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Bitcoin Government The Almighty Buck

Why Bitcoin Boomed During the Government Shutdown 282

Posted by Soulskill
from the why-grasp-at-straws-when-you-can-mine-them dept.
Daniel_Stuckey writes "Just two weeks after the Feds shuttered the Silk Road, the notorious online drug bazaar, Bitcoin prices have touched a five-month high — with a single Bitcoin fetching nearly $156 on Tokyo-based exchange Mt. Gox. Bitcoin's resiliency can no longer be denied, especially as the digital currency continued its ascendancy even against the backdrop of a U.S. government in utter disarray. At the 11th hour of the crisis, President Obama signed a bill that ended the partial government shutdown and, more importantly, raised the debt ceiling, an arbitrary limit on the amount of money the country can borrow that would have been surpassed today. If Congress had failed to reach a deal and the U.S. was unable to pay its bills, the results might have been catastrophic, eclipsing the bankruptcy of Lehman Brothers five years ago, the domino that could trigger the worst financial crisis since the Great Depression."
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Why Bitcoin Boomed During the Government Shutdown

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  • by Anonymous Coward on Thursday October 17, 2013 @09:26PM (#45160329)

    How many people honestly understand the relationship between currency prices and the government shutdown? Very very few I would guess.

    Gold dropped when the goverment was down and bounced back after the deal was signed. Why? Gold is supposed to be a safe harbour.

    Does the author of TFA see BTC as the opposite of gold, or does he see BTC as filling the same kind of role as gold?

    Or is this simply a case of making using hindsight to construct an argument that fits a general argument that BTC is worth investing in?

    • by felrom (2923513) on Thursday October 17, 2013 @09:58PM (#45160515)

      Gold dropped because the market's built-in assumption that the Fed would keep printing money to finance the government's deficits forever was temporarily shaken by the possibility of maybe some sane fiscal policy showing its head for once. Then gold went back up when the deal was signed, signifying full steam ahead on printing and deficits. It made absolute sense.

      But yeah, this article in particular is just a bad case of hindsight bias.

      • by jwilloug (6402) on Thursday October 17, 2013 @10:51PM (#45160857)

        But printing money was one of the possible outcomes of hitting the debt ceiling. Both the Fed and the Secretary of the Treasury have the legal authority to declare that they are covering the deficit by creating money rather than borrowing it, and they may well have done so. It wouldn't have been great monetary policy, but there is a reasonable argument that it's better than default.

        • by mysidia (191772)

          It wouldn't have been great monetary policy, but there is a reasonable argument that it's better than default.

          Exceeding the debt limit does not mean default. It means that all further spending immediately gets reduced to the level of tax revenue; implying a 30% drop in spending.

          It is up to the treasury to prioritize where the cash on hand goes.

          Missing a debt payment would not occur, unless Obama's administration decided they wanted to cut off the government's nose, to spite their face.

          More like

          • by jwilloug (6402)

            Exceeding the debt limit does not mean default. It means that all further spending immediately gets reduced to the level of tax revenue; implying a 30% drop in spending.

            It is up to the treasury to prioritize where the cash on hand goes.

            They say they have neither the technical ability (the software can't handle the use case) nor the legal authority to prioritize payments (a de facto line item veto). They might just be lying to us, but if you believe they are capable of that, you also believe they totally would default just to prove a point.

            Besides, if the government is going to pay you in a couple weeks, we swear, that would be a debt. It has just been shifted away from the people who want to lend us money voluntarily.

      • I don't believe the possibility existed, or if it did the market was ignoring it. There was a dip and rebound 1 or 2 October, but 10 October is when it dropped. Republicans were clearly losing by then so it was not fear of fiscal responsibility.
        I'm most curious about the drop at the beginning.

      • But yeah, this article in particular is just a bad case of hindsight bias.

        "I like big butts and I can not lie. You other brothers can't deny, that when a girl walks in with an itty bitty waist and a round thing in your face, you get sprung..."
        -Johnathan Coulton.

