious takeaway here is that Bitcoin clearly isn't ripe for serious investing yet.

Sure, the digital currency gained a staggering 5,900% in 2013, so it's easy to get carried away by the promise of another massive surge.

But anything that can lose two-thirds of its value in two weeks is profoundly unsuitable for real investing. You can gamble, you can play around with Bitcoin, but don't call it "investing." And for goodness' sake, if you insist on dabbling in this newfangled payment vehicle, only use money you could afford to live without.

Bitcoin may still have its chance as an everyday replacement for coins, bills, and credit cards. But that's a long way away, and is by no means a guaranteed conclusion to this saga. Even if digital currencies do become a mainstream standard, Bitcoin itself could very well go under before then and be replaced by some even newer-fangled version of the same concept.

That said, I wouldn't complain if you wanted to buy me a coffee in Bitcoin. By the time I find a coffee shop that accepts Bitcoin as payment, that donation might either get me a tray full of lattes -- or nothing at all.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 14, 2014, at 7:04 PM, tlwofford wrote:

    Just to be clear, there are tons of coffee shops in the US alone that accept Bitcoin. Overstock already does. The USPS is working on it, along with other companies such as Netflix.

    Globally, there is even more expansion. There are already 2,800 stores in the UK alone that accept Bitcoin.

    Lastly, I am just curious why you used a chart from Mt Gox? Many consider that exchange dead. Other Bitcoin platforms have stopped using any graphs from there because it is so misleading.

  • Report this Comment On February 15, 2014, at 12:27 AM, mascarim wrote:

    You do a disservice to your readers to quote Mt Gox prices. Mt Gox is viewed by the Bitcoin community as a complete disaster and a sinking ship. A petition is being circulated to kick the Mt Gox CEO off the board of the Bitcoin Foundation. It is popularly known as the "Myspace" of Bitcoin -- a former trading card site designed by a DnD guy who knew a little PHP.

    The "news" associated with Bitcoin vulnerabilities was actually news about poor coding by Mt Gox engineers. The entire Bitcoin community will celebrate the moment Mt Gox shuts its doors.

    Please don't spred FUD, but facts. Otherwlse, you appear to your readers to be no better than Mt Gox press releases.

  • Report this Comment On February 15, 2014, at 11:35 AM, MotleyBurger wrote:

    There are a lot of ill informed investors trying to get-rich-quick (also known as weak hands), that run for the hills anytime there's slightly bad news. They have no education in Bitcoin, or confidence in the infrastructure that's currently exploding in the Bitcoin space. They are the reason for the price fluctuations. Don't confuse market prices with Bitcoin itself. They are two completely unrelated worlds. When they start to merge, the price will stabilize.

  • Report this Comment On February 17, 2014, at 5:01 AM, TMFZahrim wrote:

    Thanks for the feedback, everyone. So at press time, Bitcoin prices were plunging across all exchanges, Over the weekend, Mt. Gox continued to plunge while others stabilized.

    Gox chart here: http://bitcoincharts.com/charts/mtgoxUSD#rg10ztgWzm1g10zm2g2...

    BitStamp Here: http://bitcoincharts.com/charts/bitstampUSD#rg10ztgWzm1g10zm...

    So now there's a significant difference between Bitcoin prices at various exchanges. This is a new development, perhaps worth its own article. But even BitStamp prices suffered the indignities described in this article -- it just got even worse for Mt. Gox alone.

    FWIW, popular trading posts like Coinbase are quoting Bitcoin values in the $600 range, ignoring Mt. Gox's $300 neighborhood. Which means that the Gox implosion is of little consequence for many users, but even so, tradable Bitcoin has fallen from nearly $1,000 to $622 in a couple of weeks.

    Anders

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