This week on Planet Bitcoin - 22 January 2016

Thursday 21 January 2016

TL;DR it’s rollercoasters all round this week.

It has been a tumultuous start to 2016, both in the traditional markets and for bitcoin. January started with some stability for bitcoin around the $430 mark and even a brief rally to $460. That didn’t last, and a week ago we saw a heavy fall back under $400 for the first time since the beginning of December. At one point bitcoin dropped almost to $350, raising the possibility of heavier falls back down to the levels seen through most of 2015.

Chart

The reason for that 20% fall? Markets are complicated, but the most obvious explanation is former bitcoin developer Mike Hearn’s vocal and critical exit from bitcoin for a job in corporate banking. Hearn, also one of the developers behind the poorly-received XT fork, lists the reasons be believes bitcoin has failed in a long blog post. It likely didn’t help that, at that point, traditional financial markets were enjoying a good day. 

It has been a highly volatile week for the world’s stock markets. China has seen a lot of red, again; although this is not a huge problem in itself, due to the limited exposure of other markets to the Chinese stock market, it reflects a deteriorating picture in their economy. The Yuan has also weakened as a result. Other global markets have taken fright, and although they haven’t yet been gripped by full-blown panic they are not far off. The FTSE 100 officially entered bear market territory, defined as a 20% fall from a recent high, and the IMF has downgraded its growth forecasts for major and emerging economies. 

Markets are fond of overshooting, both to the upside and the downside, and with bitcoin that’s even more true. So it’s hardly surprising that we saw a sharp upward correction just a few days later, back well above $400. If the miserable situation on the world’s markets painted the context, perhaps the immediate trigger for the rise was the spreading news about Classic: a new fix for the blocksize issue that seems to be achieving the impossible and attracting consensus. It raises blocks to 2MB: not a huge amount, but enough for now, and any movement shows that change is possible. The reverse then happened, with a strong bounce on the financial markets and a brief fall back below $400 for bitcoin. These are volatile times all round.

Looking ahead, it’s a mixed picture. Hearn’s exit throws a bright light on bitcoin’s problems, chief amongst which is the block size. It’s not a done deal yet, but if Classic is accepted then bitcoin will be in a much better position to move forwards. Meanwhile, there aren’t many tools left to address the problems in the regular markets and economies, with interest rates at rock bottom and QE being politically unpopular and offering diminishing returns.

It will be an interesting year.


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