        Hindsight bias, combined with the fact that coins are predominantly round... Thus implying subtle application of the pejorative "Butt Coin". Very skillful.

        Indeed: "It made absolute sense" -- Note the "cents" pun play here, but it's subtle... "market's build-in assumption ... showing its head", oh yes, tolling me ever s

    • Or is this simply a case of making using hindsight to construct an argument that fits a general argument that BTC is worth investing in?

      Economics. The science of explaining tomorrow why the predictions you made yesterday didn't come true today.

      • by ultranova (717540)

        Economics. The science of explaining tomorrow why the predictions you made yesterday didn't come true today.

        They didn't come true because making predictions about the behaviour of an economic system changes the behaviour of the economic system, because the economic "particles" are self-aware, are trying to outsmart every other particle and can read your predictions.

        So, do I win an economic Nobel?

        • by mysidia (191772)

          So, do I win an economic Nobel?

          Not quite... sometimes the published economic predictions do come true, even though people can read them. What gives? :)

        • by Richy_T (111409)

          Sorry, there is no economic Nobel. Stick around though, you might get a peace one.

    • by Bite The Pillow (3087109) on Thursday October 17, 2013 @11:12PM (#45161023)

      That is disingenuous at best. Gold peaked at 1900 in 2011 during the housing and financial crises from 400 in 2003. It has been on the way down since then, making a spike unlikely. It took a 3% dip from 10 October and came back to where it was.

      All signs point to gold markets knowing this would be a temporary crisis that would not maintain price levels past its resolution. Bitcoin, on the other hand, does not seem to be valued by market savvy investors. Knee jerk irrational fools more like, so it follows the panic more closely.

      I'm no economist or fund manager, so I'm probably wrong.

  • China (Score:5, Insightful)

    by Wonko the Sane (25252) * on Thursday October 17, 2013 @09:27PM (#45160331) Journal
    The recent price of Bitcoin has far more to do with explosive adoption in China than anything happening in the United States.
    • Re:China (Score:5, Insightful)

      by JohnA (131062) <johnanderson@gma ... m minus math_god> on Thursday October 17, 2013 @09:29PM (#45160343) Homepage

      Exactly. When Baidu added it as a supported payment method, the game changed.

    • by Animats (122034) on Thursday October 17, 2013 @11:49PM (#45161209) Homepage

      Right. China has tight exchange controls - it take special permission from the State Ministry for Foreign Exchange to exchange yuan for dollars, euros, or yen. But at present, China residents can buy Bitcoins with yuan. They can also sell Bitcoins for dollars, bypassing exchange controls. So if you've made money in China and want, say, to buy an apartment in London, Bitcoin provides a way to bypass the government exchange controls.

      That seems to be what's pushing up the price of Bitcoin. The volume on exchanges in China is way up, while volume at Mt.Gox is way down.

      However, there's no guarantee that this situation will last. The People's Bank of China can change this policy at any time. There's plenty of info available about PBOC policy; it's as least as important as US Fed policy. But that's enough for Slashdot readers.

      • by gl4ss (559668)

        they will have to either change it or relax yuan export controls.

        which they just as well might because it would make it simpler to buy material goods and bring them to china.

  • Derp (Score:3, Insightful)

    by girlintraining (1395911) on Thursday October 17, 2013 @09:32PM (#45160367)

    If Congress had failed to reach a deal and the U.S. was unable to pay its bills, the results might have been catastrophic, eclipsing the bankruptcy of Lehman Brothers five years ago, the domino that could trigger the worst financial crisis since the Great Depression."

    Someone's been watching too much "news". The results wouldn't be catastrophic. They'd be annoying. Like everything else the government has done over the past decade. Catastrophic is the entire government collapses, food shortages and water become scarce, and people start killing one another in open anarchy.

    Words. They mean shit, Slashdot. Choose them carefully.

