As a visual representation of the digital Cryptocurrency, Bitcoin, on June 11, 2018 in Hong Kong, Hong Kong. (Photo by S3studio/Getty Images)
Bitcoin — the online currency used to buy Alpaca wool socks and illegal drugs whose value dropped from $17.50 to “pennies” after a June 19, 2011 hack into its currency exchanger, Mt.Gox — has gotten plenty of media attention, I wrote seven years ago.
If you had bought, say $10,000 worth, of bitcoin back then, let’s say at 10 cents apiece, it would be worth $678 million as of June 11.
In case you were drawn into the world of Bitcoin in December 2017 when it hit $19,500 apiece, logic would suggest you are feeling pain now that it trades down 65% at $6,782.42.
A bigger basket of cryptocurrencies is down 64% since their peak in early January. According to Bloomberg, digital assets tracked by Coinmarketcap.com were valued June 11 at $298 billion — in early January 2018, their value was $830 billion.
The latest trigger for the plunge in bitcoin was the freezing of Coinrail, the 99th biggest exchange with 24-hour volume of $2.66 million. The South Korea-based exchange stated, “On June 10, there was a system check due to the hacking attempt at dawn. At present, 70% of your coin rail total coin / token reserves have been confirmed to be safely stored and moved to a cold wallet and are in storage.”
This brings up a broad question — how do people make decisions? I like the theory proposed by Daniel Kahneman, who won the Nobel Prize in 2002 for his work on behavioral economics. Kahneman argues that people have two systems for deciding — System 1, going with their gut reactions, and System 2, methodically weighing costs and benefits.
From that theory his work investigates a range of heuristics — my favorite being confirmation bias (the idea that people embrace information that reinforces their strongly held beliefs and reject information that undermines their beliefs).
The mystery for me is how such unshakeable beliefs are created in the first place. For that, I am swayed by the theory that people’s beliefs are created by leaders of groups — such as family, friends, or people with strongly held opinions — to which a person belongs. If such a leader can tell an emotionally compelling story — which respected peers embrace, then that belief can be spread to everyone in the group.