2153 ask wall at 98 holding back new deposits at the moment - the battle for $100 rages on. New deposits are now skeptical?

Approximately 13.50 next September, based upon analogy with the previous bitcoin bubble.

I saw this image linked in another post. It perfectly illustrates the similarities between Bubble 1 and Bubble 2.

Here is my analysis.

The way up ...
   4.16 December 19, 2011: 8.31 July 16, 2012
  16.62 January 21, 2013 - doubling time 189 days
  33.25 March 1, 2013 - doubling time 59 days
  66.50 March 25, 2013 - doubling time 24 days
 133.00 April 3, 2013 - doubling time 9 days
 266.00 Wednesday, April 10, 2013 - doubling time 7 days

Note that the doubling time gets shorter near the peak - this is the double exponential growth that is a marker for bitcoin bubbles so far.

In the previous bitcoin bubble, prices doubled to the peak in 4 days. Apparently, once we sustain at several rapid doubles, the peak is near when doubling time is 4-7 days.

What has fundamentally changed since January when bitcoins were fairly valued by the market and media at 13.50?

• More people know about bitcoin
• Most people who bought bitcoin between April 1 and now have nominal losses unless they sold
• There will be no more All Time High media announcements, and sentiment has reversed from euphoria to skepticism

I think the market will decline a bit by the end of next week. After the new deposits buy bitcoins at Mt Gox, who then will buy?

Classical bubbles tend to give back *all* of the bubble gains. At what price did Bitcoin Bubble 2 start - know that and you might know where it will approximately end up.

4 days after the April 9 peak

Issue 1 - Evidence for or against the Bear Case.

I believe that the post-peak negative sentiment will shut off the flood of new money that caused the bubble. I define this negative sentiment rather weakly - merely the lack of news about 10x price increases and lack of new significant all-time highs, e.g. 33, 50, 100, 150, 200. Clearly the wave of euphoria on Reddit /r/bitcoin has abated.

This is the first Monday after the peak. The flood of new users registering to trade and subsequently verified at Mt. Gox has not really felt the effect of the crash. We know that today more new users will be able to trade dollars for bitcoins. The question is whether enough of them will buy to inspire further new users to register at Mt. Gox. The record from bubble 1 suggests that it will take at least a week for volume to settle down.

Issue 2 - Compare two bitcoin bubbles.

To the extent that comparing the April 10 bubble top with the June 8, 2011 bubble peak is useful, here is the data presented in terms of doubles and halving of USD/BTC prices.

**** Bitcoin Bubble 1 peak occurred June 8, 2011 ****

The way up ...
 0.498 January 31, 2011 -
 0.997 April 15 2011 - doubling time 74 days
 1.99 April 28, 2011 - doubling time 13 days
 3.98 May 10, 2011 - doubling time 12 days
 7.97 May 13, 2011 - doubling time 3 days
15.95 June 4, 2011 - doubling time 22 days
31.90 The high on Wednesday, June 8, 2011 - doubling time 4 days

The way down ...
31.90 The high on Wednesday, June 8, 2011
15.95 June 11, 2011 halving time 3 days
 7.97 August 5, 2011 halving time 55 days
 3.98 October 7, 2011 halving time 63 days
 2.20 November 14, 2011 halving time 38 days

Commentary on Bitcoin Bubble 1

• the bubble price increase is double exponential, i.e. the rate of acceleration is itself increasing
• the up move from 1.99 to 31.90 took 41 days
• the down move from 31.90 to 2.20 took 159 days
• in contrast to the increase to the peak, after the peak the rate of decrease is rather constant, halving every 52 days

**** Bitcoin Bubble 2 peak occurred April 10, 2013  ****

The way up ...
   4.16 December 19, 2011: 8.31 July 16, 2012
   8.31 July 16, 2012 - doubling time 210 days
  16.62 January 21, 2013 - doubling time 189 days
  33.25 March 1, 2013 - doubling time 59 days
  66.50 March 25, 2013 - doubling time 24 days
 133.00 April 3, 2013 - doubling time 9 days
 266.00 Wednesday, April 10, 2013 - doubling time 7 days

The way down ...
 266.00 Wednesday, April 10, 2013
 133.00 April 11 [I am ignoring April 10 low of 60]
  66.50 [I am ignoring April 10 low of 60]
  33.25
  16.62

Commentary on Bitcoin Bubble 2

• the bubble price increase is double exponential
• the sharp move up seems to begin January 7, 2013 at 13.50 - this will be a downside target I think as classic speculative bubbles tend to give back *all* of their bubble gains
• the up move from 13.50 to 266.00 took 93 days
• the down move from 266.00 to approximately 13.50 may like bubble 1 take approximately 160 days, e.g September 17, 2013, and halve in value approximately every 53 days

Sure, you can short bitcoins at bitfinex, and you can buy puts from MPOe or CoinBr which is a convenient broker for MPOe.