    • Re:Derp (Score:4, Insightful)

      by dyingtolive (1393037) <brad...arnett@@@notforhire...org> on Thursday October 17, 2013 @09:37PM (#45160399)
      Catastrophic to most people these days is not being able to afford their daily $8 Starbucks coffee.

      The problem isn't that they're using the wrong words, it's that their worlds are too small for the proper order of magnitude for the word. Like a six year old.
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Yeah, man, credit ratings aren't real, they're made up, just like words. And risk, even sudden changes of it in a fundamental part of the world economy like t-bills, that's, like, made up, too.

      Not like equating 'catastrophe' with 'anarchy', that's completely honest and not hyperbole at all.

    • It wouldn't have even been annoying unless someone - say, some jerk petty enough to put barricades around open air monuments - would have tried to stop payments on debt service. We had easily enough money coming in to cover the debt service, so it would have only been a problem had someone purposely done that to harm the US.

      • by mysidia (191772)

        We had easily enough money coming in to cover the debt service, so it would have only been a problem had someone purposely done that to harm the US.

        A constitutional violation of oath.... a high crime worthy of impeachment....

    • Re:Derp (Score:5, Insightful)

      by artor3 (1344997) on Thursday October 17, 2013 @09:46PM (#45160469)

      Go on thinking that, Pollyanna, if it helps you sleep at night.

      The shutdown wasn't really a big deal, sure, but if the US had defaulted on its debt, that would have been catastrophic.

      We owe around $16 trillion right now. But it's really not a big deal, because we pay negative interest on it (relative to inflation). Countries are eager to keep investing in the US, and the high demand lets us pay very low interest. If US debt were seen as unsafe, we would need to pay MUCH higher interest in order to attract investors. We obviously wouldn't be able to pay the higher interest, since this scenario is based on the assumption that Congress refuses to even repay the principle. So we would have to start paying out $16 trillion without replacement investments coming in.

      Goodbye, Medicare. Goodbye, Social Security. Goodbye, foodstamps and welfare and section 8. Hello, social upheaval. Hello, desperation-induced crime wave. Hello, Great Depression.

      That's your idea of "annoying"? I'd say "catastrophic" is a far more apt description.

      • by felrom (2923513)

        The point was that the US was at 0% risk of defaulting on its debt.

        You might as well write a long post about the potential ills of earth being invaded by married bachelors; it had an equal chance of happening.

      • Re:Derp (Score:4, Funny)

        by houstonbofh (602064) on Thursday October 17, 2013 @10:50PM (#45160855)

        Goodbye, Medicare. Goodbye, Social Security. Goodbye, foodstamps and welfare and section 8. Hello, social upheaval. Hello, desperation-induced crime wave. Hello, Great Depression.

        Of course a lot of the good science fiction starts right after that point, so I say BRING IT! :)

      • Goodbye, Medicare. Goodbye, Social Security. Goodbye, foodstamps and welfare and section 8. Hello, social upheaval. Hello, desperation-induced crime wave. Hello, Great Depression.

        That's your idea of "annoying"? I'd say "catastrophic" is a far more apt description.

        Wow, the amount of pessimism here is amazing. Do you really believe that the entire health of US economy and society is dependent on our entitlement programs?

        I don't think we've quite reach the point where the majority of Americans are proles on the dole, I don't think losing those entitlement programs would be a bad thing. Would it cause some problems? Of course it would, and the politicians would take a heavy beating in the media (which, don't kid yourself, is the *real* reason this was never going to def

      • by BoberFett (127537)

        So what you're saying is that we can never afford an interest rate hike? Sounds like a solid plan...

      • by fatphil (181876)
        As long as there's enough negative feedback, catastrophe will be averted, it will brake at annoying. However, the damping hasn't been put to the test yet, and there's some evidence of positive feedback in some parts of the system.

