Bitcoin Forum

Suppose just for kicks that the trend that started in December, of BTC prices doubling about every two months, were to continue for the next three years or so (reaching mass adoption, million-dollar bitcoins). Sometimes it'd take more than two months, sometimes less, with all manner of crazy mini-bubbles and crashes within the bull run, but suppose the trend held relatively steady over time.

Needless to say, it'd be a white-knuckle roller coaster ride with plenty of euphoria and ample gut-spilling scares. Millionaires and billionaires would be born, profits would be taken heartily all the way up, bubbles would be called constantly, and many would miss the train - perhaps multiple times. Most of all people would be wondering WTF was going on, endless theories would be postulated and debated.

My question is, if this were to actually happen, how would speculators like those on this forum react? What would be the patterns in sentiment?

With the benefit of hindsight, or true belief in Bitcoin, you'd just calmly hold, accumulate when you could, and spend or take some relatively small profits as your life situation and needs required. But what would everyone else do?

The reason this question interests me is that this is one possible scenario* and I'd like to know if there is any way to identify it if it does happen. That is, at each point in time, I want to be able to tell the difference between this kind of relentless, meteoric rise and just a big frothy bubble: for example, a bubble where it doubles three more times by August - to $200 - then drops back down to $12, leveling out at $35 or so, which might be considered a healthy growth target from the current $24 price.

*Three years to mass adoption may be a far-fetched, but even if it doubled every 4-6 months and took 6-10 years it would be an insane ride all the same, with I suppose many of the same characteristics.

A rising exchange rate doesn't indicate being any closer to mass adoption.  What does indicate being closer to mass adoption is things like BitcoinWireless expanding the "reach" of Bitcoin to millions of new potential users.  When things like Ripple expand the concept of alternative currencies to many millions as well.

These weren't available even six weeks ago.

If the market is overshooting, it will pull back.  But so far, it has been pretty good at seeing developments (e.g., potential of SatoshiDICE and other online gambling) and valuing the exchange rate to account for it before the actual demand resulting from these services shows up in blockchain activity.

With normal human players, it would self-destruct.

There is an error newbie speculators easily fall for, which is following trends. If there is such a clear, ever-present up-trend, the market will fail to select the speculators who stabilize price in the mid- and long-term, possibly even select those who do the opposite and only rely on the ever profitable up-trend.

At some point, those badly selected speculators dominate and drive price to a ridiculously high level, then crash it as suppressed market realities kick in. That would start a massive bust, which in turn busts all lending and investment bubbles currently forming on top of it all -- simultaneously. As if that's not bad enough, any players who were able to construct instruments to profit off the crash will then drain backing funds at the same time.

It's a financial nuke if you ask me.

How to define a ridiculously high?

It's a great question. I would be interested in looking at historical precedent and study what people did with shares of Microsoft or some other exponentially growing asset (where it wasn't clear how long it would last).

I think sadly as much of a long term believer as I am in Bitcoin I would sell out too low and too early under such a scenario.
I tend to sell into parabolic rallies and while I am never "out" (0 BTC long) and never at a point I couldn't add more funds I think the scenario you described would result in my handing a lot of wealth to aggressive buyers.  Personally I get the most bullish in the long slow upward periods of time or the corrections with snap back buying.  I bought heavily into the "Pirate crash" (regardless of it was caused by Pirate or not) and dollar cost averaged by mining since mid 2011.  I would hate to hand those coins to someone too early. 

To make this scenario more concrete:

https://i.imgur.com/g6vnhWi.png

Imagine if the July-to-mid-August 2012 slope on this log-scale chart were setting the exponential pace for the next few years, and it just took a little detour because of the pirate@40 scam. Then following that line to the present day would put us at around $200/BTC right now just to revert to the mean :o

Now notice that this slope is almost as steep as that of the current rally that started last month. Is the current pace, or just a bit slower, the multi-year trendsetter??

This of course seems highly unlikely, and would normally be a classic investing error of wishful/"greedy" thinking, but I want to note it for reference purposes just in case something insane like that actually happens. For example, if we see $100 in the next few weeks - probably justified, in the eyes of spectators, by the breaking of the all-time high at $32 - and it holds above $100, it might be worth considering the exponential moonshot more seriously.

Note also, the July-Aug 2012 slope could very well be a bit steeper than the real mean in an exponential run-up scenario, just due to overexuberance, making the $200/BTC figure too high. Combined with the fact that the current rally is a bit steeper than July-Aug 2012, even this crazy exponential growth scenario might suggest we're getting overdue for a small correction.

Once again, I emphasize that this is merely a far-fetched "just in case" analysis. More than likely this post will instead be looked at in hindsight as a classic sign of a bubble. Either way, long term BTC is either zero or galactic, and if it's galactic it has a huge amount of unreasonably fast running to do.

Hence, why a better strategy would be to be long bitcoin and hedge on MPEx (assuming the time and volatility premiums come down!).

that's how a fast exponential run-up looks like:
http://s7.postimage.org/j4ymkrbcb/btcchart.png

how far will you go?

Is time running backwards now?

