The value of digital currency Bitcoin fell from above $145 to below $117 Wednesday as Mt. Gox, the largest market for trading the digital currency, suffered an outage for approximately an hour.
At the time of writing mid-afternoon Wednesday, the value seems to have leveled out at about $125, a $20 drop for the day.
"Due to high volume trading at the moment, there is a lag in trading and order cancellation," reads a statement from Mt. Gox.
It's not believed that Mt. Gox was the victim of hackers, a scenario feared by some Bitcoin naysayers. More likely, it collapsed under the strain of heavy traffic sparked by a sudden spike in interest in Bitcoin. Mt. Gox's problems, in turn, may have caused Bitcoin's sudden drop in value.
Why has Bitcoin become so popular? One possible explanation is that exploding interest in Bitcoin over the past several days is being driven by economic uncertainty in Europe. Fearful of an earlier proposed European Union plan to partially fund a Cypriot bailout by imposing new taxes on Cypriots' bank deposits, goes the theory, some Cypriots (and Spaniards, for similar reasons) flocked to Bitcoin to attempt an escape from the clutches of potential taxes.
Major media outlets, including The New Yorker and Businessweek, have recently run stories dealing in one way or another with the Europe theory. The media exposure given to Bitcoin over the past few days has likely exacerbated any potential bailout-related interest in Bitcoin, causing even more demand for the currency.
"The value of bitcoins, it turns out, is highly sensitive to media coverage," wrote Reuters' influential financial journalist Felix Salmon in a Wednesday morning blog post wherein he argued Bitcoins are a financial bubble and heightened interest will only cause the burst to come sooner.
" . . .in July 2010, the influential technology site Slashdot posted a short item about bitcoin which sent the price soaring tenfold — from less than a cent to about 7 cents per bitcoin — also in a few days. And a single post on Time.com in April was enough to double the price of Bitcoins in a week, from 80 cents to $1.60. Even the article you’re reading now is appearing now because of the current bubble, and will, at the margin, help to continue to inflate it."
Zachary Seward, Senior Editor at business news website Quartz, also argued Wednesday that sudden interest in Bitcoin is "messing with the market."
"More attention brings more demand, which inclines people who already have bitcoins to hold onto them, expecting their value to rise, which reduces the available supply of bitcoins in the market, driving the price higher, increasing attention, pushing up demand, encouraging still more hoarding," wrote Seward.
Even if Mt. Gox's service interruption wasn't the cause of Bitcoin's drop Wednesday, the sudden fall in their value exemplifies the volatility which some commentators argue make it a risky investment. Would you put your wealth in Bitcoin? Why or why not? Share in the comments.
See Mashable Article
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