The bid wall at 75 proved successful this afternoon and prices reached about 125 before turning back down. Like 2011, the Mt.Gox bitcoin exchange is the center of the discussion. DDoS attacks and a poor performing trading engine are to blame, and the uncertainty about trading bitcoins discourage new investors, and frustrate active traders.

I continue to believe that lessons learned from the 2011 crash are useful here when deciding tactics. Because the recent bubble took three months to form, I believe that the downside resolution will take more than a month, maybe two or three months to reach bottom. Impatience is the enemy now. I think that a trader having sold some coin to raise cash must simply hold on to that cash and wait for prices to fall deeply, even in the face of bull traps in the meantime.

As was well said by someone else, the lack of new buyers is like a great weight on the market. Despite the efforts of bargain hunters to prop up prices with bid walls and such, this weight is always present and affects every trade to the downside. Its really just the reverse of how the bubble was formed, when the flood of new buyers doubled prices three times in three months.

[edited to add new posts and to reflect current events]

My principal comments regarding the collapse of April 10, 2013 bubble.

• Day 4 post peak - Compare two bitcoin bubbles.
• Day 5 post peak - Price dropping 10 times faster than back in 2011 bubble.
• Day 7 post peak - How many more seller capitulations before the bottom? ....[this bubble has at least one now]
• Day 11 post peak - Does the recent dramatic recovery from 50 to 136 USD/BTC negate the case for a short term bear market? ....[turned out that it did not]
• Day 12 post peak - Long term chart is awesome
• Day 13 post peak - Sucker's Rally ....[turned out to be a classic one]
• Day 20 post peak - Resistance at $160 ....[and yet unsurpassed]
• Tickets Purchased for the Bagholder's Ball
• Day 21 post peak - 24 hours of selling ....[indeed just the beginning, starting at $145]
• Alert - Perhaps the first, and largest, capitulation is at hand     ....[it was the first capitulation]

• Day 22 post peak - Second day of the Great Capitulation ...[reached a low of $80]
• Day 23 post peak - Third day of the Great Capitulation of 2013
• Day 24 post peak - 24 hours of buying - are we past the bottom? ... [yes, on our way up past $120
• Day 27 post peak - Reversal at $120 confirms primary collapse
• Does resistance trump support at $105? ...[no, prices climbed to $116 the following day]
• Day 28 post peak - Yet-unsurpassed peaks at $266, $166, $149, and $125 conform to classical bubble collapse
• Day 29 post peak - Diminishing volume post-peak conforms to classical bubble collapse
• Milestone Day 30 post peak - bubble 1 collapsed 55% from peak at 30 days, likewise this bubble
• Support trumps resistance at $112 - and breaks upwards ...[and stopped at $123]
• Day 32 post peak - Low volume, sideways price days are becoming more common.
• Day 33 post peak - Volume increased to complete a bearish wedge at $120
• Major post-peak support trendline breakout to the downside on news of Dwolla/Mt.Gox account seizure by U.S. Department of Homeland Security ... [The bad news abated and the breakout reversed at $103]
• Day 57 post peak - Sideways action suggests the collapse is over ... [However on May 26, the Great Slump of 2013 began]
• Day 91 post peak - Recent low of $65 says collapse is not over and could have 3 more months to bottom ... [Wrong! $65 was the bottom]

Here [was] the [intermediate] term bear case in a nutshell ...

• There will be no more enticing and greed-inducing news stories from the media. Now the benchmark is the crash and how speculators lost so much.
• Investor sentiment, especially new investor sentiment has reversed. Impatience to buy has been replaced by caution
• What is the correct valuation of fiat/bitcoin given what we know now? Certainly while the price doubled four times from January, the bitcoin economy did not do as well in percentage growth. Correct valuation depends then mostly on just how much of the run up since January is emotion, e.g. greed.
• If the downtrend continues, then coin holders are tempted to sell coin expecting to buy back for less fiat.

It happened, so now let's discuss ...

Question 1: what is the expected duration of the down trend? My rough guess as argued here is until September 2013.

Question 2: how far down does the trend go? As of May 8, I believe that this bubble will collapse down to a price greater than the high of the previous bubble, e.g. above $32, and lower than the lowest low after the peak so far, i.e. $50. Because bubbles collapse to a price lower than most expect, the bottom could be below $32.

