If the Bitcoin tumble looks familiar that’s because it is–AAPL took a similar hit.
Bitcoin is not (yet) crashing, crashed or dead. Yet like an S&P 500 pullback, bitcoin volatility brings out a passionate crowd quickly. The principal bitcoin exchange, MtGox, halted trading and created a frenzy in a teacup February 7th, and as a result someone offloaded 6000 bitcoins taking the price from 750 to 500–and for a brief second even lower. This little flash crash spooked the virtual currency sphere. Bloggers and the mainstream media began to work themselves into a lather. At the beginning of February the value of bitcoin in USD was $950, today it’s $585. And if that kind of loss looks familiar, it is. At least as a percentage… AAPL in September was pushing $700 and fell under $400. Bitcoiners of 2014 resemble Mac Fanatics of the 1990s. So markets go up and occasionally down, companies trip, regain balance and move on, sometimes learning from their mistakes. The difference with bitcoin is that an exchange like MtGox represents too much of the overall bitcoin transaction volume. It’s sort of like losing London, Singapore, and the Wall Street exchanges while Paris stays open. Imagine the S&P Futures value if the world’s major exchanges where experiencing a ‘technical glitch.’
MtGox confessed to a technical weakness, without claiming a technical weakness… They’re blaming “Transaction Malleability,” which is a bitcoin “feature.” That excuse sent the bitcoin community–not just bloggers–into their own frenzy. The principal developer Jeff Garzik tweeted “It’s not a fatal bug. Not even our bug. Good grief.” Several other big players piped up looking to ease their clients’ spirits. Blockchain.info for example, one of the world’s biggest bitcoin wallet services, made efforts to point out that its faithful would be unaffected and that, “contrary to many news headlines that describe Transaction Malleability as a ‘bug’ affecting bitcoin and other cryptocurrencies, it is not. It is an example of the need to implement transaction verification in the industry-standard way rather than with implementation shortcuts that rely on known-unsafe methodologies.” Ouch. MtGox is getting beat up the way Apple was getting beat up when they released the Newton. Who’d have guessed that the Newton would pave the way for the iPhone and iPad?
–Jeff Hildebrand lives in a 400-year-old stone farmhouse in the French countryside. He trades futures and options, and blogs about it at Brandnet.com. He worked as a developer in New York’s Silicon Alley in the 1990′s.