What's Behind Bitcoin's Recent Tumble?
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen with Anne-Marie Fertoli in New York. To say that Bitcoin has had a volatile November would be putting it lightly. After its value raced up to nearly $8,000 in recent weeks, the cryptocurrency lost more than 25% in days up to and including the second weekend of the month. Has Bitcoin seen its day in the sun come and go? Well, Wall Street Journal cryptocurrency reporter Paul Vigna joins us to discuss. So, Paul, let's just bring everybody up to speed for just a moment on exactly what Bitcoin is.
Sure. Bitcoin is a digital currency that was launched about nine years ago. And the real difference between Bitcoin and currencies that we're all used to is that the monetary systems we're all used to are maintained and backed by the government.
Why did Bitcoin plunge more than 25% after its rapid run-up in November?
Bitcoin is not. Bitcoin is... basically a computer system that has a series of incentives built in for people to maintain it on their own. And what you end up with is basically a peer-to-peer network for exchanging value between, well, peer-to-peer.
Paul, I guess it's not a surprise that Bitcoin pulled back after such a dramatic run-up, but did a 25% pullback surprise you?
No. A 25% pullback for Bitcoin can happen in a morning for absolutely no reason. I mean, I think the thing people have to keep in mind with Bitcoin is that this is still a relatively thin market. It is still a relatively new market. It does not have... any of the kinds of circuit breakers or hedges built in that traditional markets have. So it is a much more volatile market. It can move up and down much more. I mean, 25% for the S&P 500 in a day would be historic. It has never actually happened. I mean, in 87, I think it was a 22% drop for the S&P. For Bitcoin, that's not an unusual move in four days. It really isn't.
Right. It's the fifth time this year something like that's happened.
Yes, exactly. Right.
What is Bitcoin and how does it fundamentally differ from government-backed money?
I mean, Bitcoin moves up and down like this a lot. So, no. And especially given that it was up, I think it was 700 or 800% at the top when it was close to 8,000. So, no, it was not an unusual move.
And, you know, Paul, we're kind of still in the Wild West when it comes to digital currency like Bitcoin. It's essentially open source software and volunteer developers and, like you said, a peer-to-peer network. More regulation, it seems, might be coming down the road. But what do you think might speed that up?
Well, I think what's going to come down the road as fast, if not faster, than regulation is an expansion of the market. And what you're seeing in financial services is an increasing interest in this asset that is going up at such a rate. So you're starting to see companies that are hearing from their clients. They're saying, what is Bitcoin? Should I buy Bitcoin? Should I hold Bitcoin? So you're starting to see interest from Wall Street in building out products that can tap into this market. On the other end, and this is a pretty important development this year. In Japan, they put in some rules and regulations around Bitcoin and Bitcoin businesses, and that has spurred a lot of trading and a lot of experimenting.
So you're starting to see on the financial services side, you're starting to see interest. On the regulatory side, like you said, Jerry, you're starting to see interest. And what that should lead to is increased competition. interest or at least access among consumers. And that's kind of the big cycle that we're in right now is consumers, financial services, regulators, you know, all kind of coming in one big swoop. So that's what you're looking at right now. And China spooked the market also. Yes. China has been, over the last 12 months or so, increasingly cracking down on Bitcoin. They kind of allowed it to exist for a long time. They were not taking much of an interest in it. Now they have. They put the clamps on their exchanges.
They put their clamps on a new fundraising method that's related to Bitcoin called the initial coin offering. Companies are creating Bitcoin-like tokens and offering them up for sale.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:02–0:53
2
Why did Bitcoin plunge more than 25% after its rapid run-up in November?
0:53–2:02
3
What is Bitcoin and how does it fundamentally differ from government-backed money?
2:02–4:32
4
How does Bitcoin’s market structure explain its day-to-day volatility?
4:32–11:05
5
What role do regulation and market expansion play in Bitcoin’s price swings?
11:05–14:39
Speakers
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