Yes it will.

Speculative financial theory, and the experience from the June 8, 2011 bubble, suggests that the collapse from the crash April 10 to the bottom will be deeper than most people expect. So if most bears around here expect $50, then it will likely be deeper than that in several months.

Let me understand. Do you define analytic techniques as TA? Moreover, are you supporting my point or refuting it?

I believe that the underlying grow rate of the bitcoin economy is 4-5x per year. The next bubble will be larger and peak higher than most people expect - as that is the nature of bubbles. The longer we wait for it, the higher the peak.

OK, to make my point more clearly - drop the human behavior modelling. If TA does not work then why do TA-driven computers outperform human traders?

Does your argument withstand the fact that computer algorithms that perform the majority of trades on major financial exchanges, and the majority of them operate on technical indicators, i.e. the state history of the market.

The explanation of why technical indicators, and chart patterns using them, work is that they attempt to model human behavior and the market dynamics. If one simply watches the two best known bitcoin realtime charting apps, the chart patterns unfold before your eyes. One of my favorites to follow is the triangle - a big trade in one direction followed by a oscillating return to a new stable value. By watching the bids and asks fill in after the first shock trade, I could easily arrive at a physical damped spring model having similar characteristics.

13 days after the April 10 peak

I now believe that the current situation, with due regard to speculative financial bubble theory, is within the zone of resistance named the Sucker's Rally. We did not have one in Bitcoin Bubble 1 so previously I did not even think to consider it.
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Revisiting various famous bubble charts, we see strong corrections back upwards the previous peak, e.g. US Stock Market Bubble of 1929. Because this happens so frequently, the pattern has been given a name by experienced traders - the Suckers Rally. Note that the technical indicator shown is the Accumulation / Distribution ratio, which shows more relatively more buying volume than selling volume, almost two weeks after the crash. From this, I draw the conclusion that trader sentiment is still high - again fitting bubble theory.

I offer no guidance on timing the top of this rally beyond the historical support/resistance points on the way up and down. This is a scary time for a bear who fears being left behind as prices soar. But bubble traders must be patient and wait months for the bottom, or be skilled enough to swing trade.

Ah yes! Indeed back in 2011 lots of cash I believe remained at Mt.Gox even after it was hacked. It took all the way from June 8, 2011 to November 14 that year, to wring the last fiat out of the most reluctant buyer. That is a bubble collapse and that is the sort of thing that I expect to happen this time - based upon speculative financial bubble theory and what we learned from Bitcoin Bubble 1.

Regarding corrections, I am preparing a post addressing that timely point.

Hey I am a bear for the next few months, and I have been looking over charts from other speculative financial bubbles for guidance - and comfort in the face of this very dramatic rally from $50 to over $134 as of this writing.

I believe this is a classic bear market rally. I expect to sell more into it later this week on the hopes it reaches $180.

Right! Financial markets are zero-sum games. If a trader makes a profit, there is a corresponding loss somewhere else. Pareto's Principal, I think applies to the proportion of traders that profit the most, i.e. 20% of traders make 80% of profit. Accordingly, most traders suffer - they may profit but not as much as the 'average'.

The intermediate-range model I am sharing perhaps addresses your question ...

• Its basis: that the rapid 4-5x annual underlying growth rate of the bitcoin economy will cause bubbles as speculators get ahead of the trend
• Speculative financial bubble theory predicts a certain price pattern, e.g. double exponential price growth that enables recognition of the start of the bubble, and a subsequent decline to the underlying trend post-bubble, where the decline has approximately the same duration as the run-up
• This pattern is stable because of the relatively large proportion of new, not-fully informed speculators who join the rally
• It is advantageous to proclaim the start of a bubble because not-fully informed speculators may be greedily motivated to jump on board assuming that they can exit before the top with big gains
• It is advantageous to proclaim the decline of a bubble, because that notion, when widely disseminated, facilitates the decline
• In a bubble, the majority of the participants are not knowledgeable traders, and thus ignore the published model

I assume that $13.50 back in January was a fair price at the time, and that the underlying price growth trend is on the order of 4-5x per year yields an expected 2013 year end value of $50-60 - without the bubble.

On the wall thread you said ...


What you say about demand is still consistent with speculative financial bubble theory to the extent that it takes a decline of approximately the same duration as the run-up to completely unwind the bullish enthusiasm that created the bubble.

In terms of logical argumentation, my falsifiable hypothesis, derived from theory, is that a price retracement to the underlying trend will occur before a new all time high.

Can someone explain why dump 4500K BTC on the market with such slippage. Are there not trading programs that will slice the order up into smaller, random appearing pieces and consume tasty bids from time to time until the whole order is filled? One could do that manually too.

Resistance. But is there follow-on?

Just to show how ignorant I am sometimes, I bought MPOe pass-through bonds at the Bitfunder exchange for March. I took an 8% loss instead of the gain I expected. I likewise have a position in the April MPOe bonds that I will liquidate this week at settlement. I did not realize that MPOe bonds are not conventional bonds, but rather a way to share in the profits and losses from MPOe's option writing bot - whose pricing algorithm is not disclosed. I can only hope the the March volatility got fully priced into the April option premiums. From what I recall from IRC or a post here by MPOE-PR, that MPOe will reconfigure their financing arrangements, probably to make it less likely for the owner to suffer another big loss.

Thanks for the put option information. You might present your terms in the Securities forum, or additionally in your own thread.

What beyond this definition are you asking for?

Now you have me curious, not really interested yet - just curious.

What are the terms of these puts? Are you writing them or connected with MPOe?  I know that option writers expect to make money and that option pricing factors in the strike price and the volatility of the underlying security and the duration of the option. I imagine the premium on a six month put @ $60 would be considerable.

This sentiment is a great example of why bubbles take so long to completely collapse. Losing positions refuse to sell because of fear! Its only when that last willing seller gives up that the bottom is reached. So would you risk 90% of your gains - because that was the situation in bitcoin bubble 1. Traders bought at $17 on the way down to $2.

Here is my most recent chart ...


No, I do not think bitcoin goes to zero - not now, and if you get those super nodes running, not ever. I am very content to patiently wait for the bubble to collapse back to the underlying trend line. No need for puts, thank you! I am foolish enough already.
 

12 days after the April 10 peak



Yes the long term trend is up and its awesome.

Short term, I believe is the collapse of bubble 2. Below is a chart that illustrates the resistance around 125.

Yes the long term trend is up and its awesome.

Short term, I believe is the collapse of bubble 2. The chart shows that optimal purchases are not made on the way up in a bubble. Buy and hold investors should be patient if there is a bubble and buy months after the peak, IMO.