        I'd like to amend your sentence such that instead of "If US debt were seen as unsafe ...", it reads "When US debt ..."
  • by Deliveranc3 (629997) <deliverance@le[ ]4.org ['vel' in gap]> on Thursday October 17, 2013 @09:56PM (#45160495) Journal
    Banks made transferring out of MTGOX impossible, MTGOX refunded my $. They are about 8 weeks behind processing withdraws.

    Bad news, banks and government attacking at same time interfered with each other.

    Also, they had this guy, he sold drugs... lots of drugs... but did they bust him? Nope, they did an elaborate sting to bag him for something REALLY REALLY evil... (I hate drugs btw) Why? So he wouldn't be a martyr for free wealth exchange.

    Also the whole BTC aren't totally anonymous thing is a good to know.
  • by geoffrobinson (109879) on Thursday October 17, 2013 @10:16PM (#45160621) Homepage

    The U.S. Government gets somewhere between $200 billion and $225 billion a month in tax payments. I forget the exact figure, but let's say debt payments are around $50 billion a month.

    We would only default if we chose to pay our debt with the lowest priority.

    • We would only default if we chose to pay our debt with the lowest priority.

      Right, spending cuts could have covered the difference, if credit worthiness was the top priority. Oh, but that's an unmentionable inside the beltway.

  • If Congress had failed to reach a deal and the U.S. was unable to pay its bills, the results might have been catastrophic ...

    While I realize that most /. synopses are just cut and pasted from the referenced article, it would nice if we could avoid clipping one-sided political hype at the same time. While a default might have been bad, there are many who believe that letting a man destroy the value of the dollar and the country by unchecked borrowing is even worse. This latest surrender by the Republica

  • by ridgecritter (934252) on Thursday October 17, 2013 @10:40PM (#45160775)

    I thought this was an interesting take on Bitcoin:

    http://ianso.blogspot.com/2013/10/bitcoin-as-law-enforcementnatsec.html [blogspot.com]

  • by deego (587575) on Friday October 18, 2013 @12:00AM (#45161269)

    Yes, it did hiccup for a few hours. By the next day, it was rallying again, even as derivative arrests were taking place.

    I think it proves that bitcoin ecnomy is not dependant on silk road.

    In fact, I think it the silk road bust was bullish for bitcoin, since it removed an illegal association that sensationality-chasing journalists loved to associate bitcoin with.

  • by SuperKendall (25149) on Friday October 18, 2013 @01:06AM (#45161599)

    Swiss banks now making financial data available to governments. Switching to bitcoin as an anonymous alternative is inevitable.

  • Okay, this is bothering me for some time. A friend told me during the shutdown that the government could, as a last resort, create a trillion dollar coin (or some such amount) and start paying their debts without congressional oversight. He also claimed that this method would have had essentially no bad effects on the economy and was just a way to circumvent the debt ceiling. Is that true? Can someone explain to me in layman's terms how it would work?

    Obviously, if that was so easy they'd have done it, so th

  • that i may abandon all trade the US Federal Reserve Notes and do all my buying & selling in BitCoin,

    fuck the govt, they are a bunch of mooching criminals, and i dont approve of what they spend the tax revenue they collect,
  • by brxndxn (461473) on Friday October 18, 2013 @08:21AM (#45163703)

    I would be scared if I didn't have some Bitcoins right now. If they go to zero, oh well.. If they get adopted as a major international currency, then I completely miss out by not having them now.

    There will never be enough Bitcoins for everyone to have one. If they do catch on, each one will be worth a fortune. So far, no government has been able to figure out a way to shut them down. Large governments such as China and Germany have announced no intentions against Bitcoin. It makes me believe the people that are Bitcoins' biggest detractors are the ones that don't own any yet.

    The media tries to associate Bitcoin with lawbreakers and it calls it an insanely risky bet. But, the media does everything it can to preserve the status quo. Then, limit your risks.. You cannot risk more than the price you pay for the Bitcoins. I think it is a bigger risk to decide you will completely ignore the obvious next form of currency.

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