Bitcoin; It is Clearly Bubbly, but is it Bubbly Like Champaign… or Like the Waves of a Cold Frothy Ocean?
There is one question on all our minds, is this a bull run or a bull trap? Past bubbles can offer clues, but no one can predict the future.
Let’s keep the points simple: Past bubbles don’t tell us what will happen in this bubble, but they can give us clues. After-all, past economic bubbles were a result of speculation, credit, and the human condition and this 2017 – 2018 crypto bubble is no different.
Humans and their emotions (for example Greed and Fear) did not fundamentally change between say 2013 and 2018 (or between 2000 and today, or 1929 and today, etc), speculation didn’t change, and access to credit arguably ramped up… and thus we can expect some repeating in terms of patterns (the whole theory behind Technical Analysis is based on this concept essentially).
Today we are clearly on the popped side of one of many Bitcoin bubbles, and in fact we may now be in a “return to the mean” phase or even past that and onto a “disbelief rally” (I can hardly believe it myself; it really might be a bull trap though).
So what we want to know is what potentially might happen next. Will we see more popping, stagnation, or another bubble?
In crypto we have seen bubbles play out so many times we can confidently say, “if we aren’t seeing the start of the next bubble now, then eventually we will see another bubble” (with this being true for Bitcoin and top coins, but potentially not true for every coin).
So really all we want to know is, “what does the period from now until the next bubble and bust look like, is it more popping or stagnation, or is the next phase already here?”
If it is like most past Bitcoin bubbles, it is a bit more popping before the true rally starts.
However, if it is like the first 2013 bubble that became the second one, or either of the Ethereum bubbles from the summer of 2017, then we could see an almost immediate return to bull mountain (potentially reclaiming all time highs within a rather short span of weeks / months).
If it is like the dot-com, then it depends if we are at the point where the market started to recover, or if we are at the point before that (indicated with red arrows in the image at the top of the page; where the dot-com is represented by the NASDAQ composite (an index of 100 companies on the NASDAQ exchange) is on the left and Bitcoin 2017 – 2018 is on the right).
The point here isn’t to stoke fear, actually the point is to point out that if this is like any of those bubbles, then we are essentially far enough along the way in terms of popping that if you started building a position here you would likely be in a good space (this is assuming you haven’t already started taking positions).
The fact is that none of the bubbles I mentioned stayed below a place relative to where we are now on their charts for too long in respect to the speed at which Bitcoin is moving here in 2018 (meaning in terms of historic bubbles, although we have room to go down, we would likely see this point again at some point in the not so distant future).
The 2014 bubble eventually got above a similar point in early 2017.
The dot-com bubble (which can be seen in the NASDAQ) took longer (because stocks move slow), but it got back to this point after one more leg of correction (it then had some ups and downs before starting a true bull run… we are in that bull market right now, check out the NASDAQ 100 chart).
Meanwhile, the first 2013 bubble took off and went to the moon shortly after a point like this.
What happens next really just depends on… what happens next.
Are we in a disbelief stage or a sucker rally? Is this a bull trap or bull run?
Is this one thing, but then some really bearish or bullish news comes out and reverses everything (super likely given history honestly)?
There is no way to know for sure, history doesn’t tell us anything certain about the future, it is just one tool in our tool belts. Still, having access to data can help us to make a little more sense out of things. If the data doesn’t help us figure out what is coming next (which is very, very, very likely), we can at least reference it in retrospect once events play out as they will. Then we will have… yet another data point that won’t fully help next time 😀
NOTE: Bubbles in crypto can look like the Bitcoin ones above, or they can look like this little XRP bubbles. Or they can look like the ETH bubbles in the link above. There are a ton of bubbles to look at in crypto, and they don’t all have the same exact shape. The only thing they have in common is that while they make a trip to the moon, they don’t set up shop there and colonize the moon (instead, they historically have come back down to earth at such a trajectory that everyone thinks the rocket will never land safely, but then it barely stops to refuel before going back to the moon… much to the confusion of most people, including analysts and the media). So if you do jump onto the rocket, you will likely want to eventually time an exit or prepare yourself to HODL through a sort of absurd flight pattern.
TIP: Below is an informational and educational bit of copy paste I did back in February. Everyone got stoked about “the return to the mean” back then…. but we know there was still more fear and capitulation to come in retrospect (to the degree that the recovery attempt itself looks like a mini-bubble, itself complete with all the stages of a bubble). Now today, we see what looks like a return to a mean after some despair. Bubble pops keep doing this until a rally sticks or the whole dance ends in stagnation. It will be interesting to see how this one plays out. I think it is wise to take every rally attempt seriously, and that means treating it like it could be the start of a bull run, yet positioning yourself in a way that you can live to fight another day if it isn’t (because remember it wasn’t at $16k, $11.6, $9.1k, etc… hence the “disbelief” people have when the actual rally starts).