‘Bubbles’ or bumps in the road?

crypto.inferno (67)in #bitcoin • 5 years ago

Perhaps we need to start thinking differently about bitcoin’s market movements.

2017 saw a speculative bubble for bitcoin. The price soared over 100x from its lows at the end of the last cycle, when it fell to $155 in January 2015. 2017 alone saw a 2,000% rise to $20,000. And it was a bubble. Everyone said so, and even if they didn’t grasp it at the time, it has become painfully evident over the course of 2018. The price now stands at $3,400 – down over 80% but still up 340% on the start of 2017.

It has been a lot like the 2013 bubble, say those who have been in bitcoin for years, when BTC rocketed over 1,100%, from $100 at the start of October to around $1,200 at the end of November – followed by a painful bear market of over a year.

In fact, they say, bitcoin has bubbled many times. There was the bubble of April 2013, which saw bitcoin spike to $266 before rapidly deflating back to $60 by July – followed, of course, by the massive winter bubble. Then there was the 2011 bubble, which saw the price rise from around $1 in April to $32 in June, retracing to $2 by the end of the year. For the real old timers, there was a bubble that resulted from bitcoin starting trading on the open market in July 2010; some publicity from Slashdot saw the price shift from $0.008 to $0.08, before settling to $0.06.

Overlaid on this, we have bitcoin’s halving schedule, which apparently drives some speculative and fundamental activity – as you would expect from a marked drop in supply. Analysts have noted that bitcoin’s price has began moving upwards about a year before the peak of both of the last two bubbles.

Not all bubbles are equal

However, we have to distinguish between a ‘bubble’ and something rather different. Some of bitcoin’s ‘bubbles’ have retraced almost entirely; others have barely retraced at all; a couple have ended with significant growth measured from the start of the bubble, let alone the low from the last cycle. This isn’t a precise science, but we can offer these thoughts:

2010 was simply price discovery. BTC stabilised not far from its peak
2011 was a blip. Price retraced almost fully.
April 2013 was a blip. Price retraced almost fully.
November 2013 can be considered a conventional bubble, but would be better characterised as an overheated phase of exponential growth on the back of greater awareness.
The same is true for 2017.

In short, ‘bubble’ is not a helpful term for bitcoin’s growth curve, and misses even the medium-term picture of what’s going on here: exponential growth with a few speed bumps along the way.

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