Bitcoin Bubble 1 Peaked June 8, 2011





Bitcoin Bubble 2 Peaked April 10, 2013



Rather than behaving like the 2011 bubble collapse, the April 2013 bubble collapse appears to be a damped oscillation resolved to a price 9x higher than when the bubble began. Continued sideways price movement for the remainder of 2013 would allow the long term price trend to catch up.

When the next big bitcoin bubble arrives, probably in 2014-15, I plan to trade on the expectation that the bubble collapse will be a damped oscillation, featuring several very large price swings.

Considering the substantial parallels with the June 2011 bubble, I would say that any support at these levels, i.e. 76, is not going to hold. The primary reason is identical with the last time - the onetime flood of new bitcoin buyers is going to dry up. There is only bad media about bitcoin, e.g. no new all time highs to report - now just the crash and how Mt.Gox messed up, same as last time.

I recall watching the decline back in the summer of 2011. With the similar complete reversal of sentiment, the drop will be deeper and longer than many new traders expect. People will be afraid to buy even as the price drops past a a fair value to very attractive levels.

My guess: 19 USD/BTC.

Thanks for this analysis.

One possible root cause of Mt.Gox trading engine bad performance is the very liberal policy of allowing traders to issue limit orders without the corresponding dollars or bitcoins. Thus the matching engine must verify that the account has the actual dollars on hand to make a purchase, and must likewise verify the actual bitcoins on hand to make a sale.

The entire trading engine is subject to locks to prevent corruption of data by simultaneous processes. The matching engine must lock each account as it verifies account balances of candidate matched orders. High performance trading engines are designed around the notion of reducing lock contention. See http://lmax-exchange.github.io/disruptor/ .

Bitcoin needs a robust, high performance exchange - as well as security against hackers.

There has been a complete reversal of sentiment compared to the first of the year 2013. Recall the enthusiasm as bitcoin climbed towards its all time high of 32. Without that enthusiasm, how can a price above 32 be justified now.

I expect a long and slow decline with great buying opportunities.

I joined in June 2011, having solved two blocks myself with a CPU miner back in 2010. Last time around, I commented mainly on small scale GPU mining rigs, mining pools, and then some swing trading down the backside of the 2012 June bubble peak. This time around I was able to better time the peak, and half of my spread out, pre-positioned sell/buy-back limit orders on Mt.Gox executed, netting me a double on the small number of coins risked.

Timing a bitcoin peak is perhaps more knowable given that the 2011 Survivors Club members have seen two of them. There are common attributes that stand out ...

• Several months of monotonically increasing price growth, including multiple doublings
• Increase in the doubling rate. In Bubble 1 - June 2011, the price doubled in a single day at the peak. In Bubble 2 - this one, the price doubled in seven days at the peak.
• The very large number of new investors, and the explosion of buy orders.
• Problems at Mt.Gox occurred during the crash phase.
  

May I have the wisdom to survive the next bubble.

Would you publish your reserve amount or ratio that Bitfinex will maintain, or that its backers commit to? Otherwise, insuring lenders is only based upon your *excellent* record.

@MPOE-PR,

Your linked document included this intriguing statement ...


Correct me if I am wrong, but the MPOE bond holders cover the risk of the MOPE option pricing bot. As the theory of option pricing is well understood, I would like to know how the bot's volatility component is determined? I assume that the algorithm learns from the variation of the recent time series.

So what is the likelihood that the MPOE option pricing bot is still under pricing with respect the chances for another 3x run this month. As of seven days into this month of April, the USD/BTC price has close to doubled already.

Does anyone else think that the MPOR should be substantially higher, given the big March loss?

Or rather, why is a repeat of that loss unlikely if that's the case?

I see some old information in the comments at http://polimedia.us/trilema/2012/sa-ne-jucam-de-a-investitiile-n-bitcoini/#comment-78745 , and I get "... Paid Content This article is available for a fee. ...".

As I am currently blocked from accessing the free financial results for the bonds that I invested in, can you describe the situation that caused the MPOE bonds for March 2013 to suffer a 23% loss?

I suppose my anxiety with regard to future investment in MPOE bonds has to do with my lack of understanding as to exactly how MPOE uses the bond money to offset the trading risk of MPOE options, and what is the nature of the gamble that distinguishes MPOE bonds from conventional financial instruments of the same category.

My understanding was that the August 2012 loss was due to insider trading. What was the cause of the March 2013 loss? If it was simply the rapid growth of bitcoins, then is it true that MPOE bond is a bet against bitcoin volatility? That would not seem to be a good bet in the current situation obviously.