In my opinion, many people incorrectly put the question. In my opinion, the question is not whether Bitcoin is in the price “bubble,” but rather whether the bubble has already burst or not?
I had no intention of paying so much attention to Bitcoin, but recently I have been asked many times to prepare additional technical analysis of digital currencies (see posts about Bitcoin and Ethereum). It gave me the opportunity to talk with a lot of smart people about things that I know little about. My interlocutors were impressed by the fact that I approached the analysis of Bitcoin from the standpoint of simple mathematics. Exactly the same thing I do every day with assets such as Microsoft, Apple, soybean futures, euro / yen, gold and almost everything that has sufficient liquidity. I analyze the supply and demand. That’s all.
One of the problems that I encounter when trying to figure out the whole topic of a Bitcoin bubble is the irresponsible nature of the statements about profitability. Any idiot can choose a starting point on a chart and say that if you invested x dollars in Bitcoin that day, then today your investment would be worth y dollars. Yes, great, thanks. But what is the use of this information to me? In my opinion, the amount of profit is hardly worth counting from the very moment the asset was created, because it’s still not very fair, is it? Speaking of stocks, we count this figure from the IPO, right? In this case, a significant part of the value of the asset was built before the initial public offering. Once, shares of any company also started from zero cost — someone’s garage, basement, or something like that.
What we are interested in with respect to the dynamics of supply and demand is how the assets behaved after the price bubble in which they were located burst. In the case of Bitcoin, for me it is quite obvious that the bubble burst in 2013. Again, it’s not that I say that it was the “same” bubble, but still: we are talking about a fall in the rate by 86%, from the top to the lowest point. Yes, it fits the definition of a burst bubble. Bitcoin enthusiasts say that even before this episode in the history of Bitcoin there were many cost falls, and this is normal. But moving further in time, from any structural point of view, this collapse of the 2013–2015 course will be our point of reference. The cost reduction episodes that were before resulted in a powerful 2013 rally.
From my point of view, this is the key point on which we should focus. We can compare it with the historical price charts of other assets and see whether this behavior is abnormal or we have seen something similar before, which means we will probably see more. Here you can read about the math behind the Fibonacci levels.
Here, for example, the price chart of Nvidia shares – with a similar collapse in 2007–2008, when $NVDA lost about 85% of its value. As you can see, today their price is at about the same Fibonacci levels as Bitcoin – between 423.6% and 685.4%. It is difficult to imagine even greater similarity between price charts:
In order to add depth to the context, I’ll quote Amazon’s price chart with a 95% collapse in 1999–2001. At the time of writing the post, their shares cost about $ 1,050 – that is, they are trading between the levels of 685.4% and the 1109% Fibonacci expansion of the levels of this fall.
This is equivalent to if Bitcoin today cost about $ 9,500. So the assumption that Bitcoin is in the stage of a bubble or that we have not seen anything like this before is irresponsible. In fact, we see similar price movements every day.
If you want to go deeper into this topic, then here is the collapse of the Dow Johns industrial index, which was even worse than the fall of the Bitcoin rate of 2013. At the time of writing the post, the Dow Jones Industrial Average is trading between the levels of 4697.9% and 7601.3% of the Fibonacci expansion. This is equivalent to if Bitcoin today cost about $ 70,000.
So it’s not so much whether Bitcoin is in the bubble stage or not. In my opinion, everything suggests that the Bitcoin price bubble actually burst not so long ago. After this, Bitcoin has recovered and now behaves just like other assets in an uptrend behaved in the past. I see nothing unusual here.
And, probably, it is necessary to clarify: I do not belong to the ranks of Bitcoin-enthusiasts. Many of them write books or open a cryptocurrency-oriented business. This is all beautiful. But I’m not one of them. Even quite far from it, in fact. For me, it really doesn’t make any difference whether the price of Bitcoin will triple relative to today’s level or fall to zero. It does not affect my life. All that worries me is the precise definition of the relationship of risk and profitability. So let’s let the market play its scenario, whatever it is, and then we will reassess it – just like any other class of assets.
Source: chby.io