Your numbers are a quite a bit off. Look at the table in this article near the conclusion (http://www.runtogold.com/2012/12/during-2012-fiat-currencies-and-gold-collapse-against-bitcoin/). It has a whole bunch of different comparisons. For example, "Visa (V)   $101.9B   $9,704.76 (10.5m bitcoins)   $4,852.38 (21m bitcoins)".

Hmmmm.....

LMFAO

ROFL! Made me laugh hahahahaha!

OMG!!

I lol'd

Are we still on track?

If I remember my 7th grade math correctly, this is called linear growth. or a *very* wide exponent that may start off about now and end at four-digit prices. you choose.

http://bitcoincharts.com/charts/mtgoxUSD#rg60zigDailyztgCzm1g10zm2g25

Yep, on a log scale chart the run-up since January just looks like a straight line. It was lagging just a bit behind until today.

If there was some sort of predictable doubling of price, speculation would simply immanentize such price changes, discounted for the market's time value. So it would be a vertical price change.

Not exactly, for three reasons.

1) Predictable by some is not predictable by others. Especially, many people do not yet understand Bitcoin or its growth potential. It seems to take newbies several months before they understand it enough to be comfortable investing in it, and the learning curve can be much longer for the less tech-savvy or less economics-savvy.

2) Short-term volatility throws people off.

3) Most subtly, and I think this is the point that the technical analysts miss: with Bitcoin, "the market" is not a static number of people, but a constantly growing one. Since this growth is mediated by the network effect, the growth of "the market" (the totality of people who have even heard of BTC and take it seriously, know how to buy it and keep it, and are qualified to evaluate BTC as an investment) may well be exponential.

Well for this hypothetical, I was talking about people having knowledge of an assured price increase

Yeah, nothing is assured. Even if it continues in a near-perfect exponential run for another six months and is at $800 or something, a glitch or government crackdown or exchange hack could send the price down into the nether-reaches again. There is no guarantee, and although the upside potential isn't so hard to get a handle on, it takes people quite a while to ascertain the potential risks.

Bubbled above exponential then reverted to the mean, near perfectly.

Right on course!

Bubbling up above exponential again (we are at early/mid-May prices now ($140), according to trendline).

The practical point here is probably that the price is vulnerable to bad news, but otherwise is likely to continue bubbling up for quite some time before reverting to the "merely" exponential mean.

If the next 3 months, mirrored the previous 3 months' growth, something like this:

http://tonycoleby.com/shared/2013-04-03 Bitcoin Growth.png

And nobody's bumped this today?  :o

Is this it Zangelbert?

"This" (today) is too short-term to tell, but overall since I posted the OP a few months ago the "fast exponential run-up" scenario seems to be playing out to a tee.

"Needless to say, it'd be a white-knuckle roller coaster ride with plenty of euphoria and ample gut-spilling scares. Millionaires and billionaires would be born, profits would be taken heartily all the way up, bubbles would be called constantly, and many would miss the train - perhaps multiple times. Most of all people would be wondering WTF was going on, endless theories would be postulated and debated."

Well Z.B. where are we now? November is a bit later than August but not too far out of line I'd say.

Well the ultra-fast exponential run-up scenario didn't play out like I fantasized here (it was just an interesting possibility). It may have continued for quite a while longer if not for MtGox getting swamped, and it's possible that it's just delayed until now, but considering some other parameters - like how long it will take for infrastructure and user-friendliness to reach the level required for mainstream adoption - it would be impossible to continue at the Spring 2013 pace for very long.

I now think what happened was that the 2011 crash burned in people's memories left the price languishing too low for too long, and Spring 2013 was the upward correction of that. There may be more upward correcting to do, but either way I still absolutely believe that Bitcoin is on an exponential growth path. Just a slower one. Tenfold per year seems about right, since that jives with history and also allows 3-5 years for full mainstream adoption to happen, which seems not too unreasonable.

Or maybe even up to 7-10 years considering the exponential curve would turn toward an S-curve midway through mainstream adoption. But anyway, within 5 years if Bitcoin is going to do its thing it's going to be a totally different world we're living in, with anyone who has any today-decent amount of coins being very wealthy then (unless they panic sell, and most of course will  ;D).

10x per year is still a very fast rate that will cause all the things I mentioned in the OP to happen, as can be seen from looking over the history of this forum, even if it's much slower than the 10x per season we had Jan-April 2013.

Time to consider this again.

Personally, the price is not rising all that fast all things considered. I don't think we are in a bubble yet. For some exponential growth we would need to see some $1,000 per week growth. A few hundred dollars a month growth here and there just seems low to me. Maybe someone can post a real life asset that went from 1k to 30k in a short time and what the rise looked like.

Define a "short time" first.
If 11 years is short time, then check out BRK-A chart between 1982 and 1993.
It went from $475 to $17525 (similar to a move between $1k and 30K)
https://finance.yahoo.com/chart/BRK-A
choose interactive, then logarithmic

Typically, financial assets don't have many thou of $ value per most used unit of measurement.
BTC would have to move first to millies (mbtc), then bits, then, maybe even satoshi's.