Bitcoin was a bubble. My last prognosis at the beginning of November when Bitcoin was at $7000 was I would get nervous at $30000. I got nervous at $17500 and bailed. Market verticals are invitations to sell and I’m glad I did. I am a contrarian value investor after all not an insane momentum trader.
The chart was a classic parabolic and anyone who has sat on a few will soon want to get off early. As an old fashioned investor I can assure you it takes a lot of grim determination to let the profits pile up in this kind of surreal market. Fortunately my will broke at a good moment.
Thanks to the dotcom boom which has uncanny similarities this chart performance is a crescendo recognize.
But past luck and hindsight are of little use, what is up next.
This is what I am watching for:
Bitcoin is actually holding up a lot better than I expected but if there is one rule for market speculation it is that things happen slower than expected. Markets do not necessarily spontaneously reprice. At current level it’s a reasonable level to tinker around in. Under $5000 things start to look interesting while anything under $3000 are levels to start digging in.
Its all well and good to make such prognostications but the past is a good playbook to use as a guide. Bitcoin is undoubtedly a very imperfect market and is unlikely to be a well behaved Markovian chain. The past may indeed influence the future in such a poorly understood asset.
So lets look at the previous explosive bubble in Bitcoin and what happened next:
Now there are plenty of 3-400% jumps to look at but I’ve disregarded them and gone for the moon shot parabola moves.
Here is the initial one back in 2011:
This enormous move has Bitcoin back 90% from highs. (Oh to have had 1000 BTC at $3!) Within a year BTC is over $100 exploding from a base of $14 only months after the previous crash.
This 2000% rise then follows with a following 80% collapse.
Then in 2014 another huge surge follow by an 85% dump.
So here we are today. It looks from past bubble and crashes that BTC is highly likely to have further to fall. It can also be guess that this crash phase is still mid trend with lots of downside potential.
It is a traders paradise but for an investor the question is where next?
Long term I still think Bitcoin will be a $50,000+ asset and those that predict $100,000+ prices are not as mad as they might sound.
However outside of the pilgrim of Bitcoin who see vast valuations as a certainty the future of Bitcoin first needs to find its base after its recent headline making run.
Bitcoin’s history of booms and crashes is far from over.