Before this announcement the balance was about $650. It means that greedy people think it will go higher than $650, and fearful people think it would go lower.

Now comes this announcement. About 30.000 bitcoins wil sometime in July come into the hands of someone who will have paid significantly below market rate for them.

Is this good news or bad news for the market? It's bad of course. In the most optimum case, the buyer will keep the bitcoin, and the market won't move at all. In the worst case, the buyer will sell all the bitcoin the second he receives the bitcoin.

Between these two extremes there is a range of possibilities, but you can see that the range is from 0 to negative something, so overall we predict a negative outcome for the market.

So, the fearful people will become a little stronger, and the balance will drop accordingly.

This is exactly what I meant by "you'll fool yourself into believing things that aren't true." You cannot reason about the price of bitcoin in terms of fundamentals. Not right now; not when the price is a function of a few hundred people (some of whom are maliciously manipulating the market).

I've been closely watching how the price of bitcoin reacts to announcements since mid last year. The price goes up? People come up with a reason that makes sense. The price goes down? People come up with a reason. The price has gone down; you've come up with a reason, and lo, it seems to make sense. Except none of these reasonings make any sense whatsoever because the market isn't logical. It doesn't pay any attention to your theories, or mine, or anyone else's. The price inexorably follows from the actions of fewer than a couple hundred people, almost all of whom are trying to prey off each other. That's the game. Buy to raise the price; sell after others follow your lead.

You can craft a theory that makes sense for any possible upswing or downswing. But what fools we were to think our theories mattered back in November, when the price was almost entirely due to Mt. Gox's market manipulation!

My opinion in this matter has been forged by the heavy hammer of experience. Don't make my mistake; don't delude yourself by having the hubris to think you alone can reason your way around an irrational gambler's market. Here's how it will go. You'll make some money, and you'll feel smart and elated. Then you'll risk a little bit too much on your "insight" and watch as it crumbles beneath your feet and you lose some money. But not too much; you're smart, after all. But then you'll hear stories of others who have fared Bette than you, and you'll start to get a bit jealous. It's just a matter of experience, you'll tell yourself. I'll do better now that I know not to do that again. So you'll try a new, more insightful theory. A theory based on sound fundamentals. And then you'll make a bunch of money, and you'll think you've got it all figured out. So you'll wager even more on your theory (which, somehow, everyone else has seemingly overlooked, but Nevermind that, our theory is based on logic so it must be correct!) and then when the market's irrationality catches up to your reality, you'll lose big.

Greed does indeed drive the market. And greed doesn't play by fair or logical rules.

    This is exactly what I meant by "you'll fool yourself into believing things that aren't true." You cannot reason about the price of bitcoin in terms of fundamentals.

    But what fools we were to think our theories mattered back in November, when the price was almost entirely due to Mt. Gox's market manipulation!

I don't say "It's bad of course" as some sort of guess, it's pure logical reasoning. I am not saying it is necessary that the balance goes down. Combine the information of the logical effect of this event with the actual effect that lies in the past and you can say that there was a likely relation.

Here's an example of a fundamental:

By looking at the economics of a business, the balance sheet, the income statement, management and cash flow, investors are looking at a company's fundamentals, which help determine a company's health as well as its growth prospects. A company with little debt and a lot of cash is considered to have strong fundamentals.

There are more kinds of fundamentals, of course. But all of them have a common theme: publicly available information, or logical reasoning (which depends on having publicly available information).

Bitcoin's market value is determined by insiders who hide all information from you. Therefore, there are no fundamentals right now. Not until the price is determined by something other than people like Karpeles.

You invested in a time of great volatility, and got hurt. That doesn't mean the game is broken. That MtGox manipulated the market is irrelevant.

I doubt most investors would agree. Gamblers, perhaps, since at that point "the game" is literally gambling, not investing.

The logic is that people (or algorithms that people put in control of their bitcoins) offered to sell bitcoins at a certain price, and other people (or algorithms) decided to accept that offer. One side decided that they prefer x USD to y bitcoins, and the other side decided that they prefer y bitcoins to x USD. So they agreed to swap. That is precisely the same logic that goes into literally every commercial transaction.

To look for some concise one-sentence explanation for the aggregate preferences of a bunch of people, however, is a fool's errand. And that doesn't change when "more than a couple hundred people" are trading.

This is tautology, though. It's just the definition of a market.

The couple hundred I refer to are those who (a) have thousands of bitcoins, and (b) enter and exit the market with some frequency. Those are the people who determine the current price of bitcoin. I say there are only a few hundred of them because bitcoins have been distributed according to a power curve (as is all wealth), and those few hundred are the ones who have the temperament to wager large sums of money on a monthly, weekly, or daily basis.

When one of them decides to exit the market, the price drops noticeably. When one of them decides to jump back in, the price jumps noticeably, causing others to follow their lead and buy in, which drives up the price even more.

If you have currency equivalent to thousands of bitcoins, you can place a large buy order, which triggers a price spike, which causes some upwards "momentum" because a bunch of other people will feel pressured to enter the market due to your large buy order, which of course makes the price rise even more; hence, momentum. Gamblers with thousands of bitcoins can take advantage of this phenomenon to grow their holdings: place a large buy order, wait for others to follow your lead, then sell. It's obviously not guaranteed to work, but nonetheless that seems to be what these gamblers are doing.

Announcements serve to trigger a bunch of these "gambler whales" into action all at once, so you get large fluctuations in price. But there isn't a fundamental reason for this price drop beyond the game theory presented above. The claim that the price movement is based on underlying fundamentals or logic simply doesn't match the available evidence. Evidence thus far indicates that the price fluctuation is due to a combination of market manipulation and gamblers with thousands of bitcoins actively trying to hoodwink their fellow gamblers.

I'd love to get your thoughts on the parts you disagree with, if you have the time. What do you think about bitcoin?