The Bitcoin Bubble, Or Is It? Two Charts, Historical Price Movement, and the Conspiracy

via chycho

800px-Stages_of_a_bubble

I wish I wasn’t making this post and I hope I’m wrong. I love the concept of Bitcoin and the prospect of the decentralization of power brought about by the introduction of “an open source peer-to-peer electronic money and payment network” and the inevitable collapse of fiat currencies that are controlled by central banks which are in the business of transferring wealth from main street to Wall Street.

I’ve been tracking bitcoin for almost three years, since it was trading for less than a dollar. I even mined it a little a couple of years ago and recommended friends to buy them. Now that bitcoin has breached $1,200 and counting, would I still be giving it a buy recommendation? Absolutely not. Would I be recommending friends to keep most of their bitcoins at these valuations? Absolutely not. I would be telling them to sell almost all of their holdings, letting 1% ride. This is also one of the great features of bitcoin; very few early adopters should still be holding in any type of market like this.

Will bitcoin reach ten thousand, fifty thousand, or a million dollars? Will it do it in a few weeks, a few months, a few years, or a few decades once the full impact of our bubble economy is felt and the fiat currency devaluations begin? That’s anyone’s guess.

Below you will find a bitcoin chart for the last 2 years, and Jean-Paul Rodrigue’s chart of the four phases of a bubble. The similarities are uncanny.


click image to enlarge – source


click image to enlarge – source

Does this mean that bitcoin and other secure digital currencies are not a valid form of currency? Absolutely not. Does this mean that they do not have a future? Absolutely not. I actually believe the opposite. The future of commerce is digital, global, decentralized, open source and secure. It’s everything that bitcoin offers; I just think we’re in a bubble.

Full article at chycho

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  • BuzzCoastin

    the difference this time is
    China’s 800 million strong middle class is fully invested
    & India is not too far behind

    • ryan cordova

      That’s actually more evidence for a bubble than I think you think it is.

    • haroldheck

      what a complete crock of shit. but hey, who am i to judge your reified worldview?

  • alizardx

    Any similarities between this and PM, of course, are coincidental. /sardonic

    Don’t try to sell at what you think is the absolute top, don’t try to buy at the absolute bottom.

    • Juan

      PM?

      • Calypso_1

        There’s gold in them thar hills!

      • alizardx

        gold, silver, etc.

        • Juan

          Right, precious metals, of course.
          Thanks, really appreciate the explanation.

  • StockStalker1

    Gawd the crash of this thing is going to be spectacular to behold. It was funny watching it crash from $300 to $50. $1200+ to $50…get out the popcorn machine and put on a pot of coffee.

    Something that’s going up in value by 5% every 12 hours isn’t sustainable, not by a long shot. The music will stop and everyone will panic sell soon enough, and all that will be left is a bunch of “bankrupt” paper-millionaires and some economics papers talking about “that amusing currency from 2013 that had no value but managed to trick some dumbasses into buying”.

    • Dingbert

      The fun part of BTC is that it only takes one person’s panic sell to crash the whole thing. Anyone mining and saving since Bitcoin’s creation has ~1M BTC now–about 1/12 of all BTC in circulation. This has been an unaddressed concern since the beginning.

      • drokhole

        The fact that the Winklevoss Wonder Twins own 100,000 BTC (reported, could be over) and the Feds seized roughly 200,000 BTC in the Silk Road bust gives me pause. Plus, Richard Branson endorsed it just the other day, and there’s no telling how many someone like him has. So, in addition to what some of the early miners might have held on to, seems like the wealthy are again cutting out their disproportionate stake.

        • Reasor

          Do you suppose that investment in BTC on the part of Branson, Winklevoss, et al. is a sign of their prodigious nose for business, or a demonstration that they have enough wealth to piss a little away on a flight of fancy without missing it if they lose out?

          • drokhole

            I’d go with the latter – they have cash to throw around and it wouldn’t hurt to hedge their bets. The Winklevossers, at least, got into it when it was dirt cheap – around $6 a coin. Just came across this site which shows some of the heavier wallets out there:

            http://bitcoinrichlist.com/top100

            Plus, a lot of people say that folks with a ton of bit coins tend to spread them across multiple wallets containing smaller amounts like 50 BTC.

            That being said, if the Winklevii and Bransons of the world do make bank on it (which it looks like they will, with the aid of everyone else spreading the gospel like wildfire), I’m sure they’ll come off as financial geniuses.

