I expect many people are looking at bitcoins parabolic rise of the last few months and wondering how it will all pan out. How high will it peak? Will it fall after it peaks? Is it a bubble about to burst? Will it just begin to flatten out?
I recently spent some time looking at other historical bull runs, mainly in precious metals from 1980, to try and see what might be coming. To me this comparison with precious metals is valid, as there are many similarities between gold, silver and bitcoins. Both are constrained in quantity and can be viewed as commodity, both are regarded or have been regarded as money because they share the required characteristics of money, eg fungible, divisible, transportable, non-counterfeitable etc. So anyway hopefully you accept my point.
First heres what the last bitcoin bubble looked like in 2011
Note how the price increased getting steeper and steeper, very much like where we are today in fact. But then there was a sudden fall, forming a big spike on the chart. The rapid fall was followed by a bounce or two, and then by gradual decline of price as enthusiasm for bitcoins faded.
Here’s another, gold in 1980
Note the similarity, increasing price getting steeper parabolically, sudden spike as price fell rapidly down, a bounce, referred to as a dead cat bounce which failed to get as high as before, then declining price.
Heres a graph of silver from the same time, 1980
This picture starting to look familiar yet? Silver also had the big spike up, crash down, bounce and decline.
Heres Platinum from 1980.
Will bitcoins behave any differently to these examples? I think probably not. I’m expecting price to keep going up and spike down just as in all these other examples. The damndest thing is when do you get off the ride though? Should you sell out now? Or what about when it reaches $100 ? When it reaches $462? After its fallen all the way to $50 and then bounced back up to $80 ?
Its a tough call, you might get off, pat yourself on the back then see that you’re missing huge price increases, and jump back on right before the peak.
These charts were taken from http://www.chartsrus.com/
Aside : Gold already peaked in 2011?
As a little note to append to this, many people have called the top of the gold market, saying the parabolic rise in 2011 was the peak. This fear was originally what led me to study previous bull market peaks one night. In 2011 the peak was followed by bounces too, were those dead cat bounces?
So lets compare charts. Does this chart of the last 10 years of gold look like those previous ones?
Err… Nah not so much! Call that a spike. Looks very much like still on a parabolic rise to me tis just on a long drawn out timescale.