Bitcoin has suffered a flash crash, surprising absolutely no one. The cyber currency tumbled from $266 to just $55 in a single day of trading.
However, the flash crash wasn’t caused solely by speculators. The crash was apparently compounded by a huge DDoS attack on Mt. Gox, the biggest bitcoin exchange. Mt Gox suspended trading Thursday, saying it would go offline for a 12-hour period of “market cooldown.”
The crash should come as no surprise, as Bitcoin gained more than $200 in less than two months. Sadly though, the flash crash could have long-term consequences. It will further erode Bitcoin’s rather shaky reputation. In recent months a number of legitimate businesses started accepting Bitcoin payments and at this point it seems more than likely that at least some of them feel very cross indeed.
Many analysts have been sounding the alarm for quite a while, saying that Bitcoin is simple too volatile and risky to be used as a mainstream currency.
UBS stockbroker Art Cashin described the crash as “trading tulips in real time,” alluding to the first market crash caused by Dutch tulip speculators in the 17th century, at least according to Gordon Gekko.
“It is rare that we get to see a bubble-like phenomenon trade tick for tick in real time,” he said in a note, reports CBS. Cashin stressed that the future of bitcoin, like all other currencies, is going to come down to trust.
Even some vocal supporters of Bitcoin are now voicing serious concerns. Mike Caldwell, a 35-year-old engineer from Utah mints physical bitcoins at home, protected by tamper proof holographic seals. He believes the currency might be in for a bumpy ride. He compared bitcoin’s woes to the eternal struggle between Hollywood and movie pirates, and we all know who is winning that one.
Bitcoin is a very promising concept, but sadly the latest flash crash proves it is a long way from becoming a proper mainstream currency.