  • Dingbert

    “Let me tell you the story of the oil prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, “Oh, I’m really sorry. You seem to meet all the tests to get into heaven. But we’ve got a terrible problem. See that pen over there? That’s where we keep the oil prospectors waiting to get into heaven. And it’s filled—we haven’t got room for even one more.” The oil prospector thought for a minute and said, “Would you mind if I just said four words to those folks?” “I can’t see any harm in that,” said St. Pete. So the old-timer cupped his hands and yelled out, “Oil discovered in hell!” Immediately, the oil prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. “You know, that’s a pretty good trick,” St. Pete said. “Move in. The place is yours. You’ve got plenty of room.” The old fellow scratched his head and said, “No. If you don’t mind, I think I’ll go along with the rest of ’em. There may be some truth to that rumor after all.”

    “Unusually rapid growth cannot keep up forever.”

    -Benjamin Graham

  • http://zeroprofits.blogspot.com/ Ad

    The value of bitcoin doesn’t follow its present usefulness. If the bitcoin is adopted and would need a measly market cap of 400 billion in 2020, that would mean $35k per bitcoin. IF(!) you believe in the adoption of Bitcoin, it is completely rational to anticipate that price and pay $10k now.

    When an asset goes up in value from nothing to something, return percentages will always look crazy, since anything divided by zero is infinity.

  • http://pneumerology.com/ pneumerology

    I don’t usually gamble with money because I don’t have any to lose. I have been curious about BitCoin, but not enough to invest time and energy into researching it. This article suggests to me that BTC is basically just another currency trading scheme i.e. people trying to make money by producing absolutely nothing. I’m asking those of you who are more informed… am I wrong about that?

    • darren kis
      • http://pneumerology.com/ pneumerology

        Thank you. That’s a bit over my non SEG head, but a good intro to the basic concept for a steely eyed philosopher. Now I don’t know whether to be encouraged or terrified. Sometimes having no money to lose is actually an advantage. Maybe I’ll read that 11 more times, but a few things get my attention so far.

        A system designed by humans to eliminate human corruptibility… uh huh… haven’t we tried that about a million times already?

        What is this fabled free-market of which he speaks?

        The big players are buying in with existing currency, right? A great deal of that currency is already monopoly money i.e. it is not backed by real anything, so this false value already infests BitCoin.

        The system, no matter how sophisticated, distributed and integrated it is, is still far less complex and integrated than human beings. So you have a complex system (us) being run by one set of rules — being managed by a less complex system being run by a different set of rules. This would tend to a reductionism that would cause the more complex system to fail.

        I think it’s pretty interesting, but as a SEP I just don’t believe the problems of human nature that are embedded in biological life, can be solved by mechanical means that are not.

  • http://pneumerology.com/ pneumerology

    And/or… a back door way of creating a “world currency” in which the usual suspects profit, while avoiding such meager regulations that various nations still have in place? That makes the conspiracy theory more credible.

  • BuzzCoastin

    what an insightful comment
    your lucid critique of my theory
    has completely changed my mind
    I’m gonna sell right now

  • BuzzCoastin

    by that reasoning
    the $ & gold are bubbles too

    • ryan cordova

      The dollar has reserve currency status and hasn’t dramatically inflated at 1,000% in the past year.

      Gold most definitely is a bubble.

  • darren kis

    I’m surprised at the negativity on these comments to be honest. You do realize that Bitcoin/Alt-coin has passed its Rubicon? The genie is out of the bottle, some of us may not like it but at least we can have some control over it. Unlike the bandit bankers and money lenders.
    with regards bubbles etc, of course it will experience these wild highs and lows, it’s just the birthing process of a new concept that is hard for us to grasp and even harder to get a grip on.. The big losers over the next year will be the mug punters trying to make short term ‘risk free’ trades, fairly easy if you’re a 24/7 market trader but dangerous if your a novice out of your depth. Natural selection of the most greedy basically no bad thing. .

    i would recommend this article

    http://letstalkbitcoin.com/bitcoin-and-the-three-laws-of-robotics/#.UptAktJdV8E

  • BuzzCoastin

    the $ is a fiat “reserve” currency
    controlled by Homeland elites
    China (PRC) is angling to end this bubble
    Bitcoin is one weapon they can use

    • ryan cordova

      Let me guess, you’re a libertarian who loves austerian economics?

  • BuzzCoastin

    no
    I’m a human who studies the effects of money technologies
    on cyborgs

    • ryan cordova

      Then I’d advise you research more than the last eight years of economic history.

  • BuzzCoastin

    a very cyborg response
    got a job
    or have you used your vast insight profitably?

    • ryan cordova

      Exactly the kind of response I’d expect from an austerian libertarian who’s too lazy to learn.

      Have a good one.

      • BuzzCoastin

        concepts obscures the obvious
        and makes the holder of concepts
        blind

  • kowalityjesus

    do you mean Austrian?

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