Posted in economics, technology | 3 Comments »
Bitcoin down 50% today! THE SKY IS FALLING!!! But what’s really going on?
The problem, I believe, is that MtGox’s websockets API stopped working a few hours ago. This took any and all automatic traders out of the market, particularly those who were pursuing a “slow accumulate” trading strategy. MtGox has another API called socketio, which is working, but fewer trading bots use it. So, liquidity disappears, particularly from those trying to build up Bitcoin positions without pushing the market higher. Meanwhile, traders using the website trading interface see the price slide, panic, and sell.
This is certainly a problem with MtGox’s business operations, diligence, competence, etc. That the problem has not been addressed as I write this, some 3 hours after it began, is testament to an inadequate monitoring and response system — in business practice terms, not necessarily tech. I don’t care that it’s 4:30am in Tokyo, MtGox owes it to its users to either support the exchange 24/7 or to automatically shut it down when such a fault is detected.
But the MAJOR problem here isn’t MtGox itself, it’s the aggregate behavior of traders to date. MtGox enjoys an early-mover advantage in the marketplace which is very hard to justify given its performance issues in the past weeks. The BTC/USD price may recover straight off, or it may not. The one thing for sure is that MtGox MUST lose market share — both as a result of this screwup, and so that Bitcoin